October 11,2011

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In Speech at Heritage Foundation, Hatch Outlines Economic, Health Impact of Partisan Health Law

WASHINGTON – In a speech at the Heritage Foundation today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined the impact of the partisan health law on the economy and the nation’s health care system a year and a half after it was enacted.

“The health care sector represents one-sixth of the American economy, and this share is growing,” said Hatch. “While many on the left are sincere that Obamacare was necessary to protect the less fortunate, it is also the case that by assuming greater control over health care the federal government would exert increasing dominance over the nation’s economy. To put some flesh on that, the President’s health law will allow the federal government to secure greater control over individuals.”

Hatch continued, “Though events and data remind us frequently of the failure of this law to live up to the promises of those who promoted it, the impact of this law on the nation’s health care system has yet to be fully realized.  And the hope of the left is that by the time Obamacare is fully operational, it will be too late to repeal it. The bottom line is that Obamacare is repugnant to constitutionally and economically sound government.” 

Below are Hatch’s remarks as prepared for delivery: 

 Thank you Mike for that kind introduction.  And as always, a special thanks to The Heritage Foundation for hosting this event.  The ability to secure conservative policy victories has ebbed and flowed considerably over the years.  But one constant has been the presence of The Heritage Foundation as a central player in the critical policy debates of our time.

Many value and rely on your wisdom.  But for me, your most important attribute is your perseverance.  The policy professionals at Heritage never seem to get discouraged.  It has not always been easy for the conservative movement.  Both Republicans and Democrats have disappointed.  When President Obama was inaugurated, conservatism was declared dead by the mainstream media. 

But facing the greatest challenge to conservatism in a generation, Heritage persevered.  I suppose it is owing to its origins prior to the Reagan Administration.  Dr. Feulner and the founders of this organization remember being told that we are all Keynesians now.  They knew that wasn’t true, and they helped to provide the intellectual heft for the supply-side revolution.

So when we were told that the election of President Obama meant, as Newsweek proclaimed, we are all socialists now, the folks at Heritage did not fret.  They got to work fighting the Obama agenda and offering up ideas of their own.

I can tell you that in the fight against Obamacare, the contributions of Heritage provided great value to those of us fighting against it.  And in recent months, you have been an enormous help to those of us on the Senate Finance Committee who are working to provide recommendations to the Joint Select Committee on Deficit Reduction and preparing a robust conservative reform agenda for 2013.

 We have an uphill fight.  I do think that the wind is at the back of conservatism, but we should make no mistake about the challenges ahead of us.  Even today, as his popularity and job approval wane, President Obama is able to command a significant audience for his ideas. 

I understand that he has about 10-million followers on Twitter.  Apparently the only two people who have more are Lady Gaga and Justin Bieber.  When the President’s progressive agenda is only being beaten out for Twitter popularity by Lady Gaga’s Little Monsters and Bieber Fever, we have our work cut out for us.

We cannot shy from the fight, however, and in coming years the centerpiece of a conservative agenda must be health care.  As others have noted, our deficit and debt problem is largely a health care problem, and the solution to this problem is not more government and higher taxes.  The left has inaccurately criticized our health care system as a market system running roughshod over the people of this country.  The fact is, however, our health care system — even before Obamacare — was dominated by the heavy hand of government from top to bottom.  The only real solution to our nation’s health care crisis is moving away from government control over health care and toward the application of market principles to a system that has distorted incentives from top to bottom due to government interference.

 Today, I want to use this opportunity as a reminder of the challenges that Obamacare poses for conservatism and the future of this country.  As Arnold Kling and Nick Schulz wrote in National Affairs, Obamacare seized the new commanding heights of the American economy.  The health care sector represents one-sixth of the American economy, and this share is growing.  While many on the left are sincere that Obamacare was necessary to protect the less fortunate, it is also the case that by assuming greater control over health care the federal government would exert increasing dominance over the nation’s economy.  To put some flesh on that, the President’s health law will allow the federal government to secure greater control over individuals.

So it is essential that we remain vigilant in our criticism of the President’s health care law.  This is not an easy task.  It is difficult for citizens to remain engaged on a matter of this complexity for so long, and it has now been over a year and a half since Obamacare became law.  The President and his Democratic allies have effectively stopped talking about the law.  They appear to have recognized that any time they promoted it, their — and the law’s — popularity dropped.  Rather than defend the law, they have decided to lay low and grind their way to 2014.  Though events and data remind us frequently of the failure of this law to live up to the promises of those who promoted it, the impact of this law on the nation’s health care system has yet to be fully realized.  And the hope of the left is that by the time Obamacare is fully operational, it will be too late to repeal it.
Today, I would like to review the great threat that Obamacare poses not just to the American economy but to personal liberty and American constitutionalism itself.

