Rep. Darrell Issa (R-CA) has an op-ed in today’s Politico in which he argues that the Congressional Budget Office underestimated the cost of the Affordable Care Act by an incredible $1 trillion dollars:

Beginning in 2014, tens of millions of employees will be eligible for these new subsidies. Many already have access to health insurance through their employers but are likely to find it more advantageous if this insurance is dropped, and they can instead have taxpayer health care subsidies and slightly higher wages.

While this creates a win-win for the employer and worker, it creates a lose-lose for the nation’s credit rating and taxpayers. Holtz-Eakin has calculated that previous projections may have underestimated Obamacare’s 10-year cost by roughly $1 trillion.

Issa argues, via former CBO director Douglas Holtz-Eakin, that employers will drop coverage because the cost of providing insurance is more than the penalty for not offering it and that workers will simply gravitate toward more affordable government-subsidized plans. But this argument doesn’t account for the increased compensation employers would have to provide to their employees if they stopped offering insurance or that employees “who have a coverage offer from their employer are not eligible for premium tax credits unless the coverage offered is seriously deficient.” As the Urban Institute explains, “[T]here is little scope for firms being able to save money from dropping ESI [employer sponsored coverage] coverage except perhaps in firms where most workers have low wages as well as low family incomes, and these types of firms are the least likely to offer ESI today.” Note that Holtz-Eakin’s estimates is on the very periphery of other studies of employer dumping:

But what’s really astounding is that Holtz-Eakin would produce a $1 trillion figure — a number so large that it seriously questions the competency if not the sanity of the actuarial office he used to manage.

Former CBO head Douglas Holtz-Eakin appeared on Fox News this morning to hawk a National Federation of Independent Businesses (NFIB) study, which found that some small businesses would drop coverage if their employees purchase insurance coverage through the state-based exchanges:

HOLTZ-EAKIN: Number one, every time an employee takes advantage of the exchanges, it means the taxpayers are forking out a lot of money. The subsidies are quite generous, as much as $7,000 to a person making $70,000, 10 percent of their income. So that’s a real taxpayer burden. The second is it means employers are dropping coverage. There are insurance arrangements that they already have, and they’re going to go away. One of the central promises of the Affordable Care Act was if you like your insurance, you get to keep it, and that’s increasingly not true.

Watch it:

Holtz-Eakin forgot to mention that tax payers are already “forking out a lot of money” — some $200 billion a year — to encourage employers to continue providing health insurance to their employees, most of whom would not be able to apply for subsidies within the exchanges. That’s because “subsidies aren’t available to anyone whose company offers a healthcare plan that costs less than 9.5 percent of his or her income.” So the NFIB survey and Holtz-Eakin have it backwards “employees would head to the exchanges if their companies quit offering healthcare, rather than employers dropping coverage because their employees aren’t taking it.”

And despite Holtz-Eakin’s claims to the contrary, there is very little evidence to suggest that employers would benefit from eliminating the health care benefit and making up the difference in higher wages (an added cost, particularly for higher-paid employees). As NFIB senior fellow Denny Dennis, who wrote the report, admitted on a conference call with Politico’s Jason Millman, there’s no “slam dunk” evidence that that businesses will dump coverage are a result of the law.

A former senior health care advisor to President Barack Obama and a prominent advocate of the Affordable Care Act predicted that Republicans will shut down the federal government in their efforts to de-fund the health care law. Speaking at a Harvard School of Public Health forum, David Cutler — a Professor of Applied Economics at that university — predicted a stalmate with little chance of resolution, given the new Republican majority in the House:

CUTLER: We are likely to have an immense stalemate and I would not be surprised if we shut down the federal government over funding of discretionary health care early next year, the debt ceiling limit, the physicians’ payments. There will be about 10 opportunities to shut down the government. If we’re not going to shut them down, each time we’ll have to compromise and that strikes me as somewhat unlikely. [...]

