The Boss Business Brief has Sally Pipes, President of the Pacific Research Institute, joining Mike Siegel for a discussion on the existing health care laws and what small businesses can expect. Will the recent election impact the current laws? What will small businesses do when faced with the choice of providing health care or paying a fine? The laws in Massachusetts may shed some light on this - what is happening there?

Who is Sally Pipes?

Sally C. Pipes is Taube Fellow in Health Care Studies, president and chief executive officer of the Pacific Research Institute, a San Francisco-based think tank founded in 1979. Prior to becoming president in 1991, she was assistant director of the Fraser Institute, based in Vancouver, Canada.

Ms. Pipes addresses national and international audiences on health care issues. She has been interviewed on ABC’s 20/20 with John Stossel; CNN’s Lou Dobbs Show; Fox News “Glenn Beck Show;” NBC’s “Nightly News with Brian Williams”; Fox Business Network; “The O’Reilly Factor,” Fox News “Your World With Neil Cavuto”, “The Today Show;” “Kudlow & Company on CNBC, MSNBC, “Dateline;” “Politically Incorrect;” “The Dennis Miller Show;” and other prominent programs.

She has written regular columns for the Examiner newspapers, Chief Executive and Investor’s Business Daily. Her health care opinion pieces have appeared in the Wall Street Journal, Washington Post, USA Today, Financial Times of London, The Hill, RealClearPolitics, New York Times, Los Angeles Times, San Francisco Chronicle, Sacramento Bee, U.S. News and World Report, the Boston Globe, and the San Diego Union-Tribune, to name a few. Ms. Pipes’ views on health care also appeared in a special report of the world’s 30 leading health care experts published by Forbes.com entitled, “Solutions: Health Care" and in Steve Forbes latest book How Capitalism Can Save Us. She was widely quoted in Shape Magazine and in the New York Times Sunday Magazine in an article by Princeton’s Peter Singer on how Obama will ration your care.

As a health care expert, Ms. Pipes has debated Paul Krugman, Princeton economics professor and New York Times columnist, in New York at Rockefeller University. Sponsored by Intelligence Squared, the debate was attended by 450 people and was viewed by 270 million around the world through NPR and BBC Worldwide. In 2009, she debated Princeton Professor Uwe Reinhardt and Harvard’s Dr. David Himmelstein twice on the “No” side of the motion that “universal health coverage is the responsibility of the federal government.”

She served as one of Mayor Rudy Giuliani’s four health care advisors in his bid for the Republican nomination for president in 2008. She appeared in Michael Moore’s movie “Sicko” and has participated in prominent debates and public forums, testified before the House Energy and Commerce Committee, committees of the California and Oregon legislatures, appeared on popular television programs including debating former Vermont Governor Howard Dean, participated in talk radio shows nationwide, and had 130 opeds published on health care issues in 2009.

Transcript:

Siegel: Well, Ladies and Gentlemen, welcome back again to the BOSS Business Brief. My name is Mike Siegel, the Bs as we call them. Good to have you with us as we get into the conversation of advocacy for small business is what this is all about, and certainly one way we can talk about that is the result of the election and the fact that we have now maybe a change in the way we are going to deal with health care in this country as it affects small business, which is a huge impact on small business. As we have seen in the Commonwealth of Massachusetts, where a model for the national bill actually took place and has been implemented. Sally Pipes is with the Pacific Research Institute and good to have her with us. Ms. Pipes, how are you? Nice to talk to you.

Pipes: I am well. Thank you.

Siegel: Thank you for being with us. Okay, one of the elements of this is the fact that, at least at last count, I have not looked in the last several hours, there were at least 32 governorships that were going to republicans out of the 50 and there was talk that it was going to go higher than that. The governorships do have a relationship to what is going to happen in terms of health care, because Medicaid and its responsibility at the state level lis administered through the executive branch, the governor's office. What about the increasing number of governorships on the republican side as it affects health care in each of the states?