As a constitutional matter, the individual mandate infringes personal liberty and threatens our constitutional separation of powers.

As a matter of personal choice and economic growth, the law will further undercut personal choice and economic growth.

And with respect to our commitment to the republican ideal of self-government, the law continues to grow an already burdensome regulatory state, unaccountable to the American people.

It is important to begin our discussion with the individual mandate.  It is the quintessential feature of Obamacare, as well as its greatest threat to liberty.  But it may also be its undoing.  The Justice Department has now requested that the United States Supreme Court review the decision by the 11th Circuit Court of Appeals that overturned Obamacare’s individual mandate.  

The fact that we are even at a point where the unconstitutionality of the individual mandate is being discussed is a great achievement of the conservative movement.   You may recall that when we started down this road, not many people took our argument — that the mandate exceeded Congress’ enumerated powers, leaving the very concept of a limited federal government in tatters — seriously.  The assumption of most on the left was that the individual mandate was obviously constitutional. 

A December 2009 paper published by the liberal American Constitution Society claimed that “[o]pponents’ arguments…have no basis in law, neither in the grants of authority to Congress in Article I nor in limitations on that authority in the Bill of Rights, nor in the case law interpreting these provisions.” 

Erwin Chemerinsky, the renowned liberal professor of constitutional law, wrote in the Los Angeles Times that the mandate “unquestionably would be constitutional” and that opponents’ arguments do not have “the slightest merit from a constitutional perspective.”

The answer of then-Speaker Nancy Pelosi to a question about whether Congress has the constitutional authority to enact the individual mandate, was an incredulous “[a]re you serious?  Are you serious?”

Well, we were serious.

To many conservatives, it had become clear that the individual mandate represented an unprecedented expansion of the power of the federal government and intrusion on the personal liberty of individuals.
As it turns out, the bluster of our opponents may have been masking their own real concerns.  After all, they knew that in 1995 the Supreme Court, for the first time since the New Deal, enforced real limits on Congress’ power under the Constitution’s Commerce Clause.

It seems that even President Obama — a former constitutional law professor — understood the real possibility that the individual mandate would not pass constitutional muster.  Recall that then-candidate Obama stated that one of the biggest distinctions between his health care proposal and that of then-Senator Clinton was the individual mandate.

In his new book Confidence Men, the journalist Ron Suskind reports that when options for health reform were being put before the President, he had concerns about legal challenges to the individual mandate.  According to Suskind, “Obama, never much for the mandate, was concerned about legal challenges to it but was impressed by [the] coverage numbers.  Without the mandate, the still-sketchy Obama plan would leave twenty-eight million Americans uninsured; with the mandate, the estimates of the number left uninsured were well below ten million.”

We know which side the President came down on.  Sure the mandate might violate the Constitution, but he would lose support for his proposal if it did not include the mandate.  In good progressive fashion, the President put his policy preferences ahead of any constitutional concerns. 

 Conservatives, however, put the Constitution first, and I was glad to have played a role in arguing for the mandate’s unconstitutionality from the beginning.  On the opening day of the Senate Finance Committee’s markup of the America’s Healthy Future Act, I raised concerns about the constitutionality of the individual mandate.  While Congress may regulate activities in which people choose to engage, the insurance mandate was a bridge too far, regulating not action, but inaction.

  At the markup, I offered an amendment providing for an expedited judicial process to handle any constitutional challenge to the legislation.  The Chairman, Senator Baucus, ruled that this amendment was out of order and stated that the “provisions in the bill are clearly constitutional.”

The people would not be stopped, however, in objecting to this unconstitutional law.  My state of Utah was an original plaintiff in the lawsuit in the 11th Circuit.  Along with forty-three of my colleagues, I worked with the Republican Leader Mitch McConnell to file a friend-of-the-court brief in this litigation. 

The American people responded to this debate.  The Polling Company conducted a nationwide poll on health care legislation in November 2009.  By more than four-to-one, Americans said that the insurance mandate “is unconstitutional because Congress’s power to regulate interstate commerce does not include telling Americans what they must buy.”
Now the Supreme Court will get to decide whether forcing individuals to purchase health insurance is an appropriate use of powers to regulate interstate commerce or to tax and spend for the general welfare.   There is an important lesson here:  we are only at this point because the American people made the case.  Ultimately, the Constitution belongs to them, not the legal professoriate or even the judiciary.  The Constitution is law because the people ratified it, and they and their elected representatives play a role in debating and securing its meaning. 

