“We continue to study Massachusetts’ health overhaul experiment as a harbinger of ObamaCare. And we continue to see serious problems ahead,” observes Grace-Marie Turner of the Galen Institute in a must-read piece on the disaster in the Bay State.

Turner has done an excellent job of breaking down the many ways in which the Massachusetts system shows “the near impossibility of containing costs in a system where incentives go in exactly the opposite direction.”

“On average, health insurance now costs $14,723 for a family of four in Massachusetts, compared to $13,027 nationally. That’s nearly 12 percent higher than the national average. Reform has not made insurance more affordable,” Turner notes.

“[S]ome small Massachusetts employers are dropping health insurance and sending their workers into the taxpayer-funded health insurance pool. They say they have no choice because of relentlessly rising costs. This spells trouble for taxpayers.”

So, here’s the bad news: the Massachusetts plan is a total disaster. Joseph Rago, an editorial writer at the Wall Street Journal, has a devastating critique of it in today’s newspaper. You might want to take an aspirin before you read it…

Rago notes:

As events are now unfolding, the Massachusetts plan couldn’t be a more damning indictment of ObamaCare. The state’s universal health-care prototype is growing more dysfunctional by the day, which is the inevitable result of a health system dominated by politics.

The problem addresses is that the program is simply financially unsustainable—insurance companies have higher costs because of the system, and the government has only one way to halt the rise in costs: caps. Caps, really, are a solution only in an imaginary world. They do not stop the cost to the companies from going up; they simply mandate the companies can’t charge an adequate amount to sustain them. That means that companies won’t remain solvent.

Rago reports:

Mr. [Robert] Dynan [a career insurance commissioner] added that “The current course . . . has the potential for catastrophic consequences including irreversible damage to our non-profit health care system” and that “there most likely will be a train wreck (or perhaps several train wrecks).”

Sure enough, the five major state insurers have so far collectively lost $116 million due to the rate cap. Three of them are now under administrative oversight because of concerns about their financial viability. Perhaps [Governor Deval] Patrick felt he could be so reckless because health-care demagoguery is the strategy for his fall re-election bid against a former insurance CEO.

Like the national plan, the Massachusetts plan was sold to the public (to the extent it was sold to the public at all) in a misleading way. Rago:

An entitlement sold as a way to reduce costs was bound to fundamentally change the system. The larger question—for Massachusetts, and now for the nation—is whether that was really the plan all along.

“If you’re going to do health-care cost containment, it has to be stealth,” said Jon Kingsdale, speaking at a conference sponsored by the New Republic magazine last October. “It has to be unsuspected by any of the key players to actually have an effect.” Mr. Kingsdale is the former director of the Massachusetts “connector,” the beta version of ObamaCare’s insurance “exchanges,” and is now widely expected to serve as an ObamaCare regulator.

He went on to explain that universal coverage was “fundamentally a political strategy question”—a way of finding a “significant systematic way of pushing back on the health-care system and saying, ‘No, you have to do with less.’ And that’s the challenge, how to do it. It’s like we’re waiting for a chain reaction but there’s no catalyst, there’s nothing to start it.”

In other words, health reform was a classic bait and switch: Sell a virtually unrepealable entitlement on utterly unrealistic premises and then the political class will eventually be forced to control spending.

But the political class can’t control spending. All the government mandates or price caps in the world won’t reverse the costs of the Massachusetts plan, and, when a similar system goes into effect nationwide, the problems of Massachusetts will be multiplied fifty-fold. We will have a healthcare system that simply can’t be sustained. Whom does that benefit?

Health insurance companies were vilified during the debate (if you can call ramming an unpopular bill through Congress a debate), but if they go under, we’ll regret it. I guess we’ll just have to mandate that they stay in business?

 Here’s an idea: If the political class can’t control spending, then the national bill must be repealed and replaced.

