Think The Democrats Just Scored One for the Little Guy? Think Again.

By Robert E. Prasch
Professor of Economics
Middlebury College

As a resident of Massachusetts, where the backlash is already well underway, I thought I should add a comment.  Let’s begin by considering the origins of “Obamacare”.  It comes from Massachusetts.  It was passed early in Gov. Patrick’s reign because during the campaign it was already in debate as it was Gov. Mitt Romney’s proposal.  Now, one might wonder where the conservative, free market, head of Bain Consulting governor might go finding a healthcare plan?  Well, he got it from the Heritage Foundation.  And why did they have such a plan?  Well, they developed its broad outlines during the 1993-4 years as the Republican ANSWER to Hillary’s effort.  So, that is our new federal plan — it is a warmed over version of the Heritage Plan.  This, I submit, might explain a few things.  (1) It was Obama’s idea all along to “triangulate” the Republicans on this issue, and (2) why many of them are really very bummed out that their leadership did not take up the chance to show “bi-partisanship” on this issue (see David Frum on this).

Now, I tend to be skeptical of Heritage Foundation health-care plans.  For several reasons:

(1) By design, costs are not contained, neither is health care reformed.  This means that “affordability” does not come from controlling costs, but by shifting them.  Shift to whom?  A hallmark of the Heritage/Romney plan is that no change of the distribution of income is to occur with the financing of this plan.  NONE.  Rather, funding is to be from three sources — those with supposedly “Cadillac” plans, those who have “opted out’ because of the laughably high cost of coverage relative to their own risks, and to the state general fund.  (2), In light of state budget shortfalls, it is no surprise that the latter source is declining quickly, and tens of thousands of Mass residents have ALREADY lost their subsidies (this trend will certainly occur on Capitol Hill over the next several years as ‘deficit mania” kicks in).  So, get this, as your income declines and your house is repossessed, the cost of your health care rises with higher premiums AND lower subsidies.  But, make no mistake, even as the subsidies decline, the mandate will stay — why should the big companies give up this huge windfall of unchecked access to the wages of the low paid?

(3) I also wish to warn against the ‘NPR version’ of the story that this bill “gives” health care for those without.  Nothing is given, it is a MANDATE.  Now, while the original ‘vision’ of the bill had subsidies, these are fading rapidly.  So, now we have a dramatically underfunded mandate.  Solving the lack of insurance by mandating the poor to buy it is, to be blunt, Dickensian.  Obama himself stated it very well during the campaign “It is like solving homelessness with a mandate that those living on the streets buy a house”.  Those who are poor understand this point, and resent it.  True, there are some young people who are in good health and, understanding statistics and rapacious health care insurance firms, “choose” not to get health insurance (as I did for several years in my 20s as the teaching assistantship I got from DU during my years studying for my MA could not cover my living expenses AND health insurance), yet the bulk of non-buyers are people who have found that with little in the way of family funds, other priorities (rent, car repairs, food, school fees, etc.) are a greater priority.

So, now the Democrats have taken it upon themselves to decide the priorities of millions of our poorest citizens.  Thus, thanks to the Democrats, non-negotiable required fees from the insurance industry will be several multiples of the current income taxes of the lowest paid.  This is sticker shock at its worse.  Even Republicans know that the money will go to rapacious, soulless, insurance companies under the careful guidance of the IRS (here in MA, we have several extra highly-complex pages on an already long tax form where we have to prove that we have insurance).  Stated simply, the Democrats have decided to go into the business of being the “enforcers” of the big insurance firms.  This is NOT a good place to be in an election year.  This is ESPECIALLY not a good place to be when you are already presenting yourself to voters, as Obama seems committed to do, as the die-hard supporter of the big banks that foreclosed on people’s homes and blew up their economy.

With such a context, along comes someone who calls himself a “regular guy” with a pickup truck (he failed to mention that he has five homes, one in Aruba, but the truck was in all the ads), and he takes Kennedy’s seat in Mass.  In MASSACHUSETTS!  Only one year after Obama wins this state by 20 points!  Wow.  This, folks, is what a backlash looks like, and it is enormous.  Turning the wages of the working classes over to the insurance companies, without recourse or mercy, is not going to win this state, and it will not win in many others.  If the Democrats lose any less than 35 house seats this election I will be amazed.  And, note my wording, the Republicans did not, and will not, win them.  No, the Democrats have decided to lose these seats.  Amazing.

Sorry about bringing the bad news.  But this bill is a disaster, and it is worse than nothing, as it will destroy the incomes of those it purports to help along with the Democratic Party.  It is especially bad since a public option was always an option, I do not believe the D.C. spin on this for even a minute.  Just as Obama never wanted to renegotiate NAFTA or leave Iraq, it was clear from the outset that the White House never wanted a public option, which explains why Rahm said so early last summer.  Why?  Because the big insurance companies did not want it, so Rahm did not want it.  End of issue.

6 responses to “Think The Democrats Just Scored One for the Little Guy? Think Again.