The American people understand that if the mandate is constitutional, anything is constitutional.  There are effectively no limits on Congress’ power under the Commerce Clause, and the Constitution’s enumeration of powers means nothing.

Moving beyond the individual mandate, the American people also understand the threat that the President’s health care law poses to the economy.  What that really means is that it poses a threat to people’s livelihoods, to their ability to take new jobs, and to start new businesses.  It poses a threat to the earnings that families depend on, earnings that come from the sweat and ingenuity of America’s workers.

According to one recent study, Obamacare puts 3.2 million jobs at risk.

President Obama repeatedly promised as a candidate that his health care proposal would bring premiums down by $2,500 for the typical family.  Things have not turned out as planned.  There is now no avoiding the fact that the cost of coverage, coupled with the employer mandate, will undercut the employer-provided coverage where most Americans get their health insurance.  According to an analysis by Aon Hewitt, premiums for employer-sponsored coverage will rise by another 7 percent in 2012.  And employee out-of-pocket costs will increase by nearly 11 percent.

The picture is pretty grim, and not just according to one survey.  The annual Employer Health Benefits survey of the American Hospital Association’s Health Research and Educational Trust showed that insurance premiums spiked 7.5 percent for single coverage, and 9.5 percent for family coverage, in 2011.

 As predicted by conservative critics of the law, the impact of these increases in premiums will actually undermine access to employer-provided coverage.  The first real evidence of this impact on coverage was in the results of a survey issued by McKinsey.  That survey found that 30 percent of employers planned to dump their coverage due to Obamacare.  And after 2014, when the employer-mandate kicks in, among those with the greatest knowledge of the law, 50 percent plan on dropping coverage for their employees.

 The initial reaction to this study by those who supported the health care law was to shoot the messenger.

 A more forthright assessment, however, came from Howard Dean, who only objected to Obamacare because it was not liberal enough.  He recently stated that the study’s results were in fact true and actually good for small business because they would be encouraged to dump their employees into the new health insurance exchanges.

 I suppose good is all in the eyes of the beholder. 

From my perspective, it is not good for the employees who are losing their health coverage, and it is not good for the taxpayers who will wind up footing the bill for all of this.

 It is not even clear that it will be good for employers.

 After all, we know how this story will end.

 In President Obama’s second term, the cost of coverage will continue to go up.  As the Republican Policy Committee recently discovered, even the liberal Center for Budget and Policy Priorities recently acknowledged this in one of their policy papers.  This is what was buried in a footnote. 

“Starting in 2019, the growth in premium credits is limited if premiums grow faster than the CPI.  Congress enacted this provision as part of the Health Care and Education Affordability Reconciliation Act of 2010 in order to hold down the cost of health reform in later decades, but many analysts believe that it will eventually have to be modified.”

 In addition, a recent analysis was published in Health Affairs finding that premiums will increase by 9.4 percent in 2014, which is 4.4 percent higher than would have been absent Obamacare.

In short, the cost curve will continue on its upward trajectory, and the only question will be how to pay for it.

 There is little doubt in my mind as to what the preferred liberal solution to this mess of their own making will be.  First, they will blame private insurers.  According to this theory, it is only because Obamacare failed to go for the whole enchilada, and force single-payer on the nation, that costs were not brought under control.  I am confident that a reelected President Obama will quickly throw up his hands and demand that his health law be transformed into a single-payer one-size-fits-all Washington-driven system.

 Of course, if past is prologue and the success of government price controls in Medicare is any guide, the ability for the government to truly rein in costs will prove inadequate.  And so hampered with a growing number of exchange eligible persons due to employers dropping coverage, and the inadequacy of existing premium support, they will no doubt seek to fill the gap with new taxes directly on employers and indirectly through increased taxes on high income individuals, taxes that hit small business income disproportionately.
 I began by discussing the shortcomings of Obamacare from a conservative constitutionalist perspective.  It undermines the very concept of enumerated powers and limited government. 

From a conservative economic perspective, the impact of Obamacare on the accessibility of coverage and the tax burden that will be necessary to pay for this new coverage entitlement will undercut our constitutional commitments to property rights and individual liberty.

 But Obamacare is offensive from a broader conservative perspective as well.  Public intellectuals at The Heritage Foundation, at the Claremont Review of Books, at National Review, and at many other institutions have documented the threat that programmatic liberalism poses to self-government itself.  As government grows, lawmakers are forced to delegate their constitutional responsibilities to executive branch agencies, which lack public accountability.  To close the circle, the hundreds of thousands of pages of regulations churned out by this permanent bureaucracy — regulations with the force of law — cannot possibly be reviewed in any systematic fashion by Congress, which is the constitutionally authorized lawmaking branch.