However, if you read Sibelius’ piece carefully, you might be more inclined to come away thinking that it is more rhetoric than reality. “In general,” said Cato Institute healthcare expert Michael Cannon, “the piece paints a picture of what they hope will be accomplished by the healthcare legislation as opposed to what it will actually accomplish.”

Let’s look at some highlights of the Roll Call piece.

Sibelius: Small businesses, which have increasingly been forced to drop health care coverage over the past decade, are also getting some relief: In addition to new tax credits available this year, small businesses will be able to band together in new Small Business Health Options Programs to negotiate better deals for health insurance beginning in 2014. And large employers have gotten help, too, in the form of an early retiree reinsurance program, which will help ease the burden of soaring legacy health costs.

In reality, the heralded tax credits for small businesses are so small as to be insignificant, more window dressing than anything else, say critics. A calculator chart by the National Federation of Independent Business estimates that the small business credit for a typical employee making around $36,000 a year will be something in the neighborhood of $308. The NFIB cautions that these figures are tentative since the provisions of the legislation are just now unfolding. But I think we can all agree that $300 isn’t going to make much difference to any business.

Some critics of healthcare reform have gone so far as to claim that the credits are so small as to be utterly meaningless.

Sibelius: Meanwhile, all Americans are beginning to see the impact of strengthened consumer protections, which are being implemented ahead of schedule through our partnerships with insurance companies. Private insurers have promised to end the practice of rescinding coverage from people when they get sick because of paperwork errors, and 65 of our largest insurance companies have agreed to allow young adults under age 26 to stay on their parents’ coverage.

In reality, you’d have to have an inaccurate picture of what health insurance companies can do now to buy this claim. “There’s nothing new here,” said Marie Grace Turner of the Galen Institute, which focuses on health and tax policy, “it’s just rhetoric. Companies legally now can’t rescind insurance coverage when people get sick—they can only rescind coverage when people commit fraud.”

Turner admits that allowing young people to remain on their parents’ policies is having an impact: it is causing premiums to rise. You simply can’t have new services without somebody picking up the tab.

Sibelius: Over the past year, President Barack Obama has made it clear that these people should be able to keep their plans. To make sure that happens, we recently issued a new regulation on “grandfathered” plans that gives important new protections and benefits to Americans while ensuring that insurers have the flexibility to keep offering preferred plans.

Where to begin? The problem is that, yes, you can keep a plan that is grandfathered into the new system, but the plan will likely have so many mandated, new features, none of which are free, that it’s really not your old plan at all. The National Federation of Independent Businesses has figured out what the allegedly grandfathered policies will really be:

“Unfortunately, the restrictiveness of these regulations removes the already limited choices small businesses have to try to keep up with the ever-increasing cost of plans. The Administration is essentially making it harder for small firms to continue offering healthcare, much less keep what they’ve got,” notes in a report on its website.

Sibelius: The Affordable Care Act takes aggressive steps to eliminate waste, fraud and abuse in our health care system — especially in Medicare, where billions of dollars a year are lost and seniors pay the price.

Well, good luck! Who’s not in favor of eliminating fraud, waste, and abuse? But if it were that easy, we’d have done it long ago.

Sibelius’s piece is just one more effort to convince people by rhetoric of things that their lying eyes (and checkbooks) will perceive otherwise. All the happy talk in the world isn’t going to change public perception of the emerging, new healthcare system.

By: Sally C. Pipes

Devotees of big government, like Archimedes, believe that if they have a long lever and a place to stand, they can move the world.

In 2006, a bipartisan band of such politicians in Massachusetts immersed themselves in wishful thinking, ignored both hard facts and proven theory, and used their political muscle to build bureaucracy, increase taxes, and aggregated power to remake health care in the Bay State.

President Obama, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid took the act nationwide with the passage in March 2010 of the Patient Protection and Affordable Care Act.  Like the canary in a mineshaft, Massachusetts provides a strong indication of our fate.

