Business Ethos Blog

The Budget Battles Continue

Dr. David Mielke is the Retired Dean of the College of Business at Eastern Michigan University


Dr. David MielkeMarch 27th is the next deadline for a budget compromise.  As part of the fiscal cliff deal, Congress and the President pushed back the deadline to approve a budget for this year to March 27th.  The House passed a “Continuing Resolution” to keep the government funded at the same level as last year—minus the sequester $85 billion – –  and sent it to the Senate.  The Senate also passed a continuing resolution but different from the House version.  The Senate and House will not try to reconcile the differences before Wednesday.  It is expected that they will agree and the President will sign the bill.  We can then look forward to the next deadline, the end of May for a budget for next year starting October 1st.  The House has passed a budget designed by Paul Ryan which is to balance the budget in 10 years by cutting spending.  The Senate is working on a budget primarily focusing on additional tax revenues.  The starting point for the House budget is to repeal Obamacare.  This appears to be a non-starter for the Democrats and unlikely to get passed in the Senate.  However, is this the “Right Thing to do?”  Let’s look at some issues:

1. Many would say that the House is pushing on a rope again.  The Supreme Court has ruled, the President was re-elected, and it is time to work to implement the health care law.

2. We are starting to see the implications of implementing Obamacare: companies, especially in the restaurant industry restructuring working hours of employees so that they do not count as part-time workers–thereby limiting employer mandated health care coverage or penalties under the law.  Some are also speculating that companies close to 50 full-time equivalent employees are making sure they are blow that level.

3. Medical device companies are incurring a 2% tax on the sale of their products to help fund Obamacare.  This is certainly adding to the cost of health care as these companies will pass on the costs.

4. There are a number of suits in progress contesting the requirement that companies and religious organizations must provide contraception coverage.  That is sure to end up with the Supreme Court.

5. There is a new tax on investment income effective this year on high income earners.  This 1% tax will also go to fund the new health care law.

6. States have been asked to extend Medicaid to substantially larger portions of the population.  They were initially mandated to do so, but the Supreme Court struck down that provision.  Michigan has been offered $2 billion a year to expand coverage to 400,000 people.  The governor wants to do this, but the legislature has removed it from next year’s budget.  Many states have already refused this expansion—some Republican governors, for example Arizona and Ohio, have changed their minds, have supported the expansion only to have their legislatures refuse.

7. The majority of states have refused to establish the insurance exchanges necessary for consumers to shop for policies.  The establishment of exchanges is to be done by October—to date the federal government has made little, if any progress to do so.

8. Another new tax has come to light within the last week—companies that offer health care plans will be charged $63 for each person they insure next year.  This is one of the clearest cost increases companies face when the law takes full effect.  Companies and other plan providers will together pay $25 billion over three years to create a fund for insurance companies to offset the cost of covering people with high medical bills.  The fees will hit most large US employers, and several have been lobbying to change the program, contending the levee is unfair because it subsidizes individually purchased plans that won’t cover their workers.

9. There is an exhaustive study by three congressional committees just released that shows that Obamacare could increase health insurance premiums by over 200% and render insurance coverage unaffordable for millions of Americans.  Under Obamacare, households earning less than $46,000 a year will receive graduated premium assistance.  Those above that threshold may be unable to afford coverage which costs 200% more.  The law also mandates types of coverages that some companies do not currently offer—increasing their costs.

10. Young Americans between the age of 21 and 29 will have sharp increases because the law mandates that individuals pay the same premium regardless of future anticipated medical expenses, leading to sharply increased premium costs for those under 50.

The promise of Obamacare was to provide health care to everyone and to have it be affordable.  It is unlikely to meet that promise.  Should the House fight for their budget and hold fast to the repeal of Obamacare?  What is the “Right Thing to do?”  In my opinion, it should be repealed.  The law is poorly designed, does not control costs and is far from where it should be to be implemented by October for the health insurance exchanges and fullimplementation January 1, 2014.  However, what the House is missing is an alternative.  It is one thing to be against something—it is another to be for something and to offer an alternative.