Stephen’s Posterous

Karl Rove says that President Obama's problem is that his Magic Kingdom Health Care World is colliding with reality.

There is a big cost to any large government expansion and the ways to cover the cost of Mr. Obama's plan are limited, unpopular, and sure to anger Americans once they are fully understood.

Negotiations over the real health care bill can now begin according to Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush.

Democrats face a central problem for any governing party on how to pass a major piece of legislation when there are a lot of varying ideas about what should be in the bill.

Members of Congress will take a hard stand on a particular portion of a controversial bill. This allows them to show a little independence and make a plausible claim to have influenced the outcome.

The problem for Mr. Obama is that the Baucus bill is being sold on the strength of accounting tricks that make it appear that it won't add to the deficit.

If fiscally conservative Democrats sign on to the bill now after publicly saying they are doing so because it doesn't add to the deficit, they may end up bailing once the tricks are revealed to the public.

Mr. Rove says that one trick is that the bill imposes tax hikes and benefit cuts right away, including $121 billion of Medicare reductions between 2011 and 2015. New spending doesn't start until five years out and isn't fully operational until 2017. The bill uses 10 years worth of tax hikes and benefit cuts to fund a few years worth of benefits.

Mr. Rove points out that the Congressional Budget Office (CBO) released a report last week claiming the bill won't add to the deficit, but this assumes that employers who dump employee coverage under the Baucus bill will then increase worker paychecks by an amount equal to what they had spent on health care.

This replaces a nontaxable event with a taxable one magically producing $83 billion in revenues. Without this, the Baucus bill adds billions of dollars to the federal deficit in the first decade.

Under questioning at a Senate hearing Tuesday, CBO Director Douglas Elmendorf admitted that the $500 billion in tax hikes in the Baucus bill would be passed onto consumers, increasing insurance premiums.

Democrats who support any final bill are at risk. They will be held responsible for the mess when premiums rise, taxes balloon, deficits soar, mandates expand, and government power grows.

Mr. Rove says that the President who never stopped campaigning hasn't made the sale to Americans because he's forgotten a central rule of campaigning: Your arguments have to be clear and credible if voters are to believe them.

Mr. Obama's attempt to sell health care is neither. He still may win passage of a bill, but he's lost the public's enthusiastic backing.

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Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush, says that more time needs to be spent in crafting the best consensus policy with bipatisanship for a solution to health care. House Democrats should not push through legislation, which was done with the cap and trade bill now stalled in the Senate.

At the moment, with Ted Kennedy's senate seat open and Robert Byrdnot being able to attend and vote, there are not enough Senate Democrats to invoke cloture.

Mr. Rove says it is riskier to be at odds with American opinions rather than stand by as an unpopular proposal loses steam. Americans are increasingly concerned that a takeover of health care will spend too much money, create too much debt, and give Washington too much power.

Mr. Rove says that the Obama Team is arguing that forcing a controversial health care bill is better than not passing anything. This is based on the death of HillaryCare in 1994, but Mr. Rove says that trying to pass HillaryCare was what brought down the Democratic Party.

At a Labor Day union picnic in Cincinnati, President Obama said his health critics were spreading lies and that opponents to health reforms wanted to not do anything. Mr. Rove says that this does not show a spirit of bipartisanship and doesn't create a foundation for dialogue.

Mr. Rove says that the greatist political risk for Democrats in among seniors. A July 2009 Gallop poll shows that this group were the least likely to believe that health care reform would improve medical care.

The latest Pew poll, August 20-27, found that 30% of seniors supported health-care reform while 54% were opposed. In July 2009, Pew showed 29% in favor and 48% opposed. Mr. Rove says that seniors make up a disproportionate share of the off-year vote.

Congressional Democrats will be under great pressure to stand with President Obama, but Mr. Rove says that the prospects of their own political future may affectr their actions.

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Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush, believes that President Obama has been focusing on health care when Americans are more concerned with the economy and jobs.

Americans are also not buying ObamaCare and many believe that the plan comes with a huge price tag and concerns that they will loose their current coverage.

Health care providers believe they will be forced to a one size fits all scenario while seniors are worried about the cuts to Medicare and Medicare Advantage.

Nine out of 10 Americans state that they have coverage and are happy with it. Of the 46 million people uninsured, 9.7 million are not U.S. citizens, 17.6 million have incomes of more than $50,000, and 14 million qualify for Medicaid or other programs.

The health-care battle is far from over says Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush. The healthcare battle will continue when President Obama returns from vacation.

