The Big Things

"For 20 years, governors have come into this room and lied to you. Promised you benefits that they had no way of paying for, making promises they knew they couldn’t keep, and just hoping they were the man or women who wouldn’t be holding the bag.

I understand why you feel angry and betrayed and deceived by those people. Here is what I don’t understand – why are you booing the first guy who came in here and told you the truth."

Gov. Chris Christie, speaking to a NJ firefighters convention

Story from which this quotes comes from is at about the 5:45 mark in the video below.

Federal Government's Biggest Job?

Pop quiz. What's the biggest single job the federal government undertakes?
National defense? Nope.
Homeland security? Wrong.
Transportation? Not even close.
Law enforcement? No way.
Education? Getting colder.
Foreign aid? Are you kidding?
Nope, the biggest single thing the federal government does these days is ... cut checks.
Lots and lots and lots and lots of checks that go to individual citizens -- $2.3 trillion worth last year alone.

Read the rest of the article from aolnews.com

Is Free Really Better?

Despite health care being free in Canada, businesses are popping up in Canada and the U.S. that cater to Canadians looking to avoid the long wait times for medical services.

"Cross Border Access has been helping Canadians book appointments and negotiate fees for a variety of procedures in upstate New York. Unlike Canadian companies that have popped up offering similar services, this American operation charges a $200-a-year membership fee and connects patients directly with service providers.

_________________________
As long as wait times remain as long
as they are, Canadians who have
resources will do what’s best
for their own particular health.
If that means going south
of the border, they will.”
_________________________

Noting U.S. health care is a free-market system, the same diagnostic imaging scan can cost anywhere from $900 to $2,000. He said most Canadians probably wouldn’t realize that when they look to the U.S. after learning it could take months for their CT scan, cancer treatment or knee replacement in Canada.

“We don’t take any money from health-care providers in the U.S. and we don’t give any money to Canadian health care providers who refer patients to us,” he added. “Our only source of revenue is the membership fees from patients.”

While few up-to-date studies examining the prevalence of medical tourism among Canadians exists, an Angus Reid poll earlier this year found 40 per cent of Canadians said they would pay out of pocket to jump the queue and 42 per cent would leave the country to seek treatment.

Canadian Medical Association president Jeffrey Turnbull describes it as a byproduct of the Canadian system failing to meet the needs of its citizens. “As long as wait times remain as long as they are or even worsen, Canadians who have resources will do what’s best for their own particular health,” he said. “If that means going south of the border or another jurisdiction outside of North America, they will.”

Meanwhile, Michael McBane of the Canadian Health Coalition… argues wait times are often exaggerated and that medical tourism raises concerns about continuity of care and the appropriateness of treatments that may not be approved in Canada."

Read the entire article at The Times Colonist

Is free really better if you cannot access the services you need in a timely manner?

Benefit Costs in the Private Sector

"Employee benefits make up nearly 30% of compensation packages in the private sector, with insurance benefits comprising 8% of that total, according to 2010 research by the U.S. Bureau of Labor Statistics.

Overall, employers in the private sector allocated, on average, $19.68 per hour on wages and salaries, totaling 70.6% of compensation. BLS analysts found that legally required and insurance benefits constituted the largest benefits categories.

For example, private-sector employers spent $2.31 per hour worked on legally mandated benefits, which includes Social Security, Medicare, unemployment insurance and workers’ compensation. This category represented 8.3% of total compensation.

The majority of insurance costs ($2.24) stemmed from health insurance, which costs $2.10 per hour worked. The remaining balance was tagged for life, short-term disability and long-term disability. On the retirement side, defined benefit and defined contribution plans cost private-sector employers 99 cents, totaling 3.6% of total compensation.

Meanwhile, paid-leave benefits, such as vacations, holidays, sick leave and personal leave, averaged $1.88 per hour, which composed of 6.7% of total compensation. Supplemental compensation categorized as overtime and premium pay, shift differentials and non-production bonuses averaged 78 cents, totaling 2.8% of total compensation.

The research on benefits costs is outlined in the memo report Employer Costs for Employee Compensation for September 2010."

EBN

So mandated benefits (i.e. taxes) cost more than health insurance benefits (8.3% vs. 8%).

Real 'Change' Begins With Education

"In 2008, Americans voted for Obama's change. Let's look at some of it.

Obama's Health and Human Services Secretary Kathleen Sebelius threatened that there would be "zero tolerance" for "misinformation" in response to an insurance company executive who said that ObamaCare would create costs that force up health insurance premiums.

_________________________

Keep in mind that the power to grant waivers
is also the power not to grant waivers.
_________________________

That's not only an attack on our constitutionally guaranteed free speech rights but an official threat against people who express views damaging to the administration.

Not to be outdone by his HHS secretary's attack on free speech, Obama wants full disclosure of the names of people who were backers of campaign commercials critical of his administration, saying that there has been a "flood of deceptive attack ads sponsored by special interests, using front groups with misleading names."

Disclosure would leave administration critics open to government and mob retaliation.

Obama and his congressional and union allies have lectured us that socialized medicine is the cure for the nation's ills, but I have a question. If socialized medicine, ObamaCare, is so great for the nation, why permit anyone to be exempted from it?"