Pipes: Well, I think, you know, the election really with the GOP taking over the House and, of course, many republicans being elected governor, unfortunately, the democrat Jerry Brown won the gubernatorial here in California, which I think is very sad, but anyway the rest of the country has had some very good election results. I think, you know, the vote, particularly in the House and the gubernatorial, were votes against the Patient Protection Affordable Care, i.e. ObamaCare. So, I think we are going to see some really interesting things in the next few years. I mean basically, the GOP has said they favor repeal and replace of ObamaCare. It is going to be very difficult to do that prior to the 2012 presidential election, because President Obama will still be in office and he can veto any bills that come forward from the Houses, and of course the Senate is still in democratic control. So, I think that the real issue will be if the GOP takes the presidency in 2012 and congress, then in 2013 ObamaCare could be repealed and replaced, just like Medicare catastrophic was in 1989. But in the meantime, a number of things can happen. The House can defund a lot of the major parts of ObamaCare that have spending increases, the 16,000 new IRS agents, staffing, 159 boards and commissions, you know funding to expand Medicaid by 18,000,000 people, and also repealing the 1099 reporting requirement, which is going to be very onerous on small business because every small business, every business but particularly small business, will almost have to hire a separate accountant to file with the IRS the report on any business transaction that they do of 600$ or more. So, that is very, very important, and also repealing the Class Act. I think at the State level, you know, we have seen 20 state attorney generals and the National Federation of Independent Business file a lawsuit against the DOJ over the constitutionality of the individual mandate. Arizona and Oklahoma just passed propositions banning the individual mandate. Colorado, unfortunately, lost their initiative. We have the State of Virginia which has a suit which is moving forward there against the individual mandates. So, I think the states are going to get very involved in this health care reform.

Siegel: I believe also, by the way Ms. Pipes, that Georgia also….I was talking to a state senator from Georgia, this was several months ago, and he thought that his legislature was going to pass, and the governor would sign a bill, that would give the people of the State of Georgia freedom from the mandate to buy health insurance. So, I think Georgia did the same thing as Arizona and Oklahoma.

Pipes: And Missouri passed a proposition by a vote of 71% against the individual mandate. So, we are going to see a lot of interesting things because of t his election and the change over to republican governors.

Siegel: I wanted to see if we could get into talking about these insurance commissioners, because in some states insurance commissioners are elected directly and in other states, many of the states, they are appointed by the governor. Now, with republican governors coming in, presumably opposed to this ObamaCare, what we now have is that there will be under the federal ObamaCare law itself, the state insurance commissioners are going to have a lot of consumer protections to enforce, including in 2014 health plans cannot charge women or sicker people more money. So, that is just one of many, but what is going to be the role of these insurance commissioners, in many cases appointed by republican governors, which is why it is important that republicans won those governorships.

Pipes: Well, absolutely. Here in California of course the insurance commissioner is elected and a democrat was elected to be the insurance commissioner. The National Association of Insurance Commissioners, called NAIC, they just late in October approved the medical loss ratios for insurance companies, meaning what percentage of benefits collected have to be paid out in claims by insurance companies. So, the number for large employers would be 85%, of the benefits collected would have to be paid out in claims, and for the small groups and individual market it would be 80%. So, 15% would be able to be spent on administration. So, this is now, before Kathleen Speala, secretary of HHS, to actually write this into a regulation, but we have seen a number of insurance commissioners, and in p articular we are going to see more after this election, saying that these medical loss ratio numbers are going to be very hard on consumers, and also the fact that a number of insurance companies may well decide that they can no longer do business in this kind of environment with this type of control by government. So, in the end it will be consumers who are hurt, if we have fewer insurance companies, and of course we know that the cost of insurance is going up under the Affordable Care Act. President Obama promised insurance premiums would go down for the average family by 2014 by $2500. The CBO has said they are going to go up by $2100, and we are certainly seeing that because of these regulations. These other regulations being put on insurance companies, such as children being able to stay on their parents' plan until age 26, no rejection of insurance plans for children with preexisting conditions, no copays for preventive cares, all of these things are adding to the cost of insurance. We are seeing in Massachusetts that small businesses that were providing health insurance for their employees are dropping it and telling their employees to buy insurance in the commonwealth connector, the exchange in Massachusetts, and I think this is a precursor of what is going to happen in the national as a whole, because the tax credits and the rules for small business are so very, very difficult that most small businesses….fewer than one-third of small businesses would actually quality for these tax credits, which would only last until 2016 anyway.