In a recent ABC/Washington Post poll, 45% approved of Mr. Obama's plan while 50% opposed it, and 40% strongly opposed the plan.

A Fox/Opinion Dynamics poll said "the health care reform legislation being considered right now" is opposed by 21% of Democrats, 50% of Independents, and 81% of Republicans. Only 37% of Democrats and 15% of Independents believe their families would be better off if it passed.

Mr. Rove says that it is smart for Mr. Obama to take a vacation this week on Martha's Vineyard because his staff needs time to repair his praised message machine.

Mr. Obama has said that health insurance reform would be paid for by cuts in Medicare Advantage. White House Senior Adviser David Axelrod has refuted that message.

In a White House fact sheet titled "Paying for Health Care Reform," it notes that the Obama administration would cut $622 billion from Medicare and Medicaid, with much coming from Medicare Advantage.

Medicare Advantage was enacted in 2003 to allow seniors to use Medicare funds to buy private insurance plans that fit their needs and their budgets. An estimated 10.2 million seniors have enrolled in Medicare Advantage.

Mr. Obama is proposing to cut the Medicare Advantage program by nearly 20%, which would reduce the amount of money everyone will have to buy insurance. Roughly 23,400 seniors on average in a congressional district who have Medicare Advantage.

Mr. Obama's problem, according to Mr. Rove, is that he lacks credibility when he asserts his plan won't add to the deficit or won't lead to rationing; that people can keep their health plans; that every family's health care will be better, not worse; and that a government run plan isn't a threat to private insurance.

The Obama Team will be back in Washington next week to continue their work on messaging.

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Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush, writes in his weekly column in The Wall Street Journal that President Obama is now using fear to sell his health care plan.

On the campaign trail last year, Barack Obama promised to end the politics of fear and cynicism, but now he is now trying to sell his health-care proposals on fear.

At his news conference the week of July 20, Mr. Obama said "Reform is about every American who has ever feared that they may lose their coverage, or lose their job...If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket. If we do not act, 14,000 Americans will continue to lose their health insurance every single day. These are the consequences of inaction."

Responding to a White House proposal to create an independent panel to recommend Medicare cuts, the Congressional Budget Office (CBO) said on July 25, 2009, that the probability is high that no savings would be realized in the next decade, while entitlement spending would rise $1.042 trillion. The CBO did say there might be $2 billion in savings in the second decade of the program.

White House Budget Director Peter Orszag reponded to the CBO with a blog posting on the White House’s Web site saying that the point of the proposal was never to generate savings over the next decade. But yet, the White House rolled out the proposal hoping to give cover to Blue Dog Democrats in Congress complaining about the cost of overhauling health care.

Mr. Rove says that the House version of ObamaCare adds to the deficit even though the new taxes to pay for part of it begin two years before the program itself kicks in. That head start puts ObamaCare in the black through 2013, but net new spending after that overwhelms future revenue to add to the deficit each year.

Keith Hennessey, who was a National Economic Council director for George W. Bush, estimates the annual deficits in Mr. Obama’s plan will grow to $64 billion a year by 2019. This assumes that Mr. Obama gets all the tax increases and Medicare cuts he wants.

On July 26, 2009, the CBO reported it would "probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window." The CBO does not believe that Mr. Obama’s proposal bends health-care spending down, as the president has repeatedly claimed it would. The CBO says it escalates above today’s rate.

By 2029, Mr. Hennessey estimates that new taxes will bring in $143 billion a year, while net new health spending will have increased by $348 billion a year.

Mr. Rove says that nine out of 10 Americans would likely get worse health care if ObamaCare goes through. Of those who do not have insurance, approximately one-fifth are illegal aliens, nearly three-fifths make $50,000 or more a year and can afford insurance, and just under a third are probably eligible for Medicaid or other government programs already.

Mr. Rove says that for the slice of the uninsured that is left, about 2% of all American citizens, Team Obama would dismantle the world’s greatest health-care system. That’s a losing proposition, which is why Mr. Obama is increasingly resorting to fear and misleading claims. It’s all the candidate of hope has left.

According to a new Wall Street Journal/NBC News poll, support for President Barack Obama's health-care effort has declined over the past five weeks, particularly among those who already have insurance.

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Karl Rove, former senior adviser and deputy chief of staff to President George W. Bush, writes in his weekly Wall Street Journal editorial that President Barack Obama's political health is deteriorating, threatened by his ambitious plan for a government takeover of health care.

