Will One in Six Firms Drop Coverage?

While we wrote earlier this week about how the National Business Group on Health’s annual survey found premium costs for businesses continue to rise, one element of the study missed our attention.  That’s the high percentage of firms that are looking to dump coverage for some or all of their plan participants.  As the below graph from the Business Group survey shows, a majority of large employers surveyed (51%) plan on dumping their retiree coverage, more than a third (35%) plan to dump coverage for part-time workers, and one-sixth (16%) plan to dump coverage for full-time employees:

When thinking about these data, it’s important to keep in mind two key facts.  First, the Business Group’s members are “primarily Fortune 500 companies and large public sector employers” – in other words, large employers most likely to keep offering coverage.  So the numbers above may actually be an under-estimate of the percentage of firms who actually dump, if a greater percentage of small and medium-sized businesses do so.  Second, the Congressional Budget Office earlier this year examined scenarios where up to 20 million people lose employer-sponsored health insurance.  But with 170 million people currently receiving employer-sponsored insurance, if one-sixth of firms drop coverage for their full-time workers – to say nothing of more firms dropping coverage for part-time workers and/or retirees – many more than 20 million people could lose their insurance, and the fiscal impact would be much greater.

With a Mercer study released yesterday indicating that at least 61% of firms believe Obamacare will raise their health costs – and more than a third (34%) asserting the law will raise premiums by more than 3% – it’s obvious that businesses will look at ways to reduce their overall costs.  Dumping their employees on Obamacare Exchanges would be one way for them to achieve this objective.  Unfortunately, however, it would also saddle taxpayers with trillions of dollars in new obligations for years to come.

More Uncertainty Regarding Medicaid Cost Estimates

In a post yesterday, we compared and contrasted estimates from the Congressional Budget Office and the Medicare actuary about who might enroll in the new Medicaid expansions in 2014.  It’s also worth examining estimates of per-beneficiary spending by these newly covered individuals, which will depend in large part on whether those newly enrolled in Medicaid will be more or less healthy than the existing Medicaid population, and whether the new enrollees will engage in a burst of initial spending due to pent-up demand for unmet health needs.

In its re-estimate of the health law last week, CBO assumed that “for the average person who does not enroll in Medicaid as a result of the Court’s decision and becomes uninsured, federal spending will decline by roughly an estimated $6,000 in 2022.”  Conversely, the graph below from the Medicare actuary’s report on Medicaid in March shows that the actuary assumes total Medicaid spending per beneficiary on the newly eligible populations will total less than $5,000 in 2020 for adults in the expansion population, and about $2,000 for children:
 
Admittedly, these two sets of figures are not strict “apples-to-apples” comparisons.  CBO’s assumption discusses 2022 federal spending on Medicaid, whereas the Medicare actuary examines 2020 total Medicaid spending (10 percent of which will be borne by states in 2020).  And those who will not enroll due to the Supreme Court ruling may have different health characteristics and costs than the expansion population as a whole.  That said, it appears safe to assume based on these data that CBO presumes higher projected Medicaid costs for the expansion population than does the Medicare actuary.

To sum up, prior to last month’s Supreme Court ruling:

  • CBO assumed at least 9.5 million newly eligible people would enroll in Medicaid; 7.5 million already eligible people would decide to enroll in Medicaid due to the law; and federal Medicaid spending would cost $6,000 in 2022
  • The Medicare actuary assumed at least 21.2 million newly eligible people would enroll in Medicaid; 4.7 million already eligible people would decide to enroll in Medicaid due to the law; and total Medicaid spending (i.e., state and federal) would cost $5,000 per newly-enrolled adult and $2,000 per newly-enrolled child in 2020

We highlight these disparities to show the VAST degree of difference between the two sets of estimates – and therefore the large degree of uncertainty associated with the law’s impact.  If 21.2 million newly eligible people enroll in Medicaid, as the Medicare actuary predicts, the predictions of the Congressional Budget Office – which thinks about half that number will enroll – about the law’s deficit neutrality would likely be shattered.  Likewise, given the chart above, if adults in the expansion population incur expenses as great as adults in the existing Medicaid population, the law will increase the deficit by a significant amount.

