>As you may know, Congressional Representatives in Washington, D.C. are currently working with the Obama Administration on legislation that would completely reshape our country’s health care system. I wanted to take the opportunity to update you on this important legislation and share with you three areas of concern I have about the current legislation under consideration in the House of Representatives, H.R. 3200, the America’s Affordable Health Choices Act: innovation, spending, and taxes. Additionally, I would like to take the time to introduce you to my health care principles.
Along with my colleagues in the House of Representatives, I firmly believe that our health care system is in need of reform. But I also acknowledge that, in many respects, our health care system is the envy of the world. As we consider legislation to reform health care, it is important that we build on what works, and try to fix what is not working.
Innovation
One of the hallmarks of American medicine is its innovation. Our nation’s doctors and hospitals have access to the most advanced, cutting edge research, medical devices, and pharmaceutical products in the world. The medical achievements of the last sixty years have been amazing: polio is confined to the history books; death by cardiovascular disease has fallen by two-thirds; childhood leukemia, once a death sentence, is now treatable. Furthermore, American medicine has been uniquely innovative when compared with the rest of the world: according to a survey of physicians, four of the six most important medical innovations of the past 25 years were developed in the United States. Unfortunately, I fear that current the America’s Affordable Health Choices Act would seriously dampen medical innovation in the United States.
I believe the central tenet of H.R. 3200 is the creation of a new government-run insurance plan that would pay health care providers at Medicare’s reimbursements rates. A well-respected, independent research firm, the Lewin Group, estimates that within 10 years, 114 million individuals would lose their current health care coverage and be placed on the government-run plan. Because this plan would account for over one-third of the entire health care system and pay at Medicare’s rates, it would also, unfortunately, exacerbate many of the problems Medicare has had in stifling innovation.
Over the years many observers, including President Obama, have noted that “accountable care organizations,” such as the Mayo Clinic or the Geisinger Health System, provide high quality health care at significantly less cost. Unfortunately though, medical innovators such as these, who find ways to treat diseases at less cost, are punished by a perverse government reimbursement system. As the CEO of the Mayo Clinic, Denis Cortese, recently wrote in the Chicago Tribune:
“Many doctors and hostpials that offer [high-value] care are reaching the point where we cannot afford to provide it to patients with government-sponsored insurance such as Medicare and Medicaid. We worry that the same could hold true for patients in a new government-run public insurance plan.
Despite the fact that we strive to give patients the right level of care…we consistently suffer huge financial losses due to the government price-controlled Medicare payment system, which financially punishes providers who offer higher quality care at a lower cost.
“Last year alone, Mayo Clinic lost hundreds of millions of dollars caring for Medicare beneficiaries…Because of this shortfall, our other patients pay more to make up the difference. Someday soon, neither Mayo Clinic nor those other payers will be able to afford this situation.”
Additionally, H.R. 3200 contains a section regarding so-called comparative effectiveness research. Comparative effectiveness research is a government analysis to determine which treatments are more “effective” than others in terms of medical application. Many have expressed concern that comparative effectiveness will lead to government-run health care programs refusing to provide certain prescriptions or other treatments if they deem them not effective enough. This could have a profound chilling effect on researchers attempting to discover new ways to treat patients through innovative new treatments or drug therapies.
This is the case in other countries, where entities such as the National Institute for Health and Clinical Excellence (NICE) in England, which has infamously denied expensive cancer drugs to its citizens because of cost considerations. I recently learned from a former colleague in the House of Representatives who survived abdominal cancer in 2005 that the drug used to treat his cancer at the time was not available at all in England at the time. In other words, he survived because of access to innovative treatments that could be stifled under H.R. 3200.
Spending
One of the biggest issues facing our health care system is its high cost. In 2007, an estimated $2.26 trillion was spent on health care in the United States, or $7,439 per person. Health care costs have risen faster than wages or inflation for decades, and this is expected to continue into the future. In as soon as 2017, almost one-fifth of the entire U.S. economy is expected to be expenses and spending related to health care.
