Hearing Highlights


The Fiscal Consequences of the New Health Care Law
House Budget Committee Witnesses Testify on the Law’s True Budgetary Impact

January 26, 2011

WASHINGTON – The House Budget Committee held a hearing today on the fiscal impact of the Democrats’ new health care law. Key witnesses, including the Obama Administration’s own non-partisan actuary for Medicare, testified that the law’s much-touted savings were unlikely to materialize; that it would drive health care costs higher, not bend them down; and that the new spending entailed by the law would probably be much higher than originally projected.

 Chief Medicare Actuary on President's health care claims: "I would say false, more so than true"

Rep. Tom McClintock of California, who is new to the Committee, asked Medicare’s Chief Actuary, Rick Foster, as plainly as he could whether the budgetary claims made by the bill’s supporters were true or false: “I would say false, more so than true,” Foster responded:

McCLINTOCK: “True or false: The two principle promises that were made in support of Obamacare were one, that it would hold costs down. True or false?”

FOSTER: “I would say false, more so than true.”

McCLINTOCK: “The other promise… was the promise that if you like your plan, you can keep it. True or false?”

FOSTER: Not true in all cases.”

The Impact of President's Health Care Law on Wisconsin Families

Chairman Ryan asked Dennis Smith, Secretary of the Wisconsin Department of Health Services, to explain the new law’s impact on Wisconsin families. The Chairman asked three questions: What percentage of Wisconsinites will see an increase in their insurance premiums? How many people will migrate from private coverage into the government-subsidized system? And how many people can be expected to lose their coverage? Smith’s answers were sobering:

Smith on Premiums: “The break point seems to be around 350 percent of poverty. If you are below that, [the new law confers] more benefits than costs; above that, more costs than benefits. Given that the median family income – household income – in Wisconsin is around 400 percent, then that suggests the majority will have greater costs than benefits.”

Smith on Cost Shifting: “The number of people who are moving out of their current coverage is about 475,000 individuals. Those include people who are in the individual market who already have health insurance coverage; people who are currently on Medicaid, who at higher income levels would move off of Medicaid at a savings to the state, but then those are federal dollars that would be paying for that; and then a small migration out of the employer market.”

Smith on Losing Coverage: “In Wisconsin, total population is about 5.5 million people, so close to 10 percent of people will have their current insurance coverage disrupted.”

The Medicare Double-Count Explained -- by Medicare's Chief Actuary

Rep. John Campbell, a returning member of the Committee, asked Foster whether the law’s Medicare provisions could both reduce the deficit and extend the solvency of Medicare, as many of the law’s supporters, including the President, have claimed. Foster said this isn’t possible unless you double-count the savings:

CAMPBELL: “Is it legitimate to say… that you can add a dozen years to the solvency of Medicare or that you can reduce the deficit, but it is not correct to say both simultaneously?”

FOSTER: “Both will happen as a result of the same one set of savings, under Medicare. But it takes two sets of money to make it happen. It happens directly for the budget deficit, from the Medicare savings, and then when we need the money to extend the Hospital Insurance Trust Fund, we have a promissory note – it’s an IOU, not a worthless IOU, but it is an IOU – and Treasury has to pay that money back. But they have to get it from somewhere. That’s the missing link.

Jim Capretta on Health Care Law, American Workers & Federal Budget

Chairman Ryan asked budget expert James Capretta about the possibility that the costs associated with the Democrats’ new law might explode if employers found it advantageous to end private coverage and direct their employees into the government-run system. Capretta gave this eye-opening answer:

“There’s so much more [federal] money available in the exchanges then out of them, for the low-wage population… the break point in terms of being better off outside the exchange is upwards of about $80,000 a year. So below that, everybody would be better off in the exchange rather than getting the tax preference with the employer-paid premium plan. Employers obviously have a mix of employees, so any employer that has predominantly low-wage workers almost surely would want to go into the exchange, even if they are above 50 [workers], pay the [law’s stiff] penalty… You could pay the penalty and still be better off [dumping your employees onto the exchanges.] …

“Doug Holtz-Eakin, former director of CBO, looked at this… if you assume that all of those workers, one way or another, end up in the exchanges over time and are not retained in the job-based system, the extra cost over the just the first decade would be another trillion dollars.

CMS Chief Actuary on reducing health care costs

At one point, Foster indicated that he had more confidence in Chairman Ryan’s proposed Medicare reform plan to bring down costs than he has in the new health care law’s ability to do the same:

“If you can put that pressure on the research and development community, you might have fighting chance of changing the nature of new medical technology in a way that makes lower costs like this possible and more sustainable.

 “I would say that the Roadmap has that potential. There is some potential for the Affordable Care Act price reductions, although I’m a little less confident about that.”

Paul Ryan makes the case for fulfilling the promise of health security

Finally, as Democrats attempted to shift attention from their own unpopular law, Chairman Ryan contrasted the Medicare reforms he’s introduced, which protect those 55 and over, with the cuts and government price controls in the Democrats’ law, which would affect seniors today:

“Do we empower consumers, or do we price-control from the government? What works best? … Medicare is the biggest driver of our debt. We’re all kidding ourselves if we think the program can just go on as is, and the sooner we address this the better off everybody is – the better we can guarantee my mom, who’s been on it for a number of years, and everybody else’s mom and dad, can have the program they organized their lives around, and that future retirees have a program they actually can count on. That’s the purpose of this particular bill that I introduced, and that’s hopefully the purpose of what we’re all trying to achieve.”

More Information:
Chairman Ryan’s opening statement
Richard Foster Testimony
James Capretta Testimony
Dennis Smith Testimony