By now, Bay Staters should be celebrating reform. It promised to benefit all. The bureaucrats would design and broker affordable health plans, doctors and hospitals would get a bump in Medicaid rates, and the uninsured would no longer be a burden.

The system was cracked from the beginning, its promises undelivered even as it picked the pockets of business owners and taxpayers.  The crack turned into a chasm this spring, when the state’s private carriers filed for double-digit rate increases for individual and small group plans.

This incensed Democratic Gov. Duval Patrick and the bureaucrats who simply said no. A court upheld their authority, and carriers were forced to continue at 2009 prices, booking loses daily.

They are still fighting in court, and another ruling is expected on the applications for rate increases on plans this summer.

In early June, two large carriers came back with more double-digit increases for plans renewing in July. They expect them to be declined. They are simply positioning themselves for a two-front war: One with the regulators and one with the providers they pay.

The system is inherently unstable and primed for a series of nasty fights. Like dry season at an Everglades watering hole, all the players confined in a tight space, hungry, and all eyeing the same receding resources.  Like this tight ecosystem, the players will start to feed on each other, as survival of the politically-fittest takes hold.

This is the case in Massachusetts now.  The state’s four largest carriers are hemorrhaging $150 million a month. Roughly a third of contracts are up for negotiation and they are pushing for givebacks.

Providers are crying poor. Reform actually hurt their numbers, as most of the newly-insured enrolled in government-run and subsidized plans under Commonwealth Care that pay less than the actual cost for care.

When you lose money on every unit, you can’t make it up on volume. Traditionally, the cost has been shifted to those with private insurance, but those days are over.

Hospitals and clinic operators maintain that two-thirds of the monies they collect are simply passed on to doctors, nurses, and other essential staff.  Cuts here are akin to cuts in wages. Wage cuts will be resisted.  The unionized will strike. Those who aren’t will slow down on the job. Doctors will reduce their level of service and some will take early retirement.

The political and bureaucratic response is naturally to clamp down with more control. Massachusetts’ political leaders and activists are making a strong push for a structure of mandatory global payments, which is merely a state-dominated HMO or single payer system. This, they claim, is the next logical step of health care reform.

Meanwhile, a bill in the state senate would force doctors to accept cut-rate reimbursements for Medicaid patients as a condition to practice medicine in the state. When voluntary exchange doesn’t work for politicians, they move to conscription.

In Massachusetts, it took four years to get to this point, and it’s certainly a downhill slide from here. Nationally, Obama’s bureaucrats are just getting started.  The administration has yet to comply with the law’s requirement that it detail the myriad of powers it’s been granted, yet it has put the bureaucrats in place to get the job started.

While Obama did not get his Health Insurance Rate Authority into the final bill, the newly-created Office of Consumer Information and Insurance Oversight within HHS will perform the same function.

The new authority has been staffed at the top by four individuals known to be tough on private insurers and more comfortable with the views of Ralph Nader than Adam Smith.

Former Missouri Insurance Commissioner Jay Angoff is the head watchdog. We can expect this team to pick up where Obama and Democrats in Congress left off beating up the insurance carriers including writing regulations to define when premium increases are reasonable.

At the end of the day, the carriers are merely pass-through entities that are necessary to administer the system.  They will probably survive but, like regulated public utilities, will be guaranteed after their Medical Loss Ratios (the percentage that an insurer must pay out in claims) and administrative costs are controlled by government, a modest surplus for their efforts.  The ultimate payers will be consumers and taxpayers, who will either pay more for less or more for nothing at all.  What happens in Mass won’t be staying in Mass.

Sally C. Pipes is president and CEO of the Pacific Research Institute, and author of The Top Ten Myths of American Health Care.

By: Michael Luo

WAYNESBURG, Pa. — Sam Boyd has been a Democrat his entire adult life, just like many here in this mostly rural, economically impoverished southwestern corner of the state, where the party’s roots run as deep as the coal underfoot.