Read the entire article by Walter Williams

One Opinion On Funding (?) Medicare

I am behind in my reading, but I ran across this and thought it was worth passing on...

People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.

- Jean Monnet

The simple reality is that if We the People of the US want Medicare, in even a reformed and more efficient manner, we must find a way to pay for it. It will not be cheap. Raising income taxes on the "rich" is not enough. You have to go back and raise income taxes on the middle class, too. Oh, wait, that will be a drag on the economy and consumer spending. And in any event it will not be enough.

The only real way to pay for those benefits will be a value-added tax, or VAT. And while it could be introduced gradually, let there be no mistake that it will be a drag on economic growth. Government spending does not have a multiplier effect on the economy. It is at best neutral. What creates growth is private investment, increases in productivity, and increases in population. That's it. Tax increases have a negative multiplier.

A significant VAT along with our current income taxes will give us an economy that looks more like the slow-growth, high-unemployment world of Europe. Can we figure out how to deal with that? Sure. But it is not growth-neutral.

Republicans in 2013 will be like the dog that caught the car. What do you do with it? The last time they (embarrassingly, we) really screwed it up. The defining political question of this decade will not be Iraq or Afghanistan, or the environment or any of a host of other problems. The single most important question will be what do you do with Medicare? Cut it or fund it? Reform it for sure, but reform is not enough to pay for the cost increases that will come from an increasingly aging Boomer generation.

There is no free lunch. At some point, you cannot run on "no cuts in Medicare" and "no new taxes" and be honest. At least not this decade. Maybe when we have cured cancer and Alzheimer's and heart disease and the common cold at some future point, medical costs will go down, but in the meantime we have to deal with reality.

You may be able to fool the voters, but you will not be able to fool the bond market. Not dealing with reality will create a very vicious response. Ask Greece.

And that is the national conversation we must have with ourselves. There is a cost to government. There is a cost to extended Medicare benefits. (I am blithely assuming we deal with all the "easy" stuff like Social Security, and make real cuts in other areas.)

And for my international readers, this is an issue that the entire developed world must deal with. We all have our problems created from years of very poor choices, overleveraging, and deficits. It will not be easy. I must admit to smiling when I see the protests in France over raising the retirement age from 60 to 62. Really? Amazing.

And while France causes me to smile and shake my head, the refusal on the part of the US leadership to give more than lip service to solutions that might disrupt their slim majority of voters is maddening.

This election next week will change very little in real terms, the things that matter, like whether the US economy can grow or will face a very real crisis and a true depression. That potential is in our future, and it is coming at us faster than you think.

John Mauldin
Thoughts from the Frontline Weekly Newsletter

Patients Should Pay Their Own Bills

Big Spenders: Increases in health care costs rival the rising of the sun for inevitably. Should we blame greedy doctors and drugmakers? No, blame should be placed on the system the government has promoted.

The tax code encourages employers to buy health care insurance plans with pretax dollars. Because these plans are exempt from federal income and payroll taxes, employers salaries. Nearly 60% of American adults are covered by an employer-based plan.

For most, these plans work well. But the arrangement that so many have become accustomed to has driven health care spending ever higher. The cost of medicine increased 98% between 1992 and 2008, a period when the consumer price index rose 53%. Health care spending now makes up 17% of the economy, a far bigger slice than it did before the 1965 creation of Medicare and Medicaid, when it never went beyond 6%.

Why has this happened? Devon Herrick from the National Center for Policy Analysis has the simple answer: We have become big spenders on health care because our motivation to be thrifty has been legislated away.

"A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending someone else's money," Herrick wrote in "Why Health Costs Are Still Rising," an NCPA report released last week.

Because Americans who have employer-based coverage see little money coming out of their pockets when they visit a doctor or go to the hospital, they have little incentive to keep costs down.

"When patients pay their own medical bills, they are conservative consumers," Herrick writes. "Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if someone else is picking up the tab."

According to Herrick, for every dollar of hospital care that is consumed, a patient pays only 3 cents. The rest is paid by a third party, the insurance company. When a patient visits a doctor, less than 10 cents of every dollar of care consumed is paid by the patient. Again, a third party pays the balance.

And "for the health care system as a whole, every time patients consume $1 in services, they pay only 12 cents out of pocket."

Medicare and Medicaid have also had an impact on spending, as they too are third-party payers that, similar to insurance plans, hide from patients the true cost of medicine.

To show what a health care sector without similar incentives looks like, Herrick turns to cosmetic surgery, the demand for which has exploded in recent years.

Citing American Society of Plastic Surgeons data, he says 1.7 million cosmetic surgical procedures were performed in 2008, "more than 40 times the number performed two decades ago." Yet cosmetic surgeons' fees, he says, have remained relatively stable, rising only 21% from 1992 to 2008.

The rather flat line of growth in spending on cosmetic surgery is due to the nature of the market. Almost all payments are made out of pocket by patients, which forces them to be wise consumers. It also requires doctors to compete on price.

The third-party payer problem that has forced costs higher was not addressed by ObamaCare. In fact, the Democrats' plan to bring down costs will only make the problem worse. Their chief goal is to increase the role of the third-party payer, that third party being the government, or, in the interim, the government and an insurance market under the central-planning thumb of Washington. Costs won't be going down.

