In early December 16 Senate Democrats signed a letter to the President asking for a delay in one of the tax provisions of the Affordable Care Act. The tax, a 2.3% levy on medical devices, is scheduled to go into effect on January 1, 2013. The signees include Franken, Durbin, Schumer, and Kerry are now concerned about the “job-killing” nature of the tax and will eventually seek its outright repeal.
It comes as no surprise to most economists that a revenue tax that amounts to over 50% of the typical device firm’s annual profits will have profound consequences on the way a firm operates. Some estimates expect a loss of over 40,000 high paying jobs because of the tax. Additionally, the expectation is for price increases in such devices as hearing aids, wheelchairs, prosthetics, and implantables used in hip, knee, and spine surgery. The political establishment expected controversy all along. One key senate staffer responsible for writing the bill called ObamaCare a “coverage bill, not a cost reduction bill.” Phase 1 was the passage of the act to get more people covered. Phase 2 will be a battle to control costs.
This is exactly the pattern that is being followed in Massachusetts where a similar reform has been in place since 2006. The legislation in that state, labeled RomneyCare, has resulted in a broad expansion of coverage. But 4 out of 5 of the newly insured are covered in a public program. As a consequence healthcare spending consumes 54% of the state’s budget (up from 21% in 2001); Massachusetts has the highest per capita healthcare spending in the world; and healthcare costs are 27% higher than the US average.
The conventional wisdom in Massachusetts holds to the philosophy that the only way to control healthcare spending is through government control. So Phase 2 started with caps on premiums and is now moving to secure government’s role as the final authority over health care. The most recent piece of legislation limits the growth in healthcare spending to the growth in state GDP until 2017. After that date until 2022, the limit is state GDP minus 0.5%. Thereafter, providers will be placed on a global budget, virtually eliminating fee-for-service and subjecting providers to a capitated payment system. As a requirement for the privilege of practicing medicine in the state, all providers will have to register with a new state bureaucracy, the Health Policy Commission. This state agency, similar to the Independent Payment Advisory Board set up under ObamaCare, will have sweeping powers to enforce the new rules on spending, rewrite contracts, establish fees, and punish providers that spend too much money on patient care.
Well, it took 6 years for Massachusetts to admit that a government-run healthcare system is unable to control spending without taking over all decision-making. It’s just a matter of time before the rest of the country follows down the same path. Maybe the Mayans were right and we won’t have to deal with the consequences of this emerging fiasco.
The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University. Baylor is not responsible for the accuracy of any of the information provided in this post.