Special Report

Turning America Into a Banana Republic

The government our El Presidente has given us -- but will we have to keep it?

By 3.17.10

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When Ben Franklin first emerged from the Constitutional Convention, he was asked by a passerby, "What government have you given us?" Franklin replied, "A Republic, if you can keep it."

For 220 years, until last year, we did keep it. America was a democratic constitutional republic, governed by the rule of law, a beacon of liberty to the entire world. But no more. After just one year of Barack Obama's fundamental change, aided by the far left House Speaker Nancy Pelosi from San Francisco, and the easily confused Senate Majority Leader Harry Reid, America has been transformed from a Constitutional Republic into a Banana Republic.

We Will Deem It Not Passed

Exhibit A is President Obama's frenzied government takeover of health care, which fevered Democrats insist they will "pass" by any means necessary, even illegal, unconstitutional means. The economy continues to flounder, unemployment still hovers at nearly 10%, and Iran persists in building nuclear weapons, which they vow to use against our allies and even against us. But Barack Obama is focused like a laser on bringing to America outdated socialized medicine concepts from deep into the last century, all the way back to Teddy Roosevelt, as he said in a recent speech.

The latest Banana Republic style abuse is the so-called Slaughter Strategy, named not for the impending political slaughter of Congressional Democrats it will help engender this fall, but after temporary House Rules Committee Chairman Louise Slaughter (D-NY). Under that scam, House Democrats will pass a "rule" that "deems" the Senate health care takeover bill to have passed the House. House Democrats will then pass a "reconciliation" bill amending that Senate bill, on a strict party line vote. Whatever you want to call whatever the House and Senate passed will then go to El Presidente for his signature.

The Senate will then be expected to pass the House reconciliation bill, again on a strict party line vote, without a conference committee on the amendments and without the 60 votes required to end debate in the Senate under the filibuster rule. This under the leadership of the President who campaigned starting in 2004 on bringing to America a new era of "post-partisanship." No one has given any thought to what happens if the Senate is not able to pass the House reconciliation bill. Are the House reconciliation amendments then part of the final law or not?

In any event, Newt Gingrich got it right in saying that last year Democrats were passing bills without reading them. This year, they are passing bills without voting on them.

As constitutional law scholar Michael McConnell explained in the Wall Street Journal on Monday, under Article I, Section 7 of the Constitution, "passage of one bill cannot be deemed to be enactment of another." In other words, passing a reconciliation bill different from the Senate health bill cannot be deemed passage of the Senate health bill. McConnell continued,

The Slaughter solution attempts to allow the House to pass the Senate bill, plus a bill amending it, with a single vote. The senators would then vote only on the amendatory bill. But this means that no single bill will have passed both houses in the same form. As the Supreme Court wrote in Clinton v. City of New York (1998), a bill containing the "exact text" must be approved by one house; the other house must approve "precisely the same text."

Moreover, the rules of the House and the Senate provide for reconciliation for "legislation that makes adjustments to spending or revenues to reconcile current law to a budget resolution that has passed Congress," as McConnell also writes. Republicans have never used reconciliation for legislation that has not met this definition. But this is manifestly not what is involved in the Obamacare health takeover bill, which adopts massive new entitlements, expands existing ones, and enacts sweeping regulation of insurance and health care, with close to 100 new bureaucracies, boards, commissions and programs.

If Democrats claim to have passed Obamacare through this Banana Republic methodology, the new Republican Congressional majorities elected this fall can and will "deem" Obamacare not to have passed. For no actual legislation with identical texts will then have passed both the House and the Senate, as the Constitution requires. The new Speaker of the House and the new Senate Majority Leader can and will instruct Congressional officers to remove the Obamacare provisions from the U.S. Code. The new House and Senate majorities can and will also refuse to fund any of the provisions of Obamacare, including the 100 new bureaucracies, boards, commissions and programs. Naturally, this will leave the state of the law unclear, and disputed, just like in a typical Banana Republic.

Rest assured, Republican members of Congress and state Attorneys General will also sue for declaratory judgments that Obamacare is unconstitutional because it was not passed in accordance with law (and for other reasons). And the new majorities will also move to repeal whatever you want to call whatever the Democrats will claim that they have passed. But even before any of that, next year the new Congress will deem Obamacare not to have passed.

