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Keynes Would Probably Approve: Funding It [ObamaCare: Part 2]

Sanus Fiscorum

Not to get overtly effusive, but our healthcare system is broken. It isn’t free. It’s confusing. It’s a bureaucratic maze. Factor in any myriad statistics about inflated cost, effectiveness of treatment versus capacity to be effective, or the lack of end-of-life coverage (to name a decided few) and you realize that there’s a problem, the problem is complex, and the problem is big1. Then compare these problems to another country’s healthcare system (like the UK, for example2) and you realize that somewhere, the ball was dropped. Not just dropped–slammed into the blacktop, deflated and then covered over with a tarp.

Healthcare is expensive. The US currently spends $2.6 trillion on all health care expenditures. The gross domestic product of the US is right around $13 trillion, just to give you a marker. The government, of course, takes a cut of this total income and reformats it into the budget—which ran $3.7 trillion dollars in 2011. Medicaid spending—which includes Medicare—totaled $484 billion by itself. Compared to the UK’s current health budget—which encompasses care for every citizen and only costs £180 billion (roughly $280 billion, with an exchange rate of 1.55 US Dollars to the pound)3—or Canada’s (which, while currently plagued with large problems of delivery efficiency, costs only $200 billion total)4, the US is a megalith of medical dollar squandering. I don’t mean solely bureaucratic waste—I mean fraud, inefficient treatment and the consequences of poorly disseminated preventative and quality of life care.

Putting a Thumb in the Dyke

Grand Ol’ Party logic dictates that we should strive for the market paradigms that work efficiently and autonomously, and because we are currently up Budget River without so much as a canoe, let alone a paddle, our first priority should be navigating the fiscal rapids. Or, if you are part of the Democratic Party (or perhaps you’re not and you have your own political views not dictated by a supreme allegiance to a faceless enigma that will probably stuff your mailbox with donor forms—a revolutionary idea, I know), the first priority is extending coverage to everyone in the country.

The PPACA, with its bipartisan history (believe it or not), plays the appeasement game to both sides. Though the public face of the universal health care bill is, of course, to provide universal health care, is that entirely truthful? I’d postulate no. The main point of the PPACA5 is to reduce the burden of the US medical sector on both the government and the taxpayers.

Don’t believe me? I commend your powers of discernment. Let me convince you using facts that aren’t normally bandied about in the political arena—mainly because they’re not inflammatory enough.

Sneakily Legal Cost Cutting

The structure of the new healthcare system is built upon—gasp—a principle of reducing costs. Think of it as the four pillars that holds up a precarious reform that Kathleen Sebelius herself said needs to be worked on (more on this later). The most flashy tenant is fraud prosecution. In what was known as the most misleadingly bombastic headline of all time, the DOJ announced in September a bust of 107 people charged with over $452 million in Medicaid fraud. It sounds like a high-intensity “sting operation”—and was referred as such on CNN’s television coverage—but really, it was probably more of a “looking carefully through insurance records”. Regardless, Sebelius and Attorney General Eric Holder announced, about six months earlier, that 111 more people had been implicated in a Medicaid fraud roundup of $225 million. All told, HHS boasts that over $2 billion has been saved, and the FBI is quite proud.

Pretty good, right? Intriguingly enough, Shawn Henry, heavily involved with this work at the FBI, mentions that a lot of this fraud can be traced to organized crime. That in and of itself should give you a barometer—the Medicaid delivery vehicle is so broken that mafia-esque organizations have found a systemic way to exploit it. Close the loopholes, strengthen the system, reduce costs. It’s logic—and flashy enough to raise questions about why it hasn’t been brought into the spotlight (although possibly because this is, after all, a job of both the FBI and HHS to begin with and not a novel mechanism put into place by the bill).

Though the bulk of funding comes not from new revenue but clever cost-cutting, I would be remiss to not mention that there are also provisions for the government to raise money. Amongst the most divisive of these is the 0.9% payroll tax increase for $200,000 plus income holders. However, something of note before I skip away from this partisan sinkhole of an issue: people often think the wrong way about this tax. It is not a threshold tax—that is, if you make more than 200K, this charge gets hung on your Christmas Tree of a tax return—but rather, it only applies to anything taxable made in excess of 200K. Important, and potentially game changing, piece of information.

Perhaps the biggest revenue increase in the bill comes from the tax on “Cadillac” health plans (up to 40%, which, frankly, is quite a lot). I know, you’re yelling, “I thought you said increased taxes didn’t directly finance Obamacare?!” Bear with me. The real cash from this duty comes from constituents avoiding it rather than paying it. Ezra Klein breaks this down quite nicely (of course), but if you’re too lazy to click on the hyperlink (which can happen if you’re not interested, a really lazy person or for some reason have so many browsers open that your computer would crash if you opened another article from the Washington Post), the basic gist is that the tax won’t be effective because it’s too expensive (I mean, they’ll still get a little dough from stubborn socialites or people who aren’t properly informed—aren’t you glad you found our blog?). But it’s okay because that’s not the point. The tax is to change behavior—rather than alter a bit of tax code that gives employers a limitless tax exemption on health insurance for their employees (which leads to frivolously expensive plans and kickbacks from the insurance companies), the PPACA simply places a tax overtop of it. It is known as an excise tax, specifically—which means that the duty is an internal commodity tax (not on trade) and it has the specific purpose of raising prices on said commodity. Think liquor and cigarettes—two items which tend to baffle entry level economics students because no matter how high the price is, demand stays relatively constant (but that’s neither here nor is it there). It’s a tax that will encourage employers to buy lower cost health care packages—which is both good for the market and encourages more, cheaper care. The federal government saves big time because now businesses, who once wrote off taxes due to their exorbitant benefits packages, have to pay up. The IRS is drooling, I’m sure.

