Democrats Begin the Long, Tortuous Retreat from Obamacare

Democrats Begin the Long, Tortuous Retreat from Obamacare

REUTERS/John Gress

After five years, two midterm disasters, and a rollout that reminded Americans why they fell out of love with big government in the 1970s, reality has finally begun to dawn on some Democrats about Obamacare. With open enrollment about to start and a third straight round of premium spikes about to hit voters’ pockets, the Democrats’ leading presidential candidate has offered a “major break” with the Obama administration on its signature domestic policy achievement.

Hillary Clinton will speak out against the so-called Cadillac tax on high-coverage health care plans, as early as this week, according to The New York Times. The politics on this are complicated, and not entirely focused on health care; in fact, this has more to do with the health of Clinton’s struggling and scandal-plagued campaign. Even so, the Cadillac tax on high-coverage plans is a key to Obamacare, both fiscally and philosophically, and Clinton’s coming attack on it shows just how much of an albatross the entire system has become for her party.

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The nature of this strategic decision becomes plain from Maggie Haberman’s report. Clinton reached out to Randi Weingarten to inform her of this decision. Weingarten is president of the American Federation of Teachers and an important player in the labor movement. Unions have long opposed the Cadillac tax, having spent decades demanding top-notch coverage for their members. The tax applies a 40 percent fee on benefits above a certain level, potentially costing labor unions hundreds of millions of dollars that they would rather spend elsewhere – say, on Democratic presidential and Congressional campaigns. 

Why make this particular sop to Big Labor now? Clinton recently announced her opposition to the Keystone XL Pipeline, a project backed by unions in anticipation of the skilled labor required to build it. Clinton needed to take that position to defend her left flank from Bernie Sanders, whose opposition to Keystone has been consistent and vocal. That forced Clinton to placate labor leaders by pushing back on Obamacare, which until now Democrats have defended in its entirety – even from unions.

Union opposition arose during the drafting of the Affordable Care Act, with unions demanding either the removal of the Cadillac tax or an exemption from it, but the Obama administration and the Democratic Congress resisted. In part, the decision to oppose the unions came from the desperate political need to produce a Congressional Budget Office review that would show Obamacare as deficit-neutral in its first decade. Under the static tax analysis of Democrats, the Cadillac tax was expected to raise $32 billion in that first decade.

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Haberman reports that Clinton will roll out “a method of replacing the lost revenue in the Cadillac tax through other means.” Other means, in this case, can only refer to tax hikes, a prospect that unions will not oppose.

In practice, of course, many employers have given up on offering those “gold-plated” health care plans, which means that this revenue prediction was sheer fantasy. Taxes change behavior, which is why static tax analysis routinely and widely overshoots on revenue. The Cadillac tax was an especially cynical use of static tax analysis, since its inclusion in Obamacare was intended to change behavior.

The philosophy of Obamacare is predicated on changing usage patterns and forcing everyone into similar plans. During the Obamacare debate, Democrats argued that Cadillac plans incentivized over-utilization, and that the tax would either force employers to scale back their coverage or the revenue would make up for the excess usage of Cadillac-plan consumers.

As Haberman herself notes in her Times report, the tax was intended as an incentive for employers to “avoid it by reducing benefits to their workers. Its purpose is to help rein in health care costs overall.”

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How has that worked out? Just as well as Obamacare, as we have seen in three successive explosions in health-care premium rates. Even though prices skyrocketed for 2014 and 2015 coverage, insurers still underestimated the utilization of their plans under the Obamacare mandate. Delaware announced approval for premium hikes of 22.4 percent, while AIS’ Health Business Daily reported last week to its subscribers on a long list of approvals by states for double-digit premium increases.

The list includes key swing states such as Florida (16.2 percent for UnitedHealth, 13.9 percent for Aetna), Iowa (19.8 percent for an Aetna subsidiary), and Michigan (average increase of 11.4 percent across all 14 plans). The Street’s Brian O’Connell reported that insurers “are just now starting to get a firm grip on costs,” which has been complicated by “the underlying growth in health care costs,” and premiums may rise again by as much as 40 percent in some states.

Remember when President Obama promised that Obamacare would “bend the cost curve downward,” and that the exchanges would broaden consumer choice? Instead, consumers have seen premiums repeatedly skyrocket, and choices for less expensive coverage evaporate. AIS notes that Blue Cross Blue Shield will pull out of New Mexico, cutting 35,000 individual-market customers after losing over $19 million in 2015.

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Why? The company was denied an application for a 51.6 percent average increase for its plans. Other insurers have shut down operations in state exchanges as well, or blinked out of existence altogether. O’Connell also points out that Obamacare has resulted in a series of mergers among insurers, noting, “Less competition means higher prices.”

So it’s really no surprise to see Democrats backing away from Obamacare. Voters who have watched their costs skyrocket and received little to nothing in return will not be fooled in 2016 when Democrats try to sell this as a big win for their health, physical or economic, especially since that election will take place immediately after the next series of premium spikes and plan closures will arrive during the 2017 open enrollment period.

Hillary Clinton’s sacrifice of the Cadillac tax for union support shows that Democrats have become more desperate in the five years since imposing the ACA over the opposition of the American public. If this continues, don’t expect the Cadillac tax to be the last line of retreat, either.