The appropriate policy solution would be one that puts patients in control of their health care. It's obvious that the country needs more spending discipline, the kind that lets consumers, not the government, make their own choices on health care purchases. Let the market — consumers trading freely without coercion — solve the problem.

If Washington were to give health savings accounts the same tax treatment afforded employer-based insurance, exempting them from federal income and payroll taxes, the incentive for consumers to ration their own care would slow the rise in health care spending. This is something Republicans need to consider as the new Congress starts to dismantle ObamaCare.

IBD editorial

I Thought It Was Universal Health Care?

Obama White House hands out 111 Obamacare waivers

"I don't think this is a question of the practicality of whether it works or does not work. This is a question of the law that was passed and then all of a sudden you have a bureaucracy that decides who gets the exemptions and who doesn’t. That is what is wrong. It is not fair. It is an outrageous procedure and they should have either passed it and it was universal for everybody or it isn’t for nobody."

Wayne Rogers

See the list here

It Doesn't Look That Bad...

(Click image to enlarge)

Michael Ramirez, IBD

This Is A Level Playing Field?

"The Obama administration said Friday it will cut premiums and upgrade coverage in a new health plan for people with medical problems, because enrollment has been disappointingly low." Initially, "government economists had projected that people turned down by private insurers would flock to the new Pre-Existing Condition Insurance Plan, with 375,000 expected to sign up this year," yet "as of this week, a little more than 8,000 had enrolled, officials said." This is due in large measure to the premiums, which "can range from $400 to $600 per month or more for people in their 40s and 50s."

AP

So just because there are not enough people in the plan, the federal government can ARBITRARILY decide to REDUCE the premiums and make the benefits RICHER? How can they do this? Easy. Taxpayers subsidize the change.

And exactly how does a private health insurer compete on this supposed level playing fiield?

Spending Other People's Money

Is it any wonder health care costs continue to rise? Census data clearly shows the #1 reason why medical costs have risen, and will continue to rise: Our out-of-pocket payments for medical costs have been falling for the last fifty years, and will fall below 10% by 2017 according to projections.

When we spend less than 10 percent of our own money on health care costs, one outcome is almost 100% inevitable: health care costs will continue to rise. The incentive to reduce cost is greatly reduced when someone else is paying most of the bill.

The Will Of The People?

Missouri voters reject key provision of health care law
"with about 70 percent of the vote counted late Tuesday, nearly three-quarters of voters threw their support behind a ballot measure, Proposition C, that would prohibit the government from requiring people to have health insurance or from penalizing them for not having it." The measure "would conflict with a federal requirement that most people have health insurance or face penalties starting in 2014."

Washington Post

Anthem Teams Up With Google Maps

With hospital emergency departments luring patients by advertising short wait times, the state's largest health insurer is asking its members to consider cheaper care at urgent-care centers and in-store clinics when appropriate.

Anthem Blue Cross Blue Shield in Virginia yesterday launched a Google Maps tool on its website that lets consumers search for options such as MinuteClinic, Patient First and doctor's offices that take unscheduled walk-ins.

"From our perspective, if you have a true emergency, the best place to be is the emergency room," said Dr. Jay Schukman, Anthem's regional vice president and medical director.

"But for those conditions where it could be treated in an urgent-care center or a physician's office, that's the most appropriate place to go," Schukman said.

Anthem officials say a review of the plan's fully insured members' ER use for 2008 found that more than 60 percent of visits were "avoidable visits" or visits for problems that could have been treated in an urgent-care or other setting.

Anthem is advising plan members that some conditions, including sore throat, sprains and strains, minor headaches, ear or sinus pain, minor animal bites, stitches and minor allergic reactions, generally can be treated in less expensive settings.

HCA Virginia and Bon Secours Richmond health systems promote short ER waits.

Bon Secours promotes "no wait" emergency care at St. Mary's, St. Francis, Memorial Regional and Richmond Community.

In May, HCA Virginia's Chippenham, Johnston-Willis, Henrico Doctors' and John Randolph hospitals began posting the estimated ER wait times on the hospitals' websites. The estimated times also are displayed on electronic billboards around the metro area.

The Anthem review found the average cost of an ER visit was $441, compared with $98 for urgent-care centers and $52 for clinics inside stores. These costs include what the patient and health plan paid.

"There are times when I am sure [the patient] will get charged the full fare," Schukman said. "There are some hospitals that will transition you over to their urgent-care area as opposed to their emergency area, but generally speaking the charges there are still higher than going to an urgent-care center . . . or a physician's office or a retail health clinic."

Schukman said people may go to emergency rooms out of habit or convenience.

Hospitals get a significant share of their inpatients from people who get admitted from emergency department visits.

"We encourage [patients] to learn when to go to primary care, when to go to emergency care and when to go to urgent care," said Dr. James Dudley, an emergency physician at Riverside Tappahannock Hospital.

"It's important to remember that the [emergency room] is the only place that's always there," said Dudley, a former president of the Virginia chapter of the American College of Emergency Physicians.