But if this is a problem for the private sector, the situation is much worse for the federal government’s public health care plans: Medicare and Medicaid. In Congress, I have the pleasure of serving on the Budget Committee. Ever since I first arrived in Congress, witness after witness–Republican or Democrat, liberal or conservative–who have appeared before the Committee have all noted the serious long-term funding issues that these programs face. As the 2009 Medicare Trustees Report noted:
“The financial outlook for the Medicare program continues to raise serious concerns. Total Medicare expenditures were $468 billion in 2008 and are expected to increase in future years at a faster pace than either workers’ earnings or the economy overall. As a percentage of GDP, expenditures are projected to increase from 3.2% in 2008 to 11.4% by 2083…Growth of this magnitude, if realized, would substantially increase the strain on the nation’s workers, Medicare beneficiaries, and the Federal Budget.”
If anything, these estimates might actually understate the problem. According to the Peter G. Peterson Foundation, America’s three biggest entitlement programs, Medicare, Medicaid, and Social Security, are projected to consume over 80% of the federal budget within a generation. The single biggest driver of this increased cost is health care inflation. Medicare alone has a $36.3 trillion unfunded liability, which means that every baby born in America in 2009 has a health care debt of $121,000 as soon as it takes its first breath.
Unbelievably, in my opinion, the America’s Affordable Health Choices Act, would actually make this problem significantly worse. In its early estimate of the cost of H.R. 3200, the Congressional Budget Office (CBO) estimates that enactment of H.R. 3200 would result in $1.042 trillion of new federal spending. Additionally, the bill would raise taxes by $583 billion. And despite a desire expressed by many to see that the bill is “paid for,” H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion from 2010-2019.
Over the long-term, though H.R. 3200 could potentially drive health care costs even higher. In testimony before the Senate Budget Committee this month, CBO Director Douglas Elmendorf said: “In the legislation that has been reported we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs.”
In other words, the CBO says H.R. 3200 would create trillions of dollars in new unfunded obligations on top of the already unsustainable federal health care programs without doing anything to slow the rate of growth of Medicare and Medicaid. I believe this is, to put it mildly, a recipe for fiscal disaster of the first order, and is not worthy support. I hope in the coming weeks to work with my colleagues to try to correct these problems, but please rest assured that I will not support any legislation would worsen our nation’s fiscal health.
Taxes
While I have many objections to this legislation, I feel one of its worst components is the inclusion of a $544 billion surtax on people earning more than $280,000. Aside from the fact that almost nobody believes it is a good idea to raise taxes in the middle of a recession, I have serious concerns that these tax increases would unfortunately fall disproportionately on small businesses.
According to the Internal Revenue Service’s (IRS) 2002 Statistics of Income, 64% of households filing individual tax forms with Adjusted Gross Income (AGI) above $250,000 filed as an S-Corporation or partnership or filed a Schedule C sole proprietor tax form. Further, of all small businesses 75% are S-Corporations where the business income is passed through to the business owners’ individual tax return, increasing the chances that it will be impacted by the proposed surtax.
According to the Small Business Administration (SBA), small businesses generate 60-80% of net new jobs annually and employ approximately half of all private sector employees. Numerous economic studies show that higher marginal tax rates discourage small businesses from expanding and hiring more workers. Especially in a recession, it is important not to levy a new tax against the job creators who will sow the seeds of our recovery.
These tax increases will be particularly devastating to American manufacturing. According to IRS Statistics from 2006, there were 196,000 manufacturers who paid taxes at the individual rate. The average net income per return for these small manufacturers was $570,000, a full 300% higher than the average small business income. It is clear that these tax increases would be felt disproportionately in the U.S. manufacturing sector.