The differences above demonstrate that the law’s supposed “deficit reduction” is far from a sure thing.  In fact, given the things that must all fall into place for the law actually to live up to its fiscal hype, many may say that such assertions are highly dubious, and likely to be proven wrong.

JEC Member Viewpoint: Sen. Jim DeMint on the $805 Billion Price Tag of Obama’s Broken Promise on Premiums

This Member Viewpoint by Sen. Jim DeMint was originally published by the Joint Economic Committee.

 

When campaigning for the presidency, then-candidate Barack Obama repeatedly promised that under his health care reform proposal, health insurance premiums would go down by $2,500 by the end of his first term.1 The end of President Obama’s first term is now approaching, and the change in average family premiums is surprisingly close to candidate Obama’s promise: the problem is, that change is in the wrong direction. Instead of falling $2,500, the average employer-sponsored family premium has increased $2,393.2

The difference, then, between candidate Obama’s promise and President Obama’s record is $4,893.3 But that is just the difference for 2012. If the promised $2,500 decline is allocated proportionally over four years and across different plan types, the cumulative gap between actual and promised premiums for private health insurance equals $12,271 for the average family and $4,177 for the average individual.4

Of course, to be fair, the Medical Loss Ratio (MLR) provision of Obamacare will result in some health insurance enrollees receiving rebate checks from their insurance providers. This provision is Obamacare’s attempt at driving down insurance costs by dictating how insurance companies can spend money freely given to them by employers and individuals who wish to purchase their services. For the 2011 plan year, an estimated $1.3 billion in rebate checks will be sent to about 16 million enrollees, for an average rebate amount of $85.5 Assuming a similar level of rebates go out in 2013 for the 2012 plan year, the MLR rebates reduce the gap between promised premiums and actual premiums by less three-tenths of one percent, to a cumulative difference of $12,230 for the average family and $4,163 for the average individual. That is $12,230 less money that was spent (on something other than health insurance), saved, or invested by the average family and $4,163 less by the average individual.

When you add up all the extra money – beyond the level promised by candidate Obama – Americans have spent on health insurance over the past four years, the economy-wide impact is an astounding $805 billion.6 That’s as much as the President’s failed stimulus package, and not so far off from the initially reported $940 billion ten-year cost of Obamacare (the updated ten-year cost is $1.76 trillion, not including the costs of implementation).7 What’s worse though is that this figure will only rise over time as Obamacare’s many taxes and regulations continue to drive up the cost of health insurance.

In terms of full-time jobs, the $805 billion difference is equivalent to the cost of private-sector employers supporting an average of 3 million jobs each year between 2009 and 2012, and a total of 4.7 million jobs in 2012 alone.8

With more than $800 billion less in Americans’ pockets than Obama promised, it’s no wonder our economy continues to struggle. It is the government-knows-best view of the Obama Administration and Democrats in Congress that has contributed to the American economy stalling out. His promise to reduce premiums by $2,500 and his administration’s estimate that the stimulus would cut the unemployment rate to 5.7% (by July 2012) show President Obama’s conviction that government is the solution to driving down costs and creating jobs.9 Unfortunately, that conviction has proven unfounded. Excessive government spending and intervention have not driven down health insurance premiums by $2,500, but rather contributed to a $2,393 increase. And unprecedented deficit-financed stimulus spending has not brought the unemployment rate down to 5.7%, but rather kept it up at 8.2% with employers and investors holding back as Obamacare and other regulations have increased their costs and as unsustainable deficit spending has given rise to fear over coming tax hikes.

