Obamacare’s Skeptical Investors

Obamacare’s Skeptical Investors
By Philip Klein on 1.19.11 @ 6:10AM




With House Republicans poised to vote on repealing the national health care law later today, we’re going to hear a lot of numbers being thrown around, as supporters of ObamaCare tout the Congressional Budget Office estimate that the law will reduce the deficit and opponents arguing that it’s really a budget buster when you put aside the gimmicks.

Advocates of the national health care law say those of us who have been critical of Democrats’ fiscal claims are either lying, being misleading or simply cherry-picking CBO numbers that bolster our case while ignoring those that don’t. But the reality is that ObamaCare skeptics are merely applying a different mode of analysis to determine whether the law is fiscally responsible. And there’s nothing controversial about that -- in fact, it’s something that’s done regularly in the financial community when it comes to evaluating companies.

When I worked as a financial journalist on the equities desk at Reuters, one of our biggest tasks was to weed through thousands of corporate earnings statements each quarter. When a company announced its earnings, most of the focus came down to whether it missed, met, or exceeded that quarter’s expected earnings per share (EPS) number. But as we came to learn time and again, that number wasn’t always the most accurate gauge of a company’s overall fiscal position, because the numbers were often reverse-engineered to meet targets. Some more skeptical investors would put less emphasis on the EPS number, and raise concerns about a company’s debt, cash flow, sources of revenue, or a myriad of other indicators.

There are many well-publicized examples of companies whose earnings statements obscured their true financial position, whether it was with Internet startups during the dot-com bubble, mortgage companies during the housing bubble, or other high-profile accounting cases such as Enron. Those investors who looked beyond the headline numbers and questioned the bullish analyses by many Wall Street analysts ended up being vindicated in many of these cases.

Those defending the fiscal responsibility of the national health care law often remind me of the corporate executives I would hear on conference calls touting their companies' financial strength.

The problem is not with the analysts at the CBO, who merely evaluate what is put in front of them, but with those ObamaCare advocates who quote the CBO’s headline deficit reduction number, and act as if that’s the end of the story.

President Obama set out two main fiscal goals during the health care push -- that the legislation would cost “around $900 billion” over 10 years and that it wouldn’t add to the deficit. And according to the CBO, Democrats were able to achieve that. But a deeper look at the numbers shows, for instance, that the only way Democrats were able to come close to that $900 billion figure was by delaying the major spending provisions (representing 98 percent of the legislation’s cost) until 2014, making it appear cheaper over the CBO’s 2010 through 2019 budget window. In reality, the true 10-year cost, once fully implemented, is well north of $1 trillion.

The various ways the legislation’s authors were able to achieve the deficit reduction number have been well documented. For instance, Democrats claimed $70 billion in premiums from a new long-term care insurance program called the CLASS Act as deficit reduction, even though that money is supposed to pay for the program’s future benefits. And the deficit reduction claims also assume that all of the Medicare cuts will be fully implemented as written, which the CBO cautions has not historically been the case, and that the so-called “Cadillac tax” on expensive health care plans will go into effect in 2018 over objections of labor unions.

Defenders of the law would argue that it’s disingenuous to make an argument based on the assumption that the law won’t be enacted as written. But even if one were to grant that, Democrats are still left with an unorthodox path to fiscal responsibility -- one that drastically increases America’s entitlement obligations at a time when the nation is in the early stages of a long-term debt crisis caused by an inability to pay for the entitlements that we already have. The problem is that the combination of Medicare cuts and tax increases used to pay for ObamaCare are no longer available to offset the ballooning costs of these existing entitlements. Even more specifically, during the campaign, Obama proposed raising the payroll tax on higher incomes to help make Social Security solvent -- instead, such a tax is being enacted to pay for the new health care law.

For the past two years, Democrats have been desperately trying to sell Americans on the idea that government can provide health insurance to all those who don’t have it and save money at the same time. But they’ve encountered a nation of skeptical investors.