Mr. Rove writes that Mr. Obama remains slightly more popular than most presidents have been in their opening months, although his job approval rating has drifted down to 60% in the RealClearPolitics.com average and his disapproval numbers have nearly doubled to 33%.

Mr. Rove says that what is more troubling is the growing gap between the President's approval rating and declining support for major items on his policy agenda.

Mr. Rove says Americans prefer getting their health coverage through private insurance rather than the federal government, and Mr. Obama's record-setting spending binge has made Americans more sensitive to deficits and higher taxes.

Mr. Obama's argument that a government-run health-care plan can control costs better than a market-based system is a mistake. This argument is belied by Medicare's experience. A study published by the Pacific Research Institute finds that since 1970 Medicare's costs have risen 34% a year faster than the rest of health care.

Mr. Obama's trashing of American health care as a broken system that must be brought into the 21st century does not resonate with most Americans, according to data from polls that Mr. Rove provides in his editorial.

Mr. Rove says that everyone agrees that some reforms are needed. But he says that it is also vital to protect areas of excellence and innovation. Stanford University professor Scott Atlas points out that from 1998 to 2002 nearly twice as many new drugs were launched in the U.S. as in Europe.

In the end, Mr. Rove says that transforming health care into a government-run system would be difficult to do under any circumstances. Americans are still wary about big government.

Mr. Rove ends by writing:

Health-care reform was said to be "inevitable" a few months ago. Today, its prospects are less certain, even to Democrats. The issue may even turn out to be a millstone for the party.

Americans are increasingly concerned about the cost -- in money and personal freedom -- of Mr. Obama's nanny-state initiatives. To strengthen the emerging coalition of independents and Republicans, the GOP must fight Mr. Obama's agenda with reasoned arguments and attractive alternatives. Health care may actually be an issue that helps resurrect the GOP.

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Karl Rove, former senior adviser and deputy chief of staff to President George W. Bush, writes in his weekly editorial column this week in The Wall Street Journal that if Democrats enact a public-option health-insurance program, America is on its way to becoming a European-style welfare state. To prevent this from happening, he offers five arguments that the GOP must make.

First, this program is not necessary. A government plan is not needed to guarantee competition's benefits. There are currently 1,300 companies selling health insurance plans.

Second, this program will undercut private insurers and pass the bill to taxpayers and health providers as it does now with Medicare, which pays hospitals 71% and doctors 81% of what private insurers pay. The government passes the rest to providers and families not covered by government programs, which is a forced subsidy. According to a recent study by Milliman Inc., families pay about $1,800 more a year for someone else's health care as a result.

Third, government-run health insurance would force most Americans into the government plan. The Lewin Group estimates 70% of people with private insurance, about 120 million Americans, would quickly lose what they now get from private companies and be forced into the government program.

Fourth, the program is too expensive. The cost of Medicare, the purest form of a government-run public choice for seniors, will start exceeding its payroll-tax trust fund in 2017. Medicare and Medicaid cost much more than estimated when they were adopted because there is no competition for these government-run insurance programs.

Fifth, the program puts government firmly in the middle of the relationship between patients and their doctors.

Mr. Rove ends by stating:

The public option is just phony. It's a bait-and-switch tactic meant to reassure people that the president's goals are less radical than they are. Mr. Obama's real aim, as some candid Democrats admit, is a single-payer, government-run health-care system.

Health care desperately needs far-reaching reforms that put patients and their doctors in charge, bring the benefits of competition and market forces to bear, and ensure access to affordable and portable health care for every American. Republicans have plans to achieve this, and they must make their case for reform in every available forum.

Defeating the public option should be a top priority for the GOP this year. Otherwise, our nation will be changed in damaging ways almost impossible to reverse.

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From Ari Fleischer, former press secretary for President George W. Bush

If you thought Bernard Madoff's Ponzi scheme was bad, wait until you hear about the inverted pyramid scheme the federal government is working on. While Mr. Madoff preyed on people who trusted him with their money, the federal government has everyone's money, and the implications of its actions are worse.

Picture an upside-down pyramid with its narrow tip at the bottom and its base on top. The only way the pyramid can stand is by spinning fast enough or by having a wide enough tip so it won't fall down.

The federal version of this spinning top is the tax code; the government collects its money almost entirely from the people at the narrow tip and then gives it to the people at the wider side. So long as the pyramid spins, the system can work. If it slows down enough, it falls.

It's also what's called redistribution of income, and it is getting out of hand.

