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Is the Cure Worse than the Disease?

A month after passage, ObamaCare is already failing.

Peter Suderman
May 14, 2010

A little more than a month after the passage of the Patient Protection and Affordable Care Act, President Obama's trillion-dollar overhaul of the nation's health care system, the administration has already begun to tout its successes. On his weekly radio address, the president argued that it was already providing Americans with "real benefits," while Health and Human Services Secretary Kathleen Sebelius released a four-page memo laying out the "significant progress" she claims her department has already made in implementing the law. "Over the coming weeks, our team across government will continue to work diligently to produce the regulations and guidance necessary to implement this landmark new law," she concludes.

The prospect of adding new regulations to the books may be what passes for excitement in Washington these days, but it's hardly a ringing endorsement. So while ObamaCare might qualify as victory for Washington's army of bureaucrats and rulemakers, for the rest of us, there isn't much to cheer.

Since the law's passage, the news about it has been been unrelentingly bad. With each passing it day, it looks more likely that costs will go up, businesses will face new bureaucratic burdens, and many individuals will lose their current health care plans—just as the law's critics predicted before its passage.

Already, businesses small and large are warning of the ill effects of the law's changes to the tax code. In order to generate the nearly $1 trillion necessary to pay for the law, its authors scoured the tax code looking to squeeze out more money whereever possible. And sure enough, within a few days of its passage, a handful of big companies took tax write downs in response to changes in the tax treatment of an existing drug subsidy. An estimate by Credit Suisse puts the total damage across the economy at around $4.5 billion—with $1 billion coming from AT&T alone.

The change involved the tax treatment of a subsidy that never should have existed, but it suggests the extent to which America's health care system is already reliant on government meddling, and how costly expanding the government's role in the system can be. And, perhaps more importantly, a planned investigation into the write-downs revealed that many big corporations are considering dropping their health care coverage and dumping employees onto the public dole.

When Rep. Henry Waxman (D-Calif.) heard about the write-downs, he called a hearing with AT&T and other companies claiming big hits. But soon after the subpoenaed corporate documents were turned in, the hearing was canceled. Why? Likely because, as Fortune magazine reported, the documents showed that the companies were considering dropping coverage for many employees—directly contradicting one of the president's key promises, that, under ObamaCare, "if you like your health care plan, you can keep your health care plan." Even with penalties in place for employers who decline to provide health insurance, documents showed that Caterpillar could reduce its health care costs by as much as 70 percent and AT&T could save as much as $1.8 billion by shifting their employees into public programs.

Small businesses, meanwhile, have discovered that their tax preparation costs just went way up. The PPACA will require small business owners and the self-employed to fill out 1099s for every company they do more than $600 worth of business with. That means any freelancer who buys a mid-range laptop from Best Buy will technically be required to fill out a 1099, no matter if the retailer is an indifferent chain giant. As with the drug subsidy modification, the idea is to beef up compliance and raise additional revenue—about $17 billion worth.

Yet if it works, it will drive up compliance costs—how many home-based freelancers are likely to generate a docket of 1099s, complete with tax identification numbers, for big corporate suppliers all by themselves? And if, as seems likely, the requirement is widely ignored, it will have the exact opposite of its intended effect, pushing more and more taxable transactions into illegal, unrecorded territory.

At the same time, cost projections continue to spiral upwards. The Congressional Budget Office now reports that the law will require an additional $115 billion in previously unreported (and yet unpaid-for) discretionary spending. Medicare's actuary has reported that total medical spending in the U.S. will actually go up and that crucial cuts to Medicare—cuts being used to pay for the law's new entitlement spending—aren't likely to happen, but that Medicare benefits are likely to be reduced. And in Massachusetts, the state whose 2006 health care overhaul served as the model for ObamaCare, insurers have gone to war with the governor, and the state treasurer is warning that the program could drive the state into bankruptcy.

Thanks to the pace of modern medical progress, it's no longer true that, as Jean Baptiste Moliere quipped in 1673, "nearly all men die of their medicines, not their diseases." But when it comes to health care, it may be that governments die of their reforms.

Peter Suderman is an associate editor at Reason magazine. This column first appeared at Reason.com.


Peter Suderman is Associate Editor


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