In the new Anthem initiative, patients can go to an Anthem website, plug in an address and find nearby retail clinics and urgent-care centers. The website also advises consumers that they can call Anthem's 24-hour nurse information line for guidance.

Anthem also is reaching out to doctor's offices, spokesman Scott Golden said.

"A lot of times they may get a call after hours, and I think the standard response was 'Well, if you feel it's an emergency, go to the emergency room,' which by all means everybody should," Golden said.

The outreach to doctors will focus on medical situations where urgent care and retail clinics are options.

Richmond Times-Dispatch

Atlas Shrugged's Timeless Moral: Profit-Making Is Virtue, Not Vice

In the years leading up to 2008—09's financial meltdown, government control over mortgages, interest rates and America's banking system was at an all-time high.

And yet when crisis struck, free enterprise took the blame.

_________________________

I work for nothing but my own profit — which
I make by selling a product they need to men
who are willing and able to buy it. ...
I do not sacrifice my interests to them
nor do they sacrifice theirs to me;
we deal as equals by mutual consent
to mutual advantage.

_________________________

The cure, therefore, was to give government even wider powers. Washington can now bail out any company, fire CEOs, override contracts and print billions of dollars to "stimulate" the economy — all in the name of the public interest. The result? Our deficits and debt continue to mount, and there's a real possibility of a future like Greece's.

This is the state of our world today. It's remarkably similar to the state of the world in Ayn Rand's "Atlas Shrugged," a mystery story about a future America whose economy is disintegrating and whose government is accumulating power faster than anyone thought possible. This parallel is a big reason a record 500,000 people bought "Atlas Shrugged" last year.

Read the rest of the editorial by Yaron Brooks on Investor.com.

Worse Than A Zero Sum Game

"When it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy.” The government doesn't create resources, it redistributes them. For everyone who is given something there is someone who has that something taken away.

While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.

To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.

Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.

Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics."

Art Lafer in today's WSJ

IRS Sends Bill For $.039. Really?

(Click on image to enlarge)

Breaking Down The Health Care Tax Credit For Small Biz

by Alden J. Bianchi, Esq.

The recently enacted health care reform act—consisting of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010—is a vast undertaking, with far reaching consequences.

At its core, the legislation imposes a diverse range of requirements on individuals, employers, health insurance carriers and health care provides for the purposes of expanding coverage, controlling spiraling health care costs, and increasing the quality of medical outcomes.

Background

Although the reform law’s substantive “employer responsibility” provisions generally do not apply to employers with fewer than 50 full-time equivalent employees, the law provides tax credits to certain “qualified small business employers” to encourage them to voluntarily offer health care coverage to their employees.

This provision of the reform law is referred to as the “small business health care tax credit.” The Internal Revenue Service recently issued a set of clear and helpful questions and answers that flesh out the requirements of the small business health care tax credit.

This guidance is both necessary and welcome, since the credit is effective on the date of the legislation’s enactment, so it’s already in effect.

Eligibility

Under the health reform law, the small business tax credit is available to each “qualified small business employer,” which means an employer with no more than 25 full-time equivalent employees (FTEs) (determined on a controlled group basis) employed during the employer’s taxable year, and whose employees have annual full-time equivalent wages that average no more than $50,000.

The full amount of the credit is available only to an employer with 10 or fewer FTEs, and whose employees have average annual fulltime equivalent wages from the employer of less than $25,000. These wage limits are indexed to the CPI-U for years beginning in 2014.

To be eligible for the subsidy, the eligible small employer must make a non-elective contribution on behalf of each employee who enrolls in a “qualifying health insurance” plan or program in an amount equal to a uniform percentage (not less than 50%) of the premium cost of the qualifying health plan.

The credit is equal to the applicable percentage of the small business employer’s contribution to the health insurance premium for each covered employee. Only non-elective contributions (i.e., not salary reduction contributions) by the employer are taken into account in calculating the credit.

The credit is equal to the lesser (i) the amount of contributions the employer made on behalf of the employees during the taxable year for the qualifying health coverage, and (ii) the amount of contributions that the employer would have made during the taxable year if each employee had enrolled in coverage with a benchmark premium (based on comparable group market coverage) multiplied by an applicable tax credit percentage.

The credit is reduced for employers with more than 10 FTEs, but not more than 25 FTEs. The credit is also reduced for an employer for whom the average wages per employee is between $25,000 and $50,000.

Other entities

Special rules apply to tax-exempt organizations that otherwise qualify for the credit under which the “applicable percentage” is reduced. Tax-exempt organizations are eligible to apply the tax credit against the organization’s liability as an employer for payroll taxes within certain limits.

Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S Corporation and 5% owners of the employer are disregarded for purposes of the credit.

An employee of a self-employed individual is eligible for the credit if the employee performs services in the trade or business of the employer. (Thus, the credit is not available for a domestic employee of a sole proprietor of a business.) Nor may a sole proprietor receive credit for the owner and their family members.