Even Bill Gale, the Vice President and Director of Economic Studies at the progressive Brookings Institution, notes, “Choosing to finance health care reform by taxing the rich is bad economic policy, bad health policy, bad budget policy and poor leadership.”
Furthermore, under President Obama’s budget submitted earlier this year, the tax cuts enacted in 2001 and 2003 are scheduled to expire in 2011. When theses expiring tax cuts are combined with the new surtax proposed in H.R. 3200, the top marginal tax rates in 39 states would exceed 50%, with a 52% national average. According to the non-partisan Tax Foundation, this would be higher than just three of the 30 most economically developed countries in the world.
Finally, H.R. 3200 contains an “employer mandate” for the purchase of health insurance. To me, this means that any business not currently offering health insurance must either offer a government approved plan, or pay a penalty equal to 8% of an employee’s payroll tax. For small businesses not currently offering health insurance, this would be a massive new cost per employee. A 2007 study by Harvard Professor Kate Baicker found that “33% of uninsured workers”—5.5 million total—“earn within $3 [per hour] of the minimum wage, putting them at substantial risk of unemployment if their employers were required to offer insurance.” The study also found that “among the uninsured, those with the least education face the highest risk of losing their jobs under employer mandates.”
Health care reform should be good for individuals, families, and small businesses. Unfortunately, my reading of this legislation is that it would have a tremendously adverse impact on job creators, families, and our medical professionals. For these reasons, I do not think H.R. 3200, as it is currently written, merits support.
Garrett’s Health Care Principles
I do not support the rationing of care, and I do no support the creation of a plan that will allow bureaucrats and special interests to stand between patients and the care they need. Our current health care system is unsustainable, and the prohibitive costs leave far too many without adequate health insurance. Reform to this system is necessary if we want to remain competitive in the global market place. I’d like to introduce to you my prescription for health care reform that I will be telling you about over the next couple of weeks:
• Portability: Allowing individuals to keep their health care coverage while between jobs would provide a safety net for those who become uninsured because of unemployment or disability.
• Affordability: Health care costs have become unmanageable, both for families and for governments, and has left many uninsured or under-insured. Removing burdensome state coverage mandates and opening up the health care marketplace to competition across state lines could dramatically reduce health care costs in New Jersey and across the country.
• Sustainability: We should not add to the government health care programs until we are able to fix the existing government programs – Medicare and Medicaid. Unless we are able to fix these entitlement programs, as well as Social Security, the cost of the entire federal government will double within three decades due to entitlement growth alone. Tax hikes to fix this problem is not the solution, nor is adding a new government-run health care bureaucracy.
• Effectiveness: The current health care system reimburses the number of procedures rather than the quality and efficacy of the care. While doctors are compensated for extra tests and hospitals visits, they are not paid for offering telephone consultations or implementing health care IT. By encouraging quality over quantity of care, we can down on over testing and strengthen the doctor-patient relationship. Moreover, protecting doctors from frivolous tort lawsuits will significantly reduce the cost of primary care and remove a significant burden from doctors’ shoulders.
• Innovation: The United States has been home to more life-saving drugs, ground-breaking research, and innovative medical procedures than anywhere else in the world. Any health care reform must continue to encourage medical and pharmaceutical research and not enforce price controls, which would destroy the American pharmaceutical market.
The American people deserve the freedom to choose the health care that is best for their families. I believe we need meaningful health care reform that would increase accessibility, decrease costs, and improve on what is already the best health care system in the world. In the coming weeks I will continue to work with my colleagues in the House of Representatives to try to improve the bill. In the meantime, I welcome your comments. I have set up a special email account so that you can share your thoughts and concerns about health care reform at: [email protected].
Should you have any further questions or comments about this or any legislative issue, please do not hesitate to contact me in my Washington, D.C. office at (202) 225-4465. Also, please visit my website at www.house.gov/garrett to sign up for my e-newsletter with the latest updates.
Sincerely,
Scott Garrett
Member of Congress