Obamacare and Banana Republic Deficits

Another indicator that America has sunk into Banana Republic status is the runaway deficits and national debt under the Obama budgets. As discussed in this column last week, the federal deficit this year is projected to hit a world record $1.6 trillion, with deficits totaling nearly $10 trillion over the next 10 years. The national debt held by the public will quadruple to $20.3 trillion by 2020, with the total gross federal debt soaring to $27.5 trillion, rivaling Greece.

Contrary to the claims of President Obama, his socialized medicine health care takeover will increase rather than reduce the deficits and debt. The claim that it will reduce the deficit is based on the assumption that the already below market Medicare payments to doctors and hospitals will be reduced by 21% in the first year, falling farther and farther behind market rates in the following years. This would create havoc and chaos in health care for America's seniors. But if Congress does not allow those cuts to go into effect, Obamacare will further explode the deficit.

Overall, CBO documents reveal that the claim that President Obama's socialized medicine plan will reduce deficits is based on the assumption of $2.5 trillion in Medicare cuts over the next 20 years. Medicare already suffers an unfunded liability of $38 trillion, according to Medicare's own government actuaries. What Obama and Congressional Democrats are proposing is to loot $2.5 trillion from Medicare to spend on new entitlements under Obamacare, and leave Medicare with that intractable unfunded liability.

Unnoticed is that Obamacare also contains hundreds of billions in additional cuts for Medicaid as well. But Medicaid already so badly underpays doctors and hospitals that 40% of them won't even take Medicaid patients. Cutting those reimbursements under Medicaid even more will wreak havoc and chaos on the poor on Medicaid as well. If the resulting public outcry also prevents those cuts from going into effect, the deficit will balloon further.

Almost $300 billion in additional deficit reductions allegedly result because many employers will supposedly terminate their employee health insurance under Obamacare and pay workers higher wages instead, resulting in higher payroll tax revenues. So much for Obama's claim, which he is still making, that if you like your health insurance you will be able to keep it. But those payroll tax revenues are devoted to financing Social Security benefits, and so are not available to offset the costs of Obamacare.

A similar trick is adopted for the CLASS Act, which is a new federal insurance program for long-term nursing home benefits also included in the Obamacare legislation. Over $100 billion in additional deficit reductions are assumed from counting the premium payments coming in under this program in the early years as reducing the deficit, even though those funds are devoted to paying future benefits under that program. Such double counting is a staple of Banana Republic budget practices.

Removing all these budget tricks exposes Obamacare as increasing federal deficits by almost $500 billion over the first 10 years, and $1.4 trillion over the following 10 years. But there is still another budget trick that no one has accounted for yet. CBO assumes that only 30 million workers will receive the new health insurance subsidies under Obamacare for families earning as much as $88,000 per year, with 162 million still receiving employer provided insurance and consequently not eligible for the subsidies. But if employers drop coverage for their workers and pay the much lower penalty for non-coverage instead, this cost will soar, further increasing federal deficits and debt under Obamacare.

Banana Republic Corruption

Still another indicator of America's new Banana Republic status is the political corruption and vote buying surrounding Obamacare. Well-known is the Cornhusker Kickback, the special deal involving increased Medicaid funding for Nebraska in return for Nebraska Sen. Ben Nelson's vote for the Senate health bill. Also well-known is the Louisiana Purchase, which added $300 million in special federal funds for Louisiana to the Senate bill in return for Sen. Mary Landrieu's vote. Obama's union cronies are also exempted from the Cadillac health insurance tax that would apply to others.

Another special deal in the Senate bill is for seniors in the state of Florida. Almost one-fourth of seniors nationally have chosen private sector Medicare Advantage plans for their coverage under Medicare, because they believe they get a better deal from that private coverage. But President Obama is ideologically opposed to that private option under Medicare, so Obamacare includes steep cuts to Medicare Advantage that Medicare's own actuary estimates will cause most seniors to lose their Medicare Advantage coverage. But the Senate bill includes a special deal for seniors in Florida, exempting their Medicare Advantage coverage .