Selected IRS clarifications

Set out below are some of the highlights of the FAQs:

* If an employer pays only a portion of the premiums for the coverage provided to employees under the arrangement (with employees paying the rest), the amount of premiums counted in calculating the credit is only the portion paid by the employer. (Q&A 3)

* For years before 2014, the “benchmark” premium, which is the average premium for the small group market in a state (or an area within the state), will be determined by the Department of Health and Human Services and published by the IRS. This guidance is expected to be posted on the IRS Web site by the end of April. (Q&A 4)

* Average annual wages are determined by first dividing the total wages paid by the employer to employees during the employer’s tax year by the number of the employer’s FTEs for the year, rounded down to the nearest $1,000. Wages for this purpose means FICA wages but without regard to the wage base limitation. (Q&A 10) Because the “25 or more employee” limitation is based on FTEs, an employer with 25 or more employees could qualify for the credit if some of its employees work part-time (e.g., an employer with 46 half-time employees has 23 FTEs and therefore may qualify for the credit). (Q&A 11)

* Neither family members of a business owner who work for the business, nor a member of a business owner’s household, count as employees. (Q&A 14) A “family member” is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

* Employers claim the credit on the employer’s annual income tax return. (Q&A 16) So, an employer (other than a tax-exempt employer) generally cannot claim the credit if it has no taxable income for the year. However, an unused credit amount can generally be carried back (but not before the effective date of the legislation) one year and carried forward 20 years. (Q&A 17)

* In determining the employer’s deduction for health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit. (Q&A 20)

It remains to be seen whether the small business health care tax credit lives up to expectations. Even with the credit, medical coverage is still costly, and these rules are at least modestly complex from an administrative perspective. Small businesses that qualify for the credit, however, have a reliable and comprehensive set of rules to follow.

Alden J. Bianchi can be reached at ajbianchi@mintz.com.

Employee Benefit News Legal Alert is a free, weekly e-newsletter featuring articles from the nation’s leading benefits attorneys.

About the author
Alden J. Bianchi is the practice group leader of Mintz Levin’s employee benefits and executive compensation group.

Truer Words Were Never Spoken

"According to the Tax Foundation, 60% of U.S. households were taking in more in benefits and services from government six years ago than they paid out in taxes. That will rise to 70% or more under President Obama's spending hikes.

At some point, there won't be enough independent and productive citizens to keep the freeloaders living in the luxury to which they've become accustomed."

IBD

"The trouble with Socialism is that eventually you run out of other people's money."

Margaret Thatcher

Repeal

Why And How Obamacare Must Be Undone

In the days since the enactment of their health care plan, Democrats in Washington have been desperately seeking to lodge the new program in the pantheon of American public-policy achievements. House Democratic whip James Clyburn compared the bill to the Civil Rights Act of 1964. Vice President Biden argued it vindicates a century of health reform efforts by Democrats and Republicans alike. House speaker Nancy Pelosi said “health insurance reform will stand alongside Social Security and Medicare in the annals of American history.”

Even putting aside the fact that Social Security and Medicare are going broke and taking the rest of the government with them, these frantic forced analogies are preposterous. The new law is a ghastly mess, which began as a badly misguided technocratic pipe dream and was then degraded into ruinous incoherence by the madcap process of its enactment.

The appeals to history are understandable, however, because the Democrats know that the law is also exceedingly vulnerable to a wholesale repeal effort: Its major provisions do not take effect for four years, yet in the interim it is likely to begin wreaking havoc with the health care sector—raising insurance premiums, health care costs, and public anxieties. If those major provisions do take effect, moreover, the true costs of the program will soon become clear, and its unsustainable structure will grow painfully obvious. So, to protect it from an angry public and from Republicans armed with alternatives, the new law must be made to seem thoroughly established and utterly irrevocable—a fact on the ground that must be lived with; tweaked, if necessary, at the edges, but at its core politically untouchable.

But it is no such thing. Obamacare starts life strikingly unpopular and looks likely to grow more so as we get to know it in the coming months and years. The entire House of Representatives, two-thirds of the Senate, and the president will be up for election before the law’s most significant provisions become fully active. The American public is concerned about spending, deficits, debt, taxes, and overactive government to an extent seldom seen in American history. The excesses of the plan seem likely to make the case for alternative gradual and incremental reforms only stronger.

And the repeal of Obamacare is essential to any meaningful effort to bring down health care costs, provide greater stability and security of coverage to more Americans, and address our entitlement crisis. Both the program’s original design and its contorted final form make repairs at the edges unworkable. The only solution is to repeal it and pursue genuine health care reform in its stead.

From Bad to Worse

To see why nothing short of repeal could suffice, we should begin at the core of our health care dilemma.

Conservative and liberal experts generally agree on the nature of the problem with American health care financing: There is a shortage of incentives for efficiency in our methods of paying for coverage and care, and therefore costs are rising much too quickly, leaving too many people unable to afford insurance. We have neither a fully public nor quite a private system of insurance, and three key federal policies—the fee-for-service structure of Medicare, the disjointed financing of Medicaid, and the open-ended tax exclusion for employer-provided insurance—drive spending and costs ever upward.

The disagreement about just how to fix that problem has tended to break down along a familiar dispute between left and right: whether economic efficiency is best achieved by the rational control of expert management or by the lawful chaos of open competition.

Liberals argue that the efficiency we lack would be achieved by putting as much as possible of the health care sector into one big “system” in which the various irregularities could be evened and managed out of existence by the orderly arrangement of rules and incentives. The problem now, they say, is that health care is too chaotic and answers only to the needs of the insurance companies. If it were made more orderly, and answered to the needs of the public as a whole, costs could be controlled more effectively.