Analytical Appendix

Population and Insurance Coverage

The Census Bureau publishes data on the number of people in the United States with health insurance coverage. This data is broken down into private insurance coverage and government insurance coverage. Within private coverage, the data is segmented into individuals with employment based health insurance and direct purchase health insurance. The data from the Census Bureau goes through 2010. Data for 2011 and beyond is estimated based on the average annual percentage increase in each category of insurance from 1995-2010.
For allocation of insured individuals between individual or self-only plans and family plans, data was taken from the 2011 Medical Expenditure Panel Survey (MEPS). This data shows that individual or self-only plans made up 50.2% of all private sector employer health plans while family plans comprised the remaining 49.8%. This breakdown was also applied to the direct purchase market and across all years. The resulting allocation of individuals across private plan types is shown below.

For each family plan, there are assumed to be 3.05 members. This statistic is based on a breakdown of direct purchase family policies by size from ehealthinsurance.com, and it assumes an average of eight members per plan within the category of 6+ members.

Premium Costs

Data on average annual premium costs for employment based health insurance come from the Kaiser Family Foundation Annual Employer Health Benefits Survey. Data on premium costs for direct purchase health insurance come from the ehealthinsurance.com Annual Cost and Benefit Reports. As of publication, the data from both of these sources was only available through 2011. The analysis conservatively assumes no rise in premiums from 2011 to 2012.

Promised Reductions

The promise of a $2,500 reduction in the average family premium by the end of President Obama’s first term is applied as a $625 per year reduction in costs for the average family premium (-$625 in 2009, -$1,250 in 2010, -$1,875 in 2011, and $-2,500 in 2012). The applicable promised reduction for the average individual or self only premium is $927 for employer based health insurance and $1,077 for direct purchase health insurance. These individual premium promised reduction amounts are based on the ratio of individual to family premium costs in 2008, when the promise was made. At that time, the average employment based individual premium was equal to 37.1% of the average family premium (.371*-$2,500 = -$927) while the average direct purchase individual premium was 43.1% of the average direct purchase family premium (.431*-$2,500 = -$1,077).

Aggregate Estimates of the Broken Promise

For aggregate estimates of amounts paid for health insurance vs. those promised, the number of people in each insured group (individual employment based, individual direct purchase, family employment based, and family direct purchase) was multiplied by the difference between the promised premium cost and the actual premium cost in each year from 2009 to 2012. The sum of additional premium costs across these privately-insured individuals and families from 2009 to 2012 amounts to $807 billion ($807,326,158,132). The new Medical Loss Ratio (MLR) component of the Affordable Care Act is estimated to result in roughly $1.3 billion ($1,343,496,719) in rebates to be paid by insurers to enrollees (beginning in August 2012) for the 2011 plan year. In keeping with the conservative estimate that premium costs did not rise from 2011 to 2012, MLR rebates in 2013 (for the 2012 plan year) are also assumed to hold steady at $1.3 billion. Excluding the $2.6 billion of cost-reducing MLR rebates, the total gap between promised and actual premium costs equals $805 billion ($804,639,164,694).

Jobs Equivalent Cost Estimates

Estimates translating the annual cost differences between promised and actual premiums into the cost of private-sector job creation were obtained by dividing the total economy-wide cost difference for each year by the average employee compensation for full-time, private-sector employees in that year. Compensation data comes from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (data for 2012 was available only through the first quarter). The table below shows the annual jobs equivalent costs estimates.

 