But in Tuesday’s closely watched special election to succeed the late Representative John P. Murtha in the state’s 12th Congressional District, Mr. Boyd, 65, is leaning toward casting his vote for the Republican candidate, Tim Burns, a millionaire former software entrepreneur who got involved in politics through the Tea Party movement.

“I’m for Burns for the reason I was for Obama,” said Mr. Boyd, a retired general contractor who served as an unpaid campaign liaison for Mr. Murtha in his county. “I want change.”

Whether or not Mr. Burns pulls off a victory over his Democratic opponent, Mark Critz, in what polls suggest is a competitive race, voters like Mr. Boyd embody the nightmare scenario for Democrats nationally: that even committed Democrats will turn on their party.

Both parties have poured money and political star power into the contest, hoping to shape the political narrative heading into the fall.

Senator Scott Brown, Republican of Massachusetts, headlined a rally for Mr. Burns in Washington, Pa., on Friday. (Mr. Boyd got to meet Mr. Brown afterward and shake his hand.) Former President Bill Clinton was scheduled to stump for Mr. Critz in Johnstown on Sunday.

Democratic leaders hope that improved economic news will help Mr. Critz, as well as their party nationwide. But that may not be enough to convince voters like Mr. Boyd, who only a year and a half ago was putting up Murtha and Obama signs across Greene County, the southwestern-most part of this sprawling district.

Mr. Boyd’s path to discontent since then traces the bumpy legislative path in Washington, from the auto bailouts to the stimulus plan to the passage of the health care overhaul.

His decision on Tuesday, as well as that of other voters like him in this heavily Democratic district, represents a test of Republicans’ ability to make the midterm elections a referendum on President Obama and the Democratic-led Congress.

Mr. Boyd, who first joined his local Young Democrats club as a 14-year-old, says he now regrets voting for Mr. Obama, even though he hastened to add that he still found the president personally appealing.

“I just think I bought the sizzle, not the steak,” he said.

Voters here are grappling with the end of the 36-year reign of Mr. Murtha, who died in February. Mr. Murtha, a legendary master of the earmark process, used his powerful position as the ranking Democrat on the Appropriations Committee’s military subcommittee to channel hundreds of millions of dollars to his sagging district. That bounty helped him maintain a stranglehold on power over a region pocked with shuttered steel mills and factories.

Even here in Greene County, a two-hour drive from Johnstown, where Mr. Murtha used to live and a place he treated as the hub of his district, the signs of his munificence are everywhere, from Murtha Road, where the local Wal-Mart is located, to the defense contractor that anchors the county’s technology park.

But now, there is clearly an opening for Republicans. Democratic voters outnumber Republicans in this district by more than 2 to 1, but the Democrats who populate the area tend to be conservative, like Mr. Boyd, especially when it comes to social issues. With mostly white, blue-collar voters, it is also the kind of district that gave the Obama campaign fits. It is the only district in the country that voted for the Democratic presidential nominee, John Kerry, in 2004 and for the Republican nominee, John McCain, in 2008.

Congressional committees on both sides are on pace to spend about a million dollars each on the race to replace Mr. Murtha. Outside groups have also poured hundreds of thousands of dollars into the race. Mr. Burns has lent his campaign $380,000 out of his own pocket.

Advertisements by Mr. Burns, as well as the National Republican Campaign Committee, have almost invariably sought to tie Mr. Critz, who was Mr. Murtha’s district director, to Speaker Nancy Pelosi, who is extremely unpopular in the district, and to a lesser extent President Obama, whose approval ratings here are similarly abysmal.

“It’s going to come down to, do you think country is on the right track under this administration or the wrong track?” Mr. Burns said in an interview at his campaign headquarters in Washington, Pa. “I know the majority of the people in this district are not happy with Washington.”