Conservatives argue that the efficiency we lack would be achieved by allowing price signals to shape the behavior of both providers and consumers, creating more savings than we could hope to produce on purpose, and allowing competition and informed consumer choices to exercise a downward pressure on prices. The problem now, they say, is that third-party insurance (in which employers buy coverage or the government provides it, and consumers almost never pay doctors directly) makes health care too opaque, hiding the cost of everything from everyone and so making real pricing and therefore real economic efficiency impossible. If it were made more transparent and answered to the wishes of consumers, prices could be controlled more effectively.

That means that liberals and conservatives want to pursue health care reform in roughly opposite directions. Conservatives propose ways of introducing genuine market forces into the insurance system—to remove obstacles to choice and competition, pool risk more effectively, and reduce the inefficiency in government health care entitlements while helping those for whom entry to the market is too expensive (like Americans with preexisting conditions) gain access to the same high quality care. Such targeted efforts would build on what is best about the system we have in order to address what needs fixing.

Liberals, meanwhile, propose ways of moving Americans to a more fully public system, by arranging conditions in the health care sector (through a mix of mandates, regulations, taxes, and subsidies) to nudge people toward public coverage, which could be more effectively managed. This is the approach the Democrats originally proposed last year. The idea was to end risk-based insurance by making it essentially illegal for insurers to charge people different prices based on their health, age, or other factors; to force everyone to participate in the system so that the healthy do not wait until they’re sick to buy insurance; to align various insurance reforms in a way that would raise premium costs in the private market; and then to introduce a government-run insurer that, whether through Medicare’s negotiating leverage or through various exemptions from market pressures, could undersell private insurers and so offer an attractive “public option” to people being pushed out of employer plans into an increasingly expensive individual market.

Conservatives opposed this scheme because they believed a public insurer could not introduce efficiencies that would lower prices without brutal rationing of services. Liberals supported it because they thought a public insurer would be fairer and more effective.

But in order to gain 60 votes in the Senate last winter, the Democrats were forced to give up on that public insurer, while leaving the other components of their scheme in place. The result is not even a liberal approach to escalating costs but a ticking time bomb: a scheme that will build up pressure in our private insurance system while offering no escape. Rather than reform a system that everyone agrees is unsustainable, it will subsidize that system and compel participation in it—requiring all Americans to pay ever-growing premiums to insurance companies while doing essentially nothing about the underlying causes of those rising costs.

Liberal health care mavens understand this. When the public option was removed from the health care bill in the Senate, Howard Dean argued in the Washington Post that the bill had become merely a subsidy for insurance companies, and failed completely to control costs. Liberal health care blogger Jon Walker said, “The Senate bill will fail to stop the rapidly approaching meltdown of our health care system, and anyone is a fool for thinking otherwise.” Markos Moulitsas of the Daily Kos called the bill “unconscionable” and said it lacked “any mechanisms to control costs.”

Indeed, many conservatives, for all their justified opposition to a government takeover of health care, have not yet quite seen the full extent to which this bill will exacerbate the cost problem. It is designed to push people into a system that will not exist—a health care bridge to nowhere—and so will cause premiums to rise and encourage significant dislocation and then will initiate a program of subsidies whose only real answer to the mounting costs of coverage will be to pay them with public dollars and so increase them further. It aims to spend a trillion dollars on subsidies to large insurance companies and the expansion of Medicaid, to micromanage the insurance industry in ways likely only to raise premiums further, to cut Medicare benefits without using the money to shore up the program or reduce the deficit, and to raise taxes on employment, investment, and medical research.

The case for averting all of that could hardly be stronger. And the nature of the new law means that it must be undone—not trimmed at the edges. Once implemented fully, it would fairly quickly force a crisis that would require another significant reform. Liberals would seek to use that crisis, or the prospect of it, to move the system toward the approach they wanted in the first place: arguing that the only solution to the rising costs they have created is a public insurer they imagine could outlaw the economics of health care. A look at the fiscal collapse of the Medicare system should rid us of the notion that any such approach would work, but it remains the left’s preferred solution, and it is their only plausible next move—indeed, some Democrats led by Iowa senator Tom Harkin have already begun talking about adding a public insurance option to the plan next year.

Because Obamacare embodies a rejection of incrementalism, it cannot be improved in small steps. Fixing our health care system in the wake of the program’s enactment will require a big step—repeal of the law before most of it takes hold—followed by incremental reforms addressing the public’s real concerns.

The Case for Repeal

That big step will not be easy to take. The Democratic party has invested its identity and its future in the fate of this new program, and Democrats control the White House and both houses of Congress. That is why the conservative health care agenda must now also be an electoral agenda—an effort to refine, inform, and build on public opposition to the new program and to the broader trend toward larger and more intrusive, expensive, and fiscally reckless government in the age of Obama. Obamacare is the most prominent emblem of that larger trend, and its repeal must be at the center of the conservative case to voters in the coming two election cycles.

