Five Ways Obamacare Could Bust the Budget
Last week this space examined all the things that must occur for Obamacare to follow through on its claim of (relatively meager) deficit reduction. But in recent days there have been multiple developments that each provide ways under which the law’s costs could rise significantly, resulting in an increase in the federal budget deficit:
More Medicaid Enrollees: A study in Health Affairs released last week found that the number of Medicaid enrollees under Obamacare could vary widely, from as few as 8.5 million to as many as 22.4 million – the latter number well above the official CBO estimate of 16 million. Likewise, the study found that spending on the Medicaid expansion could range from $34 billion to $98 billion – another wide range of uncertainty. Of particular note in the Health Affairs piece is the passage highlighting that CBO has not “released complete details on its methods, including some of the key parameters in the models” – such as their assumptions about what percentage of newly eligible individuals will enroll in Medicaid – “which makes it difficult to gauge their accuracy and precision.”
Higher Costs: A recent report released in California noted that a Mercer study “estimated that the cost of [Obamacare insurance] subsidies might be roughly 30% higher than has been projected” by CBO. This Mercer study found that the cost of a silver plan will range from between $441 and $486 per month ($5,292 to $5,832 per year) in 2014, CBO projected that an individual silver premium will cost only $5,200 in 2016 – two years later than the year examined in the Mercer study. If in fact premiums are 30% higher than CBO estimates, that could significantly raise the more than $100 billion annually the federal government will be spending on insurance subsidies by 2017.
Sicker People Obtain Coverage: The Institute of Medicine’s recent report on the essential health benefits cited two separate studies indicating that purchasers in the exchange are likely to be “relatively older, less educated, lower income” and “in worse health,” with a high percentage of individuals eligible for subsidies suffering from chronic conditions. However, the CBO’s analysis of premiums assumed that “an influx of new enrollees into the non-group [insurance] market would yield an average premium per person in that market that is 7 percent to 10 percent lower.” If the other two studies are right when it comes to Exchanges attracting sicker-than-average individuals, meaning CBO is wrong that Exchange populations will be healthier-than-average, that would also significantly increase the more than $100 billion annually the federal government will be spending on insurance subsidies by 2017.
An Ineffective Mandate: Another insurance industry expert last week claimed that the law’s constitutionally dubious individual mandate would also prove ineffective, because the penalty for not obtaining coverage is low compared to the cost of insurance: “Would you ever feed the meter if feeding the meter costs more than the [parking] ticket?” In many respects, these comments only reflect prior experience; data from multiple insurance companies in the only state with an individual insurance mandate show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick. If large percentages of the population circumvent or undermine the mandate, insurance premiums will rise inexorably, placing more upward pressure for spending on Obamacare’s insurance subsidies.
Employers Dropping: Last but certainly not least, this month saw the nation’s largest employer decide to drop coverage for many of its part-time workers. If other firms follow suit for their part-time employees, and/or decide to pay a $2,000 penalty for their full-time employees rather than subsidizing a $15,000 policy, the cost of Obamacare’s insurance subsidies could skyrocket.
These are only some of the ways in which the law could prove to be a budget-buster. And given this month’s CLASS Act debacle, during which $86 billion in supposed savings evaporated in an instant, who are Democrats to claim that any – or all – of these adverse effects will not occur in the coming years…?