Siegel: Well, let's talk about that, because in Massachusetts my understanding is that many small businesses, as you said, are dropping their coverage and many are just simply paying the fine to the state, because the fine to the state is cheaper than what the cost would be to have the health care coverage under that Massachusetts system. Is that correct?

Pipes: Absolutely. The individual mandate fine in Massachusetts is this year $1116.00. Under the president's plan, under the law, the fine is fully operational in 2016 and that is $695. That is not much of an incentive to encourage, particularly young people, to go out and buy insurance because they would have to spend, you know, somewhere between 400-500$ a month for insurance, to buy insurance. So, I think a lot of people will decide to pay the fine and not buy insurance. But interestingly, in Massachusetts, which I said, a number of small businesses are dropping insurance. I think the congressional office has said under ObamaCare that about 14 million employees will lose their employee-based coverage because employers will say, if you have 50 or more employees, that they would rather pay that $2000 per employee fine than pay $5000 for an individual and $13,000 for a family. So, by 2014 when these state run insurance exchanges are fully operational, I think a number of employees are going to be surprised to find that their employers are dropping their insurance and they have to go into the Exchange, which goes against the president's oftentimes repeated statement that if you like your health plan and you like your doctor, nothing will change. A lot is going to change.

Siegel: Well, let me ask you about this phenomenon….I realize that at the congressional level you were correct. Nothing much is going to happen. You cannot repeal the bill with only one house, and even if you had the senate you would have to have two-thirds to override a veto and certainly the president would veto a repeal of this health care bill. If it were repealed, of course, it would be a great benefit to small business, but unfortunately that is not going to happen, at least until the earliest 2012 election. So, that being the case, what about, at the state level now because the republican governors being elected in large numbers has got to have some impact given the fact that many of those insurance commissioners as well are going to be appointees of those republican governors. What is going to be the impact of that at the state level on small business?
Pipes: Well, I think, you know, that with these GOP governors being elected, I think there is going to be not just these challenges against the individual mandate, I think we are going to see a lot of other changes coming forward from these governors that are going to say… "I have just taken over a situation where there is a huge deficit in my state. I don't know how we can ask people to pay more taxes. We cannot afford to pay more out at the state portion of Medicaid funding for low income Americans." So, I think there is going to be a lot going on at the state level by these republican governors.

Siegel: Do you think they might say, Ms. Pipes, to the federal government – You pay for the Medicaid. We cannot afford it. Because it is supposed to be split in some formula, but do you think they might just reject it and say, "We don't have the money. You passed the law, Mr. ObamaCare, so it is up to you to come up with the money for Medicaid."

Pipes: Yes. I think that is definitely a very distinct possibility, because these states don't have the money. You know, California just got a budget about a couple of weeks ago and it was supposed to have been done on July 1st. So, there is a tremendous amount of pressure and the states are going to say, we can't afford this and so you got us into this mess, you can pay for it. You know the Feds pay up to about 2/3 of the cost of Medicaid now, but they were wanting the states to pay a larger share. It is just not going to be able to happen. So, we are going to see some change there. Under Medicaid, the program for low income Americans, of the 50.7 million Americans who are uninsured, doesn't necessarily mean they don't have insurance because particularly with employer-based coverage if you lose your job in a recession, when you are between jobs, you are looking for insurance, but out of that 50.7 million about 17 million of them are people that are already eligible for Medicaid and S Chip and have not signed up. I believe this is because doctors don't want to take Medicaid patients because the reimbursement rates are so low. So, these people find it hard to get a doctor. So, it is easier for them to turn up at emergency rooms, which of course adds more to the cost of insurance for those people who have them. But we are going to add 18 million people to the Medicaid. Already we have 15 million or 16 million that are eligible and have not signed up. They don't like the plan. So, it is going to be a very interesting unfolding of how the states are going to play out under these new administrations.