Meanwhile, Mr. Critz has sought to draw a bright line between him and national Democratic leaders, saying he would have opposed the health care bill, as well ascap-and-trade climate legislation that is viewed coolly in this area where coal mining remains a way of life. He has tried to focus on local issues, describing his job with Mr. Murtha as that of economic development director and arguing that he can bring jobs to the area.

“This campaign is not about Washington, D.C.,” he said during a debate this month with Mr. Burns. “It’s about Washington, Pa. It’s about Washington Township, Cambria County.”

Some voters have decided that Mr. Critz, with his knowledge of the district and the Byzantine art of securing federal money, would be a better champion, even if the earmarking process that has benefited them so much is now roundly vilified.

“Politics is not a clean game, but you better know how to play the game,” Buzz Walters, a friend of Mr. Boyd who runs a tire shop in nearby Rogersville, said on a recent morning as the political talk among several friends grew heated.

Interviews with some two dozen voters in the district, most of them Democrats, found varying degrees of approval or disenchantment with Washington. Some resented efforts to turn the race into a broader referendum, saying they would make up their minds as they always have, based on the experience or character of the candidates. Others said they were so disgusted at politics in general that they were planning to stay away from the polls.

(The state’s primary is also being held on Tuesday, forcing the candidates to battle on two fronts: winning the special election and fending off challengers from their own party so they can run for a full term in November).

It is the angry talk among longtime Democrats, albeit ones who often sounded decidedly like Republicans, that is potentially most worrisome to party leaders.

“I just think we need a better balance of power in Washington,” Jim Stephenson, 62, a retired electrician, said at the Airport Restaurant here, where both he and Mr. Boyd often spend their mornings.

With Mr. Boyd, the Obama administration’s communications challenges are clearly evident. He said he was not necessarily opposed to the health care law but would “like to know what’s in the thing,” calling it “smoke and mirrors.” As for the stimulus plan, he said he only knew what he could see. And, he said, he had not seen the economy improve.

It is the growing deficit that riles him the most, he said. Rumors of a potential second stimulus package last year caused him to sink into a depression for several days. With four grandchildren, he said he was worried for their future.

Here’s how the Associated Press sums up the findings:

… the analysis also found that the law falls short of the president’s twin goal of controlling runaway costs, raising projected spending by about 1 percent over 10 years. That increase could get bigger, since Medicare cuts in the law may be unrealistic and unsustainable, the report warned.

It’s a worrisome assessment for Democrats.

In particular, concerns about Medicare could become a major political liability in the midterm elections. The report projected that Medicare cuts could drive about 15 percent of hospitals and other institutional providers into the red, “possibly jeopardizing access” to care for seniors….

The report acknowledged that some of the cost-control measures in the bill — Medicare cuts, a tax on high-cost insurance and a commission to seek ongoing Medicare savings — could help reduce the rate of cost increases beyond 2020. But it held out little hope for progress in the first decade.

“During 2010-2019, however, these effects would be outweighed by the increased costs associated with the expansions of health insurance coverage,” wrote Richard S. Foster, Medicare’s chief actuary. “Also, the longer-term viability of the Medicare … reductions is doubtful.” Foster’s office is responsible for long-range costs estimates.

In other words, the finding that health care spending will increase by just one percent is almost certainly a big under-estimate. Costs will most likely be higher. Much higher. And there was more bad news for Medicare:

In addition to flagging provider cuts as potentially unsustainable, the report projected that reductions in payments to private Medicare Advantage plans would trigger an exodus from the popular alternative. Enrollment would plummet by about 50 percent. Seniors leaving the private plans would still have health insurance under traditional Medicare, but many might face higher out-of-pocket costs.

In another flashing yellow light, the report warned that a new voluntary long-term care insurance program created under the law faces “a very serious risk” of insolvency.

Americans intuitively knew that the claim that this massive bill, which expands health care to some 34 million people, would somehow reduce health spending was bogus. My question is why did this report just come out now? Isn’t this analysis that the American people and their Representatives deserved to have before the legislation became law?