We will go through a burning bridge, I’m not quite sure of the right analogy, in the next few months. We will either have have or come increasingly close to having a government shut down and we will probably not have any agreement on how to move forward on health care, except with the idea that maybe the 2012 elections will settle a little bit more and that’s in part because there are no wise men, I think on the Republican side who are willing to meet anyone half way.

Watch it:

The forum focused on the Impact of the “2010 Elections on U.S. Healthcare Reform,” but also delved deeply into policy specifics about cost control mechanisms and the policy specifics in the Affordable Care Act. Another panelist, Douglas Holtz-Eakin, the former McCain campaign advisor and CBO director, predicted that Republicans will “unwind” the bill through the discretionary spending process. “It will slow down the implementation and in that way put it on a timetable to coincide with the 2012 election… that’s when this whole point will be resolved,” he said.

Yesterday, Senate Minority Leader Mitch McConnell (R-KY) suggested that Republicans would not shut down the government over the issue, telling CNN’s John King, “we’re not talking about shutting down the government. What we’re doing here is talking about responding to the American people’s desire that this bill not become law.”

Former McCain campaign aide, CBO Director, and current GOP policy intellectual Douglas Holtz-Eakin has a provocative editorial in Kaiser Health News in which he completely dismisses the notion that health insurers should be prohibited from deducting taxes that have nothing to do with providing health care services before calculating their medical loss ratios. To step back, the ‘federal tax’ issue has become what some consumer advocates have described to me as the defining battle in the MLR debate. Under the new health care law, insurers are required to spend 80% to 85% of premiums on health care and issue rebates to consumers if they fail to meet this threshold.

Insurers have seized on a single mention of “federal taxes” in Section 2718 of the health law — the section that deals with MLR — to argue that they should be allowed to exclude all federal taxes from their revenue (the denominator in the MLR ratio), a move that would save issuers millions of dollars and allow them to meet the MLR requirements without necessarily spending more on care. Democrats are disputing their claim and insisting that they did not intend for issuers to exclude all federal taxes — only those that pertain to health care. Judging by the tone of his op-ed, Holtz-Eakin believes that this is simply untenable:

To begin, there is no defense for including taxes in any measure of available resources as part of an MLR. Whether used to measure dollars available for payments for medical expenses or devoted to administrative costs, taxes are simply not available for those purposes and must be excluded – six chairmen notwithstanding.

Worse, including taxes raises the threat of damaging and inappropriately double taxation. Most health plans are required to pay federal income taxes as well as payroll taxes. If these taxes paid to the federal government are not excluded from the premium revenue, the health plans’ MLR will be paying a potential double tax or rebate on the same net income: first paying taxes to the federal government and then a rebate to consumers using the same dollars. Double taxation is wrong in principle and in practice may be the death knell for smaller insurers.

During the election, Pat and I closely monitored Holtz-Eakin’s television appearances and joked that, judging by the veracity of his answers, the man was about to implode and was in desperate need of a vacation. I think, regrettably, that the same may be true now.

First of all, broad taxes were not part of the MLR prior to the health law and using investment taxes as a subtraction from premium revenue is just a way to circumvent the intent of the law — which is to keep insurer profits in check until 2014 — without improving efficiency. Secondly, an MLR rebate Is not a tax. It is the act of returning money to the consumer that was not spend on providing health care services — the opposite of a tax.

Further in his piece, DHE complains that the law “federalizes the MLR and employs a blunt one-size-fits-all approach that does not permit review and fine-tuning of its impacts.” But this too completely ignores the fact that the National Association of Insurance Commissioners (NAIC) — the organization tasked with defining the MLR — has gone out of its way to fine tune the MLRs to deal with smaller plans and different plans and has allowed a wide variety of quality improvement expenses and a procedure for adding more!

Finally, DHE argues that in order to satisfy the new MLR requirements, insurers would have to take steps that “may disqualify policies’ grandfathered status and violate the Obama administration’s promise” of keeping what you have if you like it. But again, this too demonstrates a complete misunderstanding of the MLR. The easiest way to meet the new standards is by lowering cost-sharing, which actually increases the likelihood of retaining grandfathered status.