Following this rather closely is the cap on flexible spending accounts. This one is easy, so I’ll keep it short—flexible spending accounts are weird little pockets that some employees, as an alternative or supplement to their benefits package, pay monthly into as a safeguard for medical expenses. They’re tax exempt, which really, is the only reason you would ever use these, mainly because they’re what’s known as “use-it-or-lose-it” (aka everything you debated on a high school playground). You’ve gotta spend it annually or it goes away (although to whom, I am not currently aware). The PPACA puts a cap on these in the interest of phasing them out. These were originally thought of as an alternative to the employer provided benefits; if you can’t get what you want, put some money away in case you need it. The principles of Obamacare say that you should be covered for basic care in any circumstance, so these are unnecessary—and if you’re getting non-compulsory treatment like 80 injections of botox a week, then hell yes, the government is going to tax it.

All Your Health Belong to Us

The coup de grace: affordable care organizations. Most people have no idea what these are, but they are the linchpin in the entire healthcare overhaul. They transform the medical delivery system rather than try and treat its symptoms. In a fantastic piece by Atul Gawande (which came out quite a long time ago), he asks the question, “Can you provide better care for patients while lowering cost?” The answer is a resounding yes [this is a must read for social entrepreneurs].

Affordable care organizations (ACOs) function off the simple statistic (originally brought to you by GIS, which is also responsible for identifying water as the carrier for cholera) that a very large portion of healthcare costs are incurred by a asymmetrically small portion of the population. These costs arise mainly from emergency room care as a method of primary care6 (which is gargantuanly annoying to all parties involved, expense notwithstanding) and a failure of access to preventative care, sustained follow-up care, or both. Follow-up care includes, most importantly, the tenacity of the patient to follow the doctor’s orders (i.e. fully finishing a drug regiment). ACOs specifically take these high-cost patients and facilitate the necessary medical chaperoning, be that advising when hospital admittance is actually necessary, making sure prescriptions are taken daily or something as simple as providing yoga classes. The power of the ACO is to keep patients accountable for their own health so they don’t wander off into Never Never Land after ER treatment only to wind up on Mass General’s front step three months later for the same problem.

HHS makes a conservative estimate that ACOs can save $940 million in over four years. However, this statistic isn’t clear about who those savings are for. Insurance companies have already hopped on the bandwagon, so it’s a given that they are fiscally entranced by this tool. As Gawande grandly revealed, the Atlanticare ACO saved 25% of costs incurred by the most high-maintenance patients—and that was in their first, fledgling year. Higher savings are sure to come. As of right now, 154 ACOs have signed on with Obamacare. Imagine the sort of cost cutting it could bring if this were to become a national standard.

Although it is like herding cats into an ocean swimming with dogs to figure out what Republicans and Democrats truly value from year to year, the propensity to reduce government and cut cost of the former is clearly in tension with the social-restructuring, entitlement-extending predisposition of the latter in the text of the PPACA. Regardless of the fact that Medicaid spending has been shown to boost the economy, one may wonder, at first glance, whether the PPACA would simply bloom into a new entitlement program that will go the way of the monetary fiasco that is social security in a few short decades (Years? Months? I don’t read the government’s tarot cards, so I’m not qualified to predict) and slow the (struggling) recovery to boot (although hands up if you think that the fiscal cliff has a bigger pull on the economy considering it directly effects individual income taxes). The proposed system won’t collapse under its current monetary provisions-barring that political pandering in the 112th Congress (sayanora soon) doesn’t sabotage the bipartisan machinery. In fact, the PPACA will shrink healthcare spending in the long term—although we know in the world of “look what I did, please elect me again” campaigns, crusading for tough choices now and long-term benefits later is about as welcome as Lady Gaga’s meat dress at a vegan nutrition convention.

Currently Listening to: No Doubt -Settle Down.


1Pre-Obamacare health stats: http://www.healthpaconline.net/health-care-statistics-in-the-united-states.htm.

2quick overview of the UK’s universal health care system. This can be a rabbit hole if you’re interested in healthcare (beyond how it affects you directly)–but things to note are the third sentence: “The NHS was born out of a long-held ideal that good healthcare should be available to all, regardless of wealth.” and the fact that the NHS has a hyperlink (on the home page, no less!) instructing any user not how to “complain to NHS” or “give feedback” or “suggestions”–but rather, in plain, blunt British: “how to complain about NHS”.

3As a means of comparison (so I don’t mislead you), Britain’s population is 63 million [the population of the US is 313 million], estimated by CIA Factbook. Their total fiscal budget is £676 billion, or about $1.05 trillion.

4Canada’s population: 34 million; Budget: $261 billion in Canadian dollars. Obviously these two countries do not have the same amount of people to support as the US, but relatively, healthcare spending is still wildly skewed.

5It seems silly to call it Obamacare when there are such blatant capitulations to both sides at the expense of either party. Hence, BIPARTISAN.

6ER treatment for all patients who stumble in, regardless of insurance situation, is mandated by the government—but not paid for by the government. As you can imagine, that cost is passed on through the medical system to insurers and thus, policy holders (and of course, the non-policy holders that find themselves in the unfortunate position of wishing they had insurance).


About Kyle

"I'm so enriched by my friends' political Facebook statuses and tweets!" said no one ever. So then we made a blog to continue said opinions over more that 140 characters. Op-eds, partisan-ship, unbiased reporting, pop culture, and book recommendations. Look at the headers, n00b.

One comment on “Keynes Would Probably Approve: Funding It [ObamaCare: Part 2]

  1. […] mega-fraud crackdown on Medicare and other policies will be instituted (and, in fact, has already begun). Tanning beds get a 10% tax increase. In 2018, expensive insurance plans–those with high […]

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