The Senate bill with these special deals is what President Obama is now trying so desperately to get through the House, by hook or crook as described above. Undoubtedly, additional such vote buying corruption is going on now to sway critical House votes. President Obama just appointed the brother of Utah Congressman Jim Matheson (D) to a federal judgeship to sway his vote. More such deals will be exposed in coming weeks. Such political corruption is common, accepted practice in a Banana Republic.

Banana Republic Demagoguery

President Obama is now barnstorming the country trying to sell his government takeover of health care with crass demagoguery also typical of Banana Republics. He bewails insurance company profits, yet the profit rate for the health insurance industry is a meager 2.2%, leaving many health insurers on the edge of bankruptcy. Such profits are a negligible proportion of total health costs.

President Obama assails health insurers for raising premium rates. At his socialized medicine pep rally at Arcadia University on March 8, Obama complained, "Just last month, Anthem Blue Cross in California tried to jack up rates by nearly 40 -- 40 percent. Anybody's paycheck gone up 40 percent?" "Nooo," the audience proletariat chimed back.

But the Anthem Blue Cross rate increases are just a foretaste of what will happen under Obamacare. For those increases resulted from state government regulation imposing new benefit requirements on health insurers, just as Obamacare will do, in spades. Obamacare will require health insurers to provide all the costly, politically correct benefits the government mandates. At his Arcadia University rally, President Obama wowed the proles proclaiming, "If this reform becomes law, all new insurance plans will be required to offer free preventive care to their customers starting this year -- free check-ups," just a few paragraphs after he blistered insurance companies for raising rates to pay for other mandated benefits.

Most costly, Obamacare will mandate guaranteed issue, requiring insurers to accept all applicants no matter how sick with expensive illnesses such as cancer or heart disease, and community rating, requiring insurers to charge the same to all, within narrow confines, again regardless of how sick when they first applied. That has proven to cause rates to soar when adopted by states in the past. Careful, mathematically transparent studies from WellPoint and others have demonstrated that under the Obamacare requirements, insurance premiums will soar, doubling and tripling for some young families and workers.

The states already have plenty of authority to regulate health insurance premiums. The issue is really just a matter of math, not ideology or profiteering. State regulators know they must ensure that the insurance companies have enough income to pay their promised benefits, as well as mandate reasonable rates. But the Obamacare demagogues are heedless of that basic math, and would just as soon drive all the insurers out of business, leaving the government with a complete takeover.

But President Obama persisted in his Arcadia University demagoguery, proclaiming that under Obamacare, "This year, insurance companies…will be banned from dropping your coverage when you get sick. And they will no longer be able to arbitrarily and massively hike your premiums."

Here is how regulation is supposed to work under current law, so conservatives will know they do not have to defend the indefensible. Insurance companies are not allowed to drop coverage for people after they become sick, unless the insured misled the company about his true medical condition when applying. For such cases, conservatives have advocated subsidized, uninsurable risk pools providing full safety net coverage so the uninsured who contract costly illnesses such as cancer or heart disease will still have somewhere to go to get essential coverage and care.

Moreover, insurers are supposed to be prohibited from arbitrarily raising rates for those who become sick after coverage as well. Rate increases must apply to everyone in the same original rate class reflecting their health condition when they originally applied, regardless of how sick they subsequently become.

Such regulation is required for health insurance to be real insurance protecting consumers from high health costs when they become sick. To the extent loopholes have developed in this regulation over time, or the regulation is not working, these regulatory requirements can and should be updated and enforced.

Obama's Legacy

President Obama and his lefty Democrat allies expect their new socialized medicine entitlement, once passed, to be permanent, untouchable, and beloved by the public, just like Social Security and Medicare. That is why they are so crazed to get it passed by any means and at any cost. But not living in the real world, they fail to understand that Social Security and Medicare are bankrupt under the government's own numbers, and are about to be fundamentally reformed themselves. It is beyond the power of even the authoritarian government to which the current ruling Democrats aspire to repeal the laws of arithmetic, even though that is the root of their ideology. The Tea Party movement, by contrast, understands all this perfectly well.

As a result, President Obama's legacy will not be permanent socialized medicine as he fancies, but the Tea Party free market reforms his misgovernment and misrule will politically enable.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.