A very small number of taxpayers, the 10% of the country that makes more than $92,400 a year, pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything. Their burden keeps getting heavier.

As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).

Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep.

In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.

According to the CBO, those who made less than $44,300 in 2001, 60% of the country, paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden. Their share shrank even when taking into account the payroll tax.

In 2001, the bottom 60% paid 16.3% of all taxes; by 2005 their share was down to 14.3%. All the while, this large group of voters made 25.8% of the nation's income.

When you make almost 26% of the income and you pay only 0.6% of the income tax, that's a good deal, courtesy of those who do pay income taxes. For the bottom 40%, the redistribution deal is even better.

In 2001, these 43 million Americans, who earn less than $30,500, made 13.5% of the nation's income but paid no income tax. Instead, they received checks from their taxpaying neighbors worth $16.3 billion. By 2005, those checks totaled $33.3 billion.

Today, Mr. Obama and many congressional Democrats want the "wealthy" to pay even more so there is more money for them to redistribute. The president says he wants the wealthy to pay their "fair share." Who can argue with that? But he never defines what that means.

Is it fair for 10% to pay 70% of the income tax? Does he believe they should pay 75%, or 95%, or does fairness mean they should pay it all? It's clever politics to speak like that, but it is risky policy.

Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today. A certain amount of income redistribution in a capitalistic society is healthy, but this goes too far.

The economic and moral problem is that when 50% of the country gets benefits without paying for them and an increasingly smaller number of taxpayers foot the bill, the spinning triangle will no longer be able to support itself.

Eventually, it will spin so slowly that it falls down, especially when the economy is contracting and the number of wealthy taxpayers is in sharp decline.

In addition to exempting almost 50% of the country from income taxes, today nearly every other social cause is given a loophole or a preference in the tax code. Want to buy a hybrid vehicle? You get a tax break. Do you own a solar water heater? You get a credit. Want to give to charity? You get a deduction. Own a house?

There's another tax deduction for you. How about college savings, certain medical costs, and retirement savings? Yes, yes, and of course yes. Did you move, pay alimony, or "provide housing to a Midwestern displaced individual"? More deductions, credits and exemptions there too, if you qualify.

Everyone now has a sacred cow in the tax code. For my money, the most sacred thing of all is our country and its growth, but the sacred cows have turned into a pack of wolves. On both the spending and the tax side, the wolves are devouring our children's future.

Senate Budget Chairman Kent Conrad (D., N.D.) wants to cut hundreds of billions of dollars from the president's budget, but that's small potatoes given the size of the deficit. The debt problem is so big and hopeless, Congress's normal nips and tucks won't work. Something more fundamental needs to happen.

It's time to create an Economic Growth Code whose purpose is to fix and grow the economy, not redistribute massive amounts of wealth. A new tax code that creates growth and reforms our entitlement system is the only way to dig our way out of the hole we're in.

Under an Economic Growth Code, everyone in American would pay income taxes, everyone. Such a system would be designed to foster broad-based growth for all, in contrast to the loophole-ridden system we have today. Not only is the current code flawed from top to bottom, it is used by politicians to divide the public along class lines and fails to promote prosperity.

Growth is the key to keeping the pyramid spinning, and to keep spinning the pyramid's tip needs to be broadened. Otherwise a country that was raised to believe that national bankruptcy happened elsewhere may have to think again. Given the state of the economy and trillion-dollar deficits projected as far as the eye can see, we need to return to an era of more conservative, fiscal discipline.

Congress should start by refusing to go along with Mr. Obama's promise to cut taxes for 95% of the country. With the government running an almost $2 trillion deficit, no one should have their taxes cut, no one. Given the size of the deficit, fiscal responsibility demands nothing less.

Republicans in Congress need to develop their own version of an Economic Growth Code, an alternative tax code that directly targets the current mess and helps us to grow our way out of it. Republicans should not doodle in the margins; they should use their minority status to launch the next big movement in policy and politics. Nothing creates revenue like growth and that's where Republicans should make their mark.

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays.

The bottom 50% won't be excused from paying the cost of government and top earners will no longer have the loopholes they're used to. The middle-class, whose wages have stagnated, will benefit from economic growth. Social Security and Medicare will be funded from income taxes, ending the myth that these programs are supported through government trust funds and payroll taxes.

The tax base will broaden dramatically, allowing rates to fall and helping to foster what's most important, economic growth.

I'd also create a mechanism so tax rates go up or down for everyone, no more dividing the country by lowering taxes for some or raising them only for others. A revenue system whose purpose is to pay the government's bills should apply fairly to one and all. If Congress wants to raise or cut taxes, it should do so for everyone.