  1. Robert, Thanks for your lucid description of how the insurance mandate is (not) working out in Massachusetts. This part really caught my attention:"A hallmark of the Heritage/Romney plan is that no change of the distribution of income is to occur with the financing of this plan. NONE."That's pretty remarkable, I imagine the new federal law is similar. Per Jane Hamsher's handy fact sheet, a family of 4 making $66,000 a year (300% FPL) would owe 7.9% of income just in premiums ($5243) and up to 8.9% (5882) in out of pocket costs. The maximum any family would have to pay inin out of payment costs is $11,900, regardless how high their income is. way of comparison, Bernie Sanders's single payer bill would automatically cover everyone with zero out of pocket costs. It would be funded by an 8.7% employer payroll tax and a 2.2% individual income tax (the payroll tax could drop by a couple of points, I'd spitball, if unearned income were taxed at a higher rate).'s worse than the regressive funding system is that the new law requires a four year wait (longer than it took us to win World War II). The mandated coverage doesn't begin till Jan. 1, 2014. The Sanders bill would have started on Jan. 1, 2011. Because of the stiff costs, austere benefits and long delay in starting, somehow I doubt the new law will become more popular as the public starts to read the fine print.

  2. If this law destroys the Democrat party (and I doubt that it will), it will have done a good thing….a very good thing.

  3. The Dems. are pushing this bill like it's the greatest thing since the New Deal. They're counting on the near total ignorance of the general public about these issues. They fig. by the time this whole thing kicks in nobody will remember anyway and they can just say we Reformed HC all along the way till it flops. It was never about reforming anything it was all about bailing out the Health Ins. Industries rapidly failing business model and we;ll see if that happens. The other parts were to protect BIG Paharm's monopoly drug rpicing and get the Hospitals more $$ then they get right now from States for indigent care in the ER. The bottom line it was about padding the bottom line of the same vandals already raping and plundering the society and then having the chutzpah to say your doing the opposite. It's mostly just an Orwellian word project being passed off with great fanfare and propaganda as Change. if this is what as Obama says Changes looks like God save us.

  4. I thought this Law was supposed to tax the middle class in an effort to shrink it's size, while at the same time allowing 30,000,000 illegal aliens access to our hospitals for free?

  5. "So, now the Democrats have taken it upon themselves to decide the priorities of millions of our poorest citizens. Thus, thanks to the Democrats, non-negotiable required fees from the insurance industry will be several multiples of the current income taxes of the lowest paid."Exactly! I've never understood the anger of progressives toward many members of the Tea Party movement. The Tea Party members I know are poor people who cannot afford health insurance/health care, food, transportation to work/school, and housing. They resent government telling them that they have to buy health insurance that they will never be able to afford to use even though that means that they will probably have to cut back on something frivolous like the cheapest apartment that they can find or eating at least one good meal a day (and I mean something cheap but nutritious, not something expensive). If Bush had proposed this instead of Obama, these "progressives" would be outraged that so many poor people were being robbed to pay for the insurance and pharmaceutical companies' profits. But since it was Obama, they're angry at the poor people who want to be able to decide for themselves if they'd rather have a place to live, food to eat, or medical insurance (which is not necessarily medical care).As a disabled person, I'm also dismayed that this bill seems to shift many costs to the disabled. E.g., it eliminates the subsidies for Medicare Advantage plans. This means that the plans will either charge higher premiums or cut back on benefits. But most of the disabled people I know who are on those plans already pay well over half their incomes (which are either exclusively or almost exclusively from SSDI and so are around $1,100 a month) for medical care and already do without some food, utilities, and medical care. They have already reduced their expenses as much as possible by doing without heat in the winter (and using it only to avoid broken pipes, not for comfort or health), skipping meals and eating only the cheapest food they can find, skipping meds and doctors' appointments, etc. The new law will require them to either get less medical care or cut back even more on such frivolities as food or housing.It puts an annual cap of $2,500 on the amount that can be contributed for healthcare to flexible spending accounts. That amount was previously uncapped. Those accounts allow employees to pay for medical expenses with pre-tax money (i.e., the money contributed to the account is not subject to federal, state, or Social Security taxes). These accounts are very important for people with disabilities or chronic medical problems because they greatly reduce out-of-pocket costs. The $2,500 limit is a bad joke for anyone with substantial medical costs and will lead many disabled people who had FSAs to cut back significantly on medical care. (I'm pretty sure that was intentional since one goal of the new law seems to be to reduce medical care for those of us who have high medical expenses so that the insurance companies can make more money.)It also adds a 3.8% tax on unearned income, including rents, for people making over $200,000. It's very likely that the 3.8% (plus a bit more for transaction costs) will be passed on to renters. So now, not only will poor renters have to buy a health-care policy that they can't afford to use (or pay more money for fewer benefits if they're on a Medicare Advantage plan), their rents will go up too, forcing them to make even more draconian choices.

  6. I have to look at it this way (as every other way just hurts): People in this country will not get to universal health care and single payer (no more rentiers between patient and provider) by an argument; we'll have to suffer abuse from most other alternatives first.