Endnotes

1 Freedom Eden, “Obama: 20 Promises for $2,500,” March 22, 2010, http://freedomeden.blogspot.com/2010/03/obama-20-promises-for-2500.html.
2 Kaiser Family Foundation, Annual Employer Health Benefits Surveys 2008-2011, http://www.kff.org/insurance/index.cfm.
3 Data on 2012 premiums costs for both employer based and direct purchase premiums were not yet available. This analysis relies on a conservative estimate that premiums will not rise in 2012, but will remain constant at their 2011 level.
4 Data on private, direct purchase health insurance premiums for 2008-2011 comes from ehealthinsurance.com. See Analytical Appendix for a detailed analysis of estimates.
5 Kaiser Family Foundation, “Insurer Rebates under the Medical Loss Ratio: 2012 Estimates,” April 2012, http://www.kff.org/healthreform/upload/8305.pdf
6 See Analytical Appendix.
7 Congressional Budget Office, “Estimate of direct spending and revenue effects for the amendment in the nature of a substitute released on March 18, 2010,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr4872_0.pdf and “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” March 13, 2012, http://cbo.gov/publication/43076.
8 Estimates based on data from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (quarterly data through the 1st quarter of 2012) and private-sector, full-time employee compensation. In the 1st quarter of 2012, the average cost of employee compensation was $66,960.
9 Unemployment estimate comes from: Christina Romer and Jared Bernstein, “The Job Impact of the American Recovery and Reinvestment Plan,” January 9, 2009, http://www.politico.com/pdf/PPM116_obamadoc.pdf.

 

Why Obamacare Is NOT a Tax Cut

By now you’ve heard claims from President Obama and others that Obamacare provides a massive middle-class tax cut – largely by funding coverage for health insurance through Exchanges.  We figured we would take this opportunity to summarize why that claim doesn’t hold water:

CBO Scores Most of the “Tax Cuts” as Government Spending

We previously noted that, according to CBO’s March 2012 baseline, projected spending on insurance subsidies totaled $806 billion during FY2013-22.  As of March, $628 billion of that $806 billion was classified by CBO as government spending, NOT reduced tax revenues.  But since the Supreme Court’s ruling on Obamacare, those numbers have actually increased.  CBO now assumes more low-income people who previously would have enrolled in Medicaid will receive Exchange subsidies instead in light of the Court decision.  In its updated score of the repeal bill, CBO last week projected that $793 billion of the $1.017 trillion in subsidies represent government outlays, NOT revenue reductions.  That means that over 78% of Obamacare insurance subsidies are pure government spending to individuals who have no income tax liability.

Democrats are quick to cite CBO to claim that Obamacare will reduce the deficit – why aren’t they also quick to cite CBO when it states that the subsidies are NOT a tax cut, but instead largely comprise new government spending?

Democrat Claims on “Tax Cuts” Undermine the Social Security Trust Fund

When confronted with the fact that most of the Exchange subsidies constitute outlay spending by the federal government, President Obama and Democrats argue that these refundable tax credits – i.e., people receiving refunds even though they have zero income tax liability – offset payroll taxes paid by the low-income.  But Democrats have told Republicans for years that those payroll taxes are used solely to fund Social Security benefits, meaning those workers will get their payroll taxes back in future benefits (and especially in the case of low-income workers, will get their payroll taxes back and then some, due to the way Social Security benefits are calculated).  Do Democrats now want to admit that the Social Security Trust Fund is effectively meaningless, and that those who pay only payroll taxes are funding general government obligations rather than their own retirement benefits…?

Low-Income Individuals Don’t Pay Enough Other Taxes to Offset this “Tax Cut”

Even if you disregard points #1 and #2 above, and believe that the subsidies will offset payroll and other taxes paid by individuals, the massive subsidies will still overwhelm many individuals’ total tax liability – federal, state, AND local.  In its analysis of the fiscal impacts of the Supreme Court ruling, CBO noted that in 2022, Exchange subsidies for low-income individuals – i.e., those persons who were originally projected to enroll in Medicaid, but who will now enroll in Exchanges instead due to the Court ruling – will average about $9,000 per year.  These low-income individuals have incomes under 138% of the federal poverty level ($15,414.60 for a single person, $31,809 for a family of four in 2012).