The design of the new law offers some assistance. In an effort to manipulate the program’s Congressional Budget Office score so as to meet President Obama’s goal of spending less than $1 trillion in its first decade, the Democrats’ plan will roll out along a very peculiar trajectory. No significant entitlement benefits will be made available for four years, but some significant taxes and Medicare cuts—as well as regulatory reforms that may begin to push premium prices up, especially in the individual market—will begin before then. And the jockeying and jostling in the insurance sector in preparation for the more dramatic changes that begin in 2014 will begin to be felt very soon.

To blunt the effects of all this, the Democrats have worked mightily to give the impression that some attractive benefits, especially regarding the rules governing insurance companies, will begin immediately. This year, they say, insurance companies will be prevented from using the preexisting medical condition of a child to exclude that child’s parents from insurance coverage, and a risk-pool program will be established to help a small number of adults who are excluded too. Additionally, insurance policies cannot be cancelled retroactively when someone becomes sick, some annual and lifetime limits on coverage are prohibited, and “children” may stay on their parents’ insurance until they turn 26. Obamacare’s champions hope these reforms might build a constituency for the program.

But these benefits are far too small to have that effect. The preexisting condition exclusion prohibits only the refusal to cover treatment for a specific disease, not the exclusion of a family from coverage altogether, and applies only in the individual market, and so affects almost no one. More than half the states already have laws allowing parents to keep adult children on their policies—through ages varying from 24 to 31. And the other new benefits, too, may touch a small number of people (again, mostly in the individual market, where premiums will be rising all the while), but will do nothing to affect the overall picture of American health care financing. CBO scored these immediate reforms as having no effect on the number of uninsured or on national health expenditures.

The bill will also have the government send a $250 check to seniors who reach the “donut hole” gap in Medicare prescription drug coverage this year—and the checks will go out in September, just in time for the fall elections. But the checks will hardly make up for the significant cuts in Medicare Advantage plans that allow seniors to choose among private insurers for their coverage. Those cuts begin in 2011, but the millions of seniors who use the program will start learning about them this year—again, before the election—as insurance companies start notifying their beneficiaries of higher premiums or canceled coverage.

We are also likely to see some major players in health insurance, including both large employers and large insurers, begin to take steps to prepare for the new system in ways that employees and beneficiaries will find disconcerting. Verizon, for instance, has already informed its employees that insurance premiums will need to rise in the coming years and retiree benefits may be cut. Caterpillar has said new taxes and rules will cost the company $100 million in just the next year, and tractor maker John Deere has said much the same. Such announcements are likely to be common this year, and many insurers active in the individual market are expected to begin curtailing their offerings as that market looks to grow increasingly unprofitable under new rules.

These early indications will help opponents of the new law make their case. But the case will certainly need to focus most heavily on what is to come in the years after this congressional election: spending, taxes, rising health care costs, cuts in Medicare that don’t help save the program or reduce the deficit, and a growing government role in the management of the insurance sector.

The numbers are gargantuan and grim—even as laid out by the Congressional Budget Office, which has to accept as fact all of the legislation’s dubious premises and promises. If the law remains in place, a new entitlement will begin in 2014 that will cost more than $2.4 trillion in its first 10 years, and will grow faster than either Medicare or private-sector health care spending has in the past decade.

Rather than reducing costs, Obamacare will increase national health expenditures by more than $200 billion, according to the Obama administration’s own HHS actuary. Premiums in the individual market will increase by more than 10 percent very quickly, and middle-class families in the new exchanges (where large numbers of Americans who now receive coverage through their employers will find themselves dumped) will be forced to choose from a very limited menu of government-approved plans, the cheapest of which, CBO estimates, will cost more than $12,000. Some Americans—those earning up to four times the federal poverty level—will get subsidies to help with some of that cost, but these subsidies will grow more slowly than the premiums, and those above the threshold will not receive them at all. Many middle-class families will quickly find themselves spending a quarter of their net income on health insurance, according to a calculation by Scott Gottlieb of the American Enterprise Institute.

Through the rules governing the exchanges and other mechanisms (including individual and employer insurance mandates, strict regulation of plan benefit packages, rating rules, and the like), the federal government will begin micromanaging the insurance sector in an effort to extend coverage and control costs. But even CBO’s assessment does not foresee a reduction in costs and therefore an easing of the fundamental source of our health care woes.

To help pay for the subsidies, and for a massive expansion of Medicaid, taxes will rise by about half a trillion dollars in the program’s first 10 years—hitting employers and investors especially hard, but quickly being passed down to consumers and workers. And the law also cuts Medicare, especially by reducing physician and hospital payment rates, by another half a trillion dollars—cuts that will drastically undermine the program’s operation as, according to the Medicare actuary, about 20 percent of doctors and other providers who participate in the program “could find it difficult to remain profitable and, absent legislative intervention, might end their participation.” And all of this, CBO says, to increase the portion of Americans who have health insurance from just under 85 percent today to about 95 percent in 10 years.