The new health care law makes it mandatory that every American buy health insurance. The enforcer of this provision is the Internal Revenue Service, which will add 17,000 new auditors and accountants — all the better to function as a collection agency for private insurance companies. Individuals without “adequate” health insurance — a term that will be redefined yearly — will be subject to fines that will reach 2.5 percent of income by 2016.

Fortunately for the feds, it won’t be hard to collect those fines. The new law allows the IRS to seize your tax refund as payment.

It’s not just individuals that face new mandates and potential penalties from IRS enforcers.  Businesses are also underfire, and as a result many will be looking for ways to avoid exposure, including reducing the number of employees. As Dr. Novack writes:

In those companies [that employ 51 people or more], if even one employee qualifies for subsidies as a result of “inadequate” company benefits, the business will be subject to a $2,000 fine for every employee working at the company, with an exemption for the first 30.

Penalties for other violations will be predicated on factors such as employees’ income and family size. Because of this, employers will have incentives to avoid certain kinds of applicants — single mothers, for example — since those employees could put the entire business at risk for significant fines.

To be safe, businesses likely will respond by moving more employees into part-time jobs to avoid having them “in the count.” Others may find it easier to shift to a contract work force, which will require more costly advice to comply with regulations cracking down on “1099 employees.”

Yes, fellow taxpayers, keep this in mind as you finish up the mind-boggling process of filing your taxes. It is only going to get worse—much worse—as a result of this new health care law.

Consider this article in Investor’s Business Daily, which tells the story of one woman, a primary care physician from New Jersey, who has decided to drop out of medicine, in part because Obamacare threatens to make existing problems with the medical system worse.

Most of the article focuses on how too low reimbursement rates threaten to make medicine simply unprofitable, forcing doctors to close up shop.  But doctors are also concerned about the over-regulation of medicine and how bureaucrats will end up meddling in the patient-doctor relationship. Here are some interesting survey findings highlighted in that article:

Reimbursement issues were rated “most unsatisfying” by more than 54% of doctors surveyed in 2008 by the Physicians Foundation. Managed care issues and Medicare/gov’t regulations were not far behind, with 51.6% and 45.8%, respectively.

Seventy-nine percent of doctors said ObamaCare makes them less optimistic about the practice of medicine, according to a survey by Sermo and AthenaHealth (ATHN). Two-thirds said they would consider dropping all government insurance programs.

Two-thirds of doctors may stop serving Medicare and Medicaid patients? This is the kind of information that people are going to be getting about this new health care law, and it is only going to make them like it less.

The corporate damage rolls in, and Democrats are shocked!

Yet Thomas Miller of AEI has a few additional ideas of what can be done even before the November elections:

(1) Stop the reconciliation bill coming up in the Senate this week. Several successful “Byrd rule” procedural challenges could strip key provisions out of the bill—although an initial ruling by the Senate parliamentarian late Monday night on the deal to delay the effects of a “Cadillac” tax on very high-cost insurance plans suggests the process remains wired for the majority. The Senate Republicans still hope to sink the rest of the bill by removing portions of its net budget savings and other House-favored changes. A host of Republican amendments also could stretch out this latest war of attrition and (if we want to be optimistic) result later in a House-Senate stalemate in a conference committee before the promise of a quick fix is abandoned.

(2) Challenge and slow down early stages of the final law’s implementation at various chokepoints. The health legislation remains fundamentally unworkable. Forcing it to run a multi-year gauntlet of critical comments and questions in the rulemaking process, rigorous administrative procedure requirements, and a tsunami of legal challenges to its statutory provisions should start the hemorrhaging.

The legal aspects of this will be particularly interesting. While it will be an uphill battle, as Nicole Kurowara writes on IWF’s blog, there is hope that the judiciary will reclaim its proper role as the true defender of individual liberty and enforcer of the concept of limited government.

Perhaps the most important thing that anyone can do is to remain engaged. One big battle was lost, but the war over health care is far from over.