 This shift in power toward a permanent bureaucracy has, and will continue to have, grave consequences for the health of our democracy.  It in effect strips the people of their ability to govern themselves by severing the link between popular elections and the laws under which we live.  And as the bureaucracy grows, even the link between the execution of the law and popularly elected officials is weakened.

 The impact of this bureaucratization has been felt acutely in the administration of the nation’s health care sector.

 Administrations might come and go, but CMS remains, turning out new pages of regulations every day. 

Following Tocqueville, conservatives look at this bureaucracy and recoil as supporters of an active and vigorous citizenry and of republican self-government. 

And following Edmund Burke, conservatives know that the effort to control costs in an enormous sector of the economy through government price setting is doomed to fail.

 Unfortunately, Obamacare only promises more of the same excesses in administration.  Let me use three examples.

 First, to help pay for the new coverage expansions, the health law — consistent with a progressive tradition going back to Woodrow Wilson — puts a great deal of faith in the wisdom of experts.  In particular, the law finds great promise in the new Independent Payment Advisory Board.  This panel of unelected experts will recommend additional cuts to Medicare, which may become law without any approval by Congress.

Second, the case of preventive services is instructive.  Throughout the health care law, the drafters delegated lawmaking responsibility to the executive branch.  We are seeing the consequences of that now as Secretary Sebelius, again relying on boards of politically unaccountable experts, determines what preventive services have to be covered without cost-sharing and what the new essential health benefits package will look like.

With respect to women’s preventive care, I think there is little question that a number of services and products that will be required violate core beliefs of many of the nation’s religious groups and religious institutions.  These institutions will be forced by these new regulations to either conform to these requirements violating their conscience, or drop health coverage for their employees.

 In a truly republican system of government, one where lawmakers were fully responsible for the laws that govern us, I am confident that such a provision would never have passed Congress.  Members of Congress would have heard from their constituents and balked at a requirement that so obviously undercuts our constitutional commitments to religious liberty.

But in the hands of an unaccountable bureaucracy, reliant on unaccountable government experts, the unthinkable becomes thinkable.

Third, consider the case of Essential Health Benefits.  Last week the Institute of Medicine published their recommendations for how to determine the “essential” health benefits package, by pegging the cost of the plan to the average premium of the typical small employer plan.  Each year the cost will be updated by projected premiums for the following year, allowing the cost of all plans offered in the small and individual market to increase at the same rate as medical inflation, outpacing increases in wages and allowing more and more individuals to be eligible for premium credits. 

Now to their credit, the IOM notes that without a drastic reduction in health care costs, this proposal will “[erode] the purchasing power of the estimated 68 million people who will depend on EHB coverage.”  And “[e]ventually, the EHB package will become a hollow promise of coverage.”  In short, what the Administration deems essential will only lead to increased premiums and fewer people able to access affordable coverage.  This is just further evidence of the law’s dishonest promise to fix the small and individual market.  The law’s benefit mandates will only lead to increased spending and more and more employers unable to offer coverage due to the mandates.

Then there is the case of the CLASS Act.  The inclusion of this program in the health care law borders on a deliberate fraud on the American people.  Knowing that any short-term savings from this program were illusory, and that it was in fact a Ponzi scheme that could not be made fiscally solvent absent mandated participation by employers, the Administration nonetheless decided to include the program in Obamacare.  It did so for one reason only.  By only looking at the first few years of the program’s life, this fiscally unsustainable program actually could be shown to provide so-called savings that could be used to game a favorable score for Obamacare from the Congressional Budget Office.

Putting aside the fiscal shenanigans that led to CLASS becoming law, of greater constitutional importance is that whether or not the law will even be implemented is dependent on a determination by the Secretary that the program will be solvent.  Consider that for a moment.  Congress created a program, unsure of its solvency, and then granted to the bureaucracy the ability to both determine its solvency and whether to even implement the law at all.  Here we see the growth of government not only putting administrative lawmaking out of the reach of the people, but also encouraging congressional irresponsibility such that popular representatives could not be bothered to ensure the solvency of the program they were creating.

Finally, consider the issue of waivers.  By mid-August, 1,472 plans with nearly 3.4 million people had obtained waivers from some of Obamacare’s new federal requirements.  Our Founding Fathers would be appalled.  Congress is supposed to pass general laws that will be applied neutrally.  But here, the Administration has determined on its own to waive application of the law.  In a properly functioning republic, effected persons and parties should petition lawmakers to change the law.  Yet in contemporary America, these same individuals petition administrative agencies for relief from application of a law enacted by Congress.