Of course, this scenario—for all the dark prospects it lays out—assumes things will go more or less as planned. CBO is required to assume as much. But in a program so complex and enormous, which seeks to take control of a sixth of our economy but is profoundly incoherent even in its own terms, things will surely not always go as planned. The Medicare cuts so essential to funding the new entitlement, for instance, are unlikely to occur. Congress has shown itself thoroughly unwilling to impose such cuts in the past, and if it fails to follow through on them in this case, Obamacare will add hundreds of billions of additional dollars to the deficit. By the 2012 election, we will have certainly begun to see whether the program’s proposed funding mechanism is a total sham, or is so unpopular as to make Obamacare toxic with seniors. Neither option bodes well for the program’s future.

Some of the taxes envisioned in the plan, especially the so-called Cadillac tax on high-cost insurance, are also unlikely to materialize quite as proposed, adding further to the long-term costs of the program. And meanwhile, the bizarre incentive structures created by the law (resulting in part from the elimination of the public insurance plan which was to have been its focus) are likely to cause massive distortions in the insurance market that will further increase costs. The individual market will quickly collapse, since new regulations will put it at an immense disadvantage against the new exchanges. We are likely to see significant consolidation in the insurance sector, as smaller insurers go out of business and the larger ones become the equivalent of subsidized and highly regulated public utilities. And the fact that the exchanges will offer subsidies not available to workers with employer-based coverage will mean either that employers will be strongly inclined to stop offering insurance, or that Congress will be pressured to make subsidies available to employer-based coverage. In either case, the program’s costs will quickly balloon.

Perhaps worst of all, the law not only shirks the obligation to be fiscally responsible, it will also make it much more difficult for future policymakers to do something about our entitlement and deficit crisis. Obamacare constructs a new entitlement that will grow more and more expensive even more quickly than Medicare itself. Even if the program were actually deficit neutral, which it surely won’t be, that would just mean that it would keep us on the same budget trajectory we are on now—with something approaching trillion-dollar deficits in each of the next 10 years and a national debt of more than $20 trillion by 2020—but leave us with much less money and far fewer options for doing anything about it.

In other words, Obamacare is an unmitigated disaster—for our health care system, for our fiscal future, and for any notion of limited government. But it is a disaster that will not truly get underway for four years, and therefore a disaster we can avert.

This is the core of the case the program’s opponents must make to voters this year and beyond. If opponents succeed in gaining a firmer foothold in Congress in the fall, they should work to begin dismantling and delaying the program where they can: denying funding to key provisions and pushing back implementation at every opportunity. But a true repeal will almost certainly require yet another election cycle, and another president.

The American public is clearly open to the kind of case Obamacare’s opponents will need to make. But keeping voters focused on the problems with the program, and with the reckless growth of government beyond it, will require a concerted, informed, impassioned, and empirical case. This is the kind of case opponents of Obamacare have made over the past year, of course, and it persuaded much of the public—but the Democrats acted before the public could have its say at the polls. The case must therefore be sustained until that happens. The health care debate is far from over.

Toward Real Reform

Making and sustaining that case will also require a clear sense of what the alternatives to Obama-care might be—and how repeal could be followed by sensible incremental steps toward controlling health care costs and thereby increasing access and improving care.

Without a doubt, the Democrats’ program is worse than doing nothing. But the choice should not be that program or nothing. The problems with our health care system are real, and conservatives must show the public how repealing Obamacare will open the way to a variety of options for more sensible reforms—reforms that will lower costs and help those with preexisting conditions or without affordable coverage options, but in ways that do not bankrupt the country, or undermine the quality of care or the freedom of patients and doctors to make choices for themselves.

Republicans this past year offered a variety of such approaches, which varied in their ambitions, costs, and forms. A group led by representatives Paul Ryan and Devin Nunes and senators Tom Coburn and Richard Burr proposed a broad measure that included reforms of Medicare, Medicaid, the employer-based coverage tax exclusion, and malpractice liability and would cover nearly all of the uninsured. The House Republican caucus backed a more modest first step to make high-risk pools available to those with preexisting conditions, enable insurance purchases across state lines, pursue tort reform, and encourage states to experiment with innovative insurance regulation. Former Bush administration official Jeffrey Anderson has offered an approach somewhere between the two, which pursues incremental reforms through a “small bill.” Other conservatives have offered numerous other proposals, including ways of allowing small businesses to pool together for coverage, the expansion of Health Savings Accounts and consumer-driven health care (which Obama-care would thoroughly gut), and various reforms of our entitlement system.

All share a basic commitment to the proposition that our health care dilemmas should be addressed through a series of discrete, modest, incremental solutions to specific problems that concern the American public, and all agree that the underlying cause of these problems is the cost of health coverage and care, which would be best dealt with by using market forces to improve efficiency and bring down prices.

The approach to health care just adopted by President Obama and the Democratic Congress thoroughly fails to deal with efficiency and cost, and stands in the way of any meaningful effort to do so. It is built on a fundamental conceptual error, suffers from a profound incoherence of design, and would make a bad situation far worse. It cannot be improved by tinkering. It must be removed before our health care crisis can be addressed.

If we are going to meet the nation’s foremost challenges—ballooning debt, exploding entitlements, out of control health care costs, and the task of keeping America strong and competitive—we must begin by making Obamacare history. We must repeal it, and then pursue real reform.

Yuval Levin is the editor of National Affairs and a fellow at the Ethics and Public Policy Center.

Originally published in The Weekly Standard

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