How Obamacare Just Became LESS Affordable for Millions of Americans
Hidden in CBO’s updated analysis of Obamacare in light of the Supreme Court decision is new information about a little-known provision of the law that will have major effects on how much millions of Americans pay for government-mandated health insurance. At issue is an Obamacare provision, added during the reconciliation process, that slows the growth of Exchange insurance subsidies, beginning in 2019, if federal spending on said Exchange subsidies exceeds a pre-determined limit. In its analysis last week, CBO concluded that the Supreme Court’s ruling means fewer people will obtain insurance through Medicaid, and more people will utilize subsidized insurance on Exchanges instead. As a result, projected spending on Medicaid fell by $289 billion, and projected spending on Exchange subsidies rose by $210 billion.
These changes mean the indexing provision slowing subsidy growth is virtually bound to be triggered beginning in 2019. The statute calls for the indexing provision to kick in if subsidy spending exceeds 0.504% of gross domestic product in the preceding year. As the below chart demonstrates, in CBO’s March 2012 baseline, Exchange subsidy spending* was just slightly above the 0.504% of GDP level – meaning that while it was possible the indexing provision would be triggered, it was also possible it would not be, depending upon general cost trends, how many people enroll in Exchanges, etc. However, the projected 20-25% increase in Exchange subsidy spending as a result of the Court ruling now virtually guarantees the subsidy indexing provision will be triggered beginning in 2019:
| Exchange Subsidy Spending March 2012 (in billions) | Exchange Subsidy Spending July 2012 (in billions) | Estimated GDP by Calendar Year
(in billions) |
March 2012 Percentage of GDP | July 2012 Percentage of GDP | |
| 2018 | 106 | 129 | 20,897 | 0.507% | 0.617% |
| 2019 | 111 | 137 | 21,859 | 0.508% | 0.627% |
| 2020 | 116 | 141 | 22,853 | 0.508% | 0.617% |
| 2021 | 124 | 148 | 23,870 | 0.519% | 0.620% |
| 2022 | 129 | 155 | 24,921 | 0.518% | 0.622% |
While this indexing provision may seem obscure, CBO admitted last month in its long-term budget outlook that it will have a major impact on millions of Americans forced to buy health insurance:
After 2018, however, an additional indexing factor will probably apply; if so, the shares of income that enrollees have to pay will increase more rapidly than in the preceding years, and the shares of the premiums that the subsidies cover will decline….A smaller percentage of people will be eligible for subsidies over time because incomes are projected to increase more quickly than the eligibility thresholds, and federal subsidies will cover a declining share of the premiums over time because of the additional indexing factor described above.
According to CBO, if Obamacare is not repealed or amended, virtually all Americans will be forced to buy health insurance – but fewer and fewer individuals will qualify for insurance subsidies over time, and those subsidies will pay a smaller and smaller share of overall insurance premiums.
Given CBO’s analysis last week, it is virtually certain that this long-term “time bomb” will detonate on millions of American families beginning in 2019. The real question now is: What does President Obama want to do about it? Does he want to force Americans to buy a product that will not be affordable for many of them? Does he want to repeal this subsidy indexing provision – thus blowing a hole in Obamacare’s supposed deficit savings? Or does he want to ignore the issue entirely, hope the American people do the same, and dump this fiscal time bomb on the next President in 2019, hoping someone else will fix a budgetary mess he created?
* Note that the March baseline figures cited above reflect calendar-year spending, as do the GDP numbers (taken from Table E-1 of CBO’s January economic baseline). The formula in Section 1401(a) of the statute requires that the determination whether subsidy spending exceeds 0.504% of GDP be made on a calendar-year basis. CBO has not yet released updated calendar-year numbers since the Supreme Court ruling, and the chart above therefore uses fiscal-year data for the updated spending projections. However, the general point still remains that the higher spending on subsidies in light of the ruling makes it a virtual certainty the indexing provisions will be triggered.