The continued growth of the administrative state jeopardizes our constitutional commitment to being a government of laws rather than men.  And Obamacare only accelerates this trend.

So what are we to do about this?

Unable to achieve the deficit reduction numbers that conservatives sought in the debate over the debt limit, Congress has created a Super Committee.  The Budget Control Act set a goal of $1.5 trillion in deficit reduction for the Committee.  I know that the Committee is working hard toward this goal, and it is important to recognize that real reform of our health care system — which begins with repeal of Obamacare — is absolutely necessary if we are to right our nation’s fiscal ship.

What options does the Super Committee have?  Later this week the Senate Finance Committee Republicans plan to offer recommendations to the Super Committee on a number of issues, including health care.  Those recommendations remain a work in progress.

But I would say that it is critical that the Super Committee recognize the impact that health care has on our fiscal picture.  Recognizing that you have a problem is the first step toward recovery, and we would go a long way toward reform by simply acknowledging that our nation’s spending crisis is largely a crisis of health care spending.

Here are the numbers.
Medicare beneficiaries will almost double in the next two decades — from 47 million in 2010 to almost 80 million by 2030.

Meanwhile, the cost of care for beneficiaries will continue to rise.  According to The Urban Institute, an average single earner couple, turning 65 this year, will likely have paid $55,000 into the Medicare program over the course of their lifetime, but will receive over $340,000 in benefits — nearly 6 times what they have contributed.

Growing costs, coupled with a growing population of beneficiaries, is an unsustainable combination.  According to CBO Medicare will be insolvent by 2020.  According to this year’s Medicare Trustees Report, Medicare is currently facing a $38 trillion unfunded liability.  To put this in perspective, it translates into an obligation of $353,350 per household. 

The first step toward righting this ship is repealing Obamacare in its entirety.  The President’s health care law paid for its coverage expansions by raising taxes and cutting Medicare.  To put it another way, its new entitlement was paid for by raiding an existing entitlement already on the verge of bankruptcy.  The law took $500 billion out of Medicare, doubled the size of Medicaid, and raised taxes by over $1 trillion.

With respect to Medicaid, a program designed as a limited safety net will now enroll almost one in four Americans.  The federal government alone will spend nearly $280 billion on Medicaid this year and $4.6 trillion through 2021.   This spending does not even include the state share of the program’s costs.

Our deficits and debt are being driven in growing part by our health care entitlements.  Medicare and Medicaid are unsustainable as is.  By cutting money from Medicare and expanding Medicaid, our long-term fiscal picture was made even bleaker by Obamacare.  The evidence is mounting that the addition of the new entitlement to premium subsidies may prove catastrophic to the federal budget. 

Repealing Obamacare is, therefore, a critical first step in getting our fiscal house in order.  The assumption that it would continue unchanged was one of the great failings of the Simpson-Bowles deficit reduction commission. 

By repealing Obamacare, we will reduce the tax burden on businesses, which will contribute to our economic recovery, with consequent increases in revenues to the federal government.

By repealing Obamacare, we can reform Medicaid, and restore it as a fiscally sound safety net program.

By repealing Obamacare, we can properly reform Medicare, promoting structural change of the program rather than more cost controls which threaten access to care for beneficiaries.
By repealing Obamacare we can improve health care overall by freeing the sector from more onerous regulation and burdensome bureaucracies, and giving room to market reforms that can improve patient outcomes today and into the future.

I would like to make one final point about the Super Committee and its work on tax reform.

As you have probably sensed, President Obama and Republicans mean two very different things when we talk about tax reform. 

President Obama speaks of tax reform and means raising taxes to lower the deficit.

Republicans talk about tax reform and mean broaden the base and lower rates with no net tax increases as measured against a current policy baseline”.

Insofar as the tax code subsidizes health care, I think that it would be a mistake to address any of the tax expenditures for health care as part of a deficit reduction exercise.  There might be cause to reevaluate health care tax expenditures in the context of a rate-lowering exercise in tax reform.  But we should not be undercutting middle class tax benefits to pay for President Obama’s outsized — and hopefully temporary — welfare state.

The bottom line is that Obamacare is repugnant to constitutionally and economically sound government.  I attempted to address some of its more egregiously damaging features today.

I would encourage you to stay tuned, however. 

Repeal comes first, and it will happen. 

But the next step must be replace, and I am committed with my Republican colleagues to forging a workable replacement that will emphasize free-market principles over government control. I expect Heritage to be at our side as we develop that alternative. Thank you.