Siegel: And how would that affect the small business community in terms of the states standing up to the ObamaCare program. How would that affect small business in those states?

Pipes: Well, what we really need to do is empower doctors and patients to get away from increasing mandates and regulations so that insurance can be portable, so that if there are fewer regulations the cost will be reduced. Small businesses can then continue to afford to provide health insurance. But small business is struggling. All of these mandates and regulations are destroying the entrepreneurial spirit in this country, and as you probably know, 85% of new jobs created are created by small business. If you take away the incentive to be an entrepreneur, where are new jobs going to be created? What is the future of America?

Siegel: Well, we are going to have to watch and see how this plays out. I have a feeling that the republicans in the house may try and repeal ObamaCare and then force the senate to have to vote on it and let those democrats in the senate who want to stand by it be on record as doing that. I think that would be an important point for the republicans in the house to do, because they have the votes to overturn ObamaCare, and then let them send it up to the senate and see what the senate does about it. I think that would be a very interesting situation, because first of all the last I saw it was 51 to 46, there were three seats uncertain as of yesterday, so if the republicans even have 46 or 47 seats, if they can get 5 or 6 democrats to go along and hold their own caucus unanimously to overturn it, then there is at least the possibility that in the next session a bill could be sent up to the president which would force him to have to veto it. That would fly in the face of what…look, we have 60-70% of the people against it and he would have to veto a bill that would in affect, I think, be the destruction of any possibility of his reelection. That is what I think ought to happen in the house to pressure the senate and then hopefully pressure the president to veto it, which he would do, but let him be on record doing that. That is my view.

Pipes: Oh, absolutely, because the American people are already furious with the Affordable Care Act. If he vetoed the repeal of it, I think not only in the presidential election in 2012, but when one-third more senators come up for reelection, those democrats that supported this are going to probably be turfed out of office as well.

Siegel: Well, that is why some of those who are coming up in two years might very well say, look, I watched these house members go down with the Titanic because they wanted to be loyal to their party, and I am not going to do that. I learned my lesson from them. Fool me once, it is your fault. Fool me twice, it is my fault. So, those senators may very well say, I don't need this and I am not going to stick with the president. That is why, I am thinking, the house should force the senate to have to vote on a proposal to repeal it and then go from there.

Pipes: Absolutely. The GOP has to keep hammering away on repeal and replace while at the same time starving off funding and, of course, pushing forward on the repeal of the 1099 reporting requirement and the Class Act and a number of other things. They have to have two main approaches, keeping up the drum beat, because people tend to forget. People don't have long memories, but we have to keep this up if we are going to save the health care system in America, which is the finest system in the world. We all want affordable, accessible, quality care, but increasing the role of government in our health care is not the way to improve our health care system.

Siegel: Well, let me ask you one thing about the 1099, because that is onerous. It would require, as I understand it, any purchase, even collectively smaller purchases adding up in one category, to over $600 to be filed as a 1099 with the IRS. Where is that now? Is that part of the law?

Pipes: It is part of the law, but we did see in the summer that a number of democrats had been hearing from small business people in their districts that this was going to be very, very onerous. The republicans had a couple of amendments that would have repealed it and some democratic members had sort of made changes to the 1099, but I think now that the GOP has the house that this will be something that will be repealed, and they will also get democratic support because they have heard from their small business constituency. Most small businesses probably spend 600$ a year buying water for their water coolers. All of these things would have to be documented when the bills come in every month and then filed with the IRS. It is a tremendous stress and it takes away from what a small businessman is trying to do in building and promoting his business. It is all bureaucratic.

Siegel: Well, absolutely. That is an onerous burdensome item for small businesses to have to deal with that. It is just unbelievable that they would do something like that. They don't understand small business is part of the problem. Many of these members have not ever owned a small business and don't get it. I thank you very much, Ms. Pipes. It is great to have you on the program. We appreciate your time today.

Pipes: Thank you so much. Goodbye.

Siegel: Have a good day. Sally Pipes, president of the Pacific Research Institute, right here at the BOSS Business Brief.