Another benefit is that such a system will create an environment in which spending programs receive the scrutiny they deserve. It's funny what happens when everyone pays the bills; Americans may want less spending so they can pay fewer bills.

Ari Fleischer is President of Ari Fleischer Communications.

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Many investors are beginningto think that certain stocks have fallen so far, they have no place to go but up. Taking that viewpoint, managed health-care stocks are beginning to look ripe for the picking.

Down 29% since Feb. 23, the AMEX Morgan Stanley Healthcare Payor Index plunged last week, the bulk coming Thursday, February 26, 2009, when President Obama outlined his budget and announced plans to cut payments to private health plans sold to Medicare beneficiaries, called Medicare Advantage.

As is often the case, the sector-wide selloff has ensnared some promising stocks now selling at more attractive prices than they were a week ago.

Aetna (AET) and UnitedHealth Group (UNH), for example, have limited exposure to Medicare and lots of scale. Yet these two stocks have fallen 60% or more in the last 12 months. And with their price-to-earnings ratios near five-year lows, these shares present a tempting opportunity, though bargain hunters may want to wait until after April, 2009.

That's when the government finalizes reimbursement rates for Medicare Advantage plans in 2010, and Obama officially submits his budget to Congress. Also, April is when companies report first-quarter financial results.

"These stocks are undervalued, but they face risks," says Les Funtleyder, health-care strategist at Miller Tabak. "If you wait a month or two, you remove some risk and probably won't get penalized much, unless there's a massive market rally."

Until last year, when profits plunged amid spiraling health-care costs and a deteriorating economy, health insurers thrived, thanks partly to the Medicare Advantage health plans created after President Bush overhauled Medicare in 2003 to provide prescription-drug coverage to seniors willing to pay for it. The industry gets about one-quarter of its profits from these plans, thanks to climbing enrollment and generous payments from the government.

Critics complain that the government has been too generous. Reacting to this concern, Obama wants to cut funding to these plans by $177 billion over 10 years to help offset the cost of offering health benefits to uninsured Americans.

The cuts could start in 2011. But if the government has its way, reimbursement rates for Medicare Advantage plans will grow hardly at all next year, a paltry 0.5%. And bearish investors worry that insurers' profits will suffer in the years to come. Not every managed-care company faces the same risk.

HealthSpring (HS), for example, gets 80% of its profits from Medicare Advantage plans, and Humana (HUM), one of the nation's largest Medicare insurers, relies on the plans for 60% of its earnings, according to Joshua Raskin, an analyst with Barclays Capital. Barrons.com suggests staying away from those names, but UnitedHealth gets less than 15% of profits from the plans, while Aetna gets just over 8%, says Raskin.

"The valuations are compelling right now, though that doesn't mean they can't get cheaper," says Raskin. "Yet, the market is pricing a worst-case scenario." Down 69% off its record high in December 2007, UnitedHealth's shares have suffered more than Aetna's, though not by much. At $17.96 a share, UnitedHealth trades at six times profit projections for 2009, well below its five-year median of 15.

But earnings are set to rise slightly in 2009 to $3 a share, after falling 13% in 2008, even though management expects to lose up to 1.5 million members from employer health plans. United says it will offset that loss with 550,000 to 675,000 new Medicare and Medicaid members this year. And United could beat expectations. The company expects to earn between $2.90 a share and $3.15 a share this year.

The Street, however, is more conservative about Aetna, predicting a 2% drop in earnings to $3.85 a share. That's at the low end of the company's guidance for the coming year, which runs from $3.85 a share to $3.95 a share. And next year, Aetna could earn $4.85 a share, aided by share buybacks, says Phillip Seligman, an analyst for Standard & Poor's.

Down 65% off a record high in December 2007, the stock trades at 5.6 times forward earnings, according to Thomson Reuters. Of course, these and other insurers still face plenty of risks. Medical-cost trends could unexpectedly rise. Unemployment could soar higher than expected. And stock-market losses could hurt investment portfolios, hamstringing profits.

Bears, meanwhile, see a year of volatility ahead and uncertainty surrounding profits in 2010, making it difficult to calculate the stocks' value.The health insurers are a notoriously resilient lot. And Aetna, United and others seem to realize that they can't beat back all efforts at sweeping reform.

It may take some patience. And these stocks are not for the fainthearted. But Aetna and United still offer room for a comeback.

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