To put it into perspective: A single person with income of 138% FPL, or $15,414.60, would pay total federal payroll taxes of $2,358.44 (that includes employee AND employer shares).  Assume also for illustrative purposes that this person would pay $1,541.46 in state and local income taxes, given a combined 10% state and local tax rate.  As noted above, this person’s average insurance subsidy will total $9,000.  Given payroll and state/local income tax liability totaling $3899.90, that means the individual in question would have to pay an additional $5100.10 in sales taxes for the federal subsidy to offset existing tax liability.  And at a 6% local sales tax rate, an individual with income of $15,414.6 would have to spend just over $85,000 – enough to buy a Platinum Edition Cadillac Escalade – to pay enough sales tax to have a net tax liability.

All this is to say that there is virtually NO WAY some of the individuals receiving subsidies will pay enough in payroll taxes, state and local taxes, sales taxes, or any other kind of taxes for the subsidies to offset taxes they actually paid – as opposed to the government spending money to buy them health insurance.

Obamacare Subsidies are Paid Directly to Insurance Companies

Democrats’ claims to the contrary, the law and record are very clear about the fact that this massive new entitlement will go straight into the pockets of the insurance industry:

  • Section 1412(c)(2)(A) of the law provides that “The Secretary of the Treasury shall make the advance payment under this section of any premium tax credit allowed under section 36B of the Internal Revenue Code of 1986 to the issuer of a qualified health plan on a monthly basis.”
  • Page 37 of the report on the Finance Committee bill states: “The Committee Bill provides a refundable tax credit for eligible individuals and families who purchase health insurance through the state exchanges.  The premium tax credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through the state exchanges.”

Even liberal professor Jonathan Gruber – a paid Obamacare consultantadmitted in an interview that “Most households will never actually get their hands on the credits, so their existing tax liabilities won’t actually change.  In most cases, credits will go straight to insurance companies, to pay for health benefits.”  And according to CBO’s updated estimates, Obamacare will now provide over $1 trillion in spending on subsidies, which will go directly into the pockets of insurance companies.

Of course, candidate Obama opposed sending subsidies straight to insurance companies when he ran for President, only to flip-flop on this issue when he signed Obamacare.  An Obama campaign ad derided Senator McCain’s proposal to subsidize insurance through tax credits: “That tax credit?  McCain’s own Web site said it goes straight to the insurance companies, not to you, leaving you on your own…”  Likewise, in a campaign speech, candidate Obama vilified Senator McCain for this policy: “But the new tax credit [McCain’s] proposing?  That wouldn’t go to you.  It would go directly to your insurance company – not your bank account.”

If this isn’t enough to convince you, consider a hypothetical example whereby Congress orders the IRS to send checks to Ferrari dealerships to pay for new sports cars for all Americans with incomes under $50,000 per year.  This is clearly NOT a tax cut – because the cost of the Ferrari obviously exceeds any and all taxes low- and middle-income families pay, and because the individuals in question don’t receive cash through the transaction.  It’s the same situation with health insurance.  And unfortunately for the shrinking number of Americans who DO pay taxes, giving $1 trillion in Exchange subsidies straight to insurance companies will prove to be a fiscal wreck that even loads of Ferraris couldn’t begin to match.

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.

White House Attempts to Have It Both Ways

Yesterday evening, the White House issued a blog post attempting to trumpet CBO’s re-estimate of Obamacare: the CBO estimate “affirms that repealing the health care law would…result in higher deficits.”  The post later went on to rebut CBO’s assumption that many states would not fully expand their Medicaid programs as provided for in the law.  The White House alleged that “history suggests that [states] will act” to implement the expansion.

There’s just one problem with that latter assertion: If all states implement the Medicaid expansion, more than three-fourths – $84 billion of approximately $109 billion – in Obamacare’s supposed deficit savings* will evaporate.  So the White House is attempting to argue both sides of the story – that the law will reduce the deficit by a wide amount, but that states will all expand Medicaid, even though their doing so would eliminate most of the law’s supposed savings.

The fact that the White House feels the need to take both sides of this argument shows how fiscally flawed the measure is – why it should be repealed, and why repeal will ultimately save taxpayers in the long run.

 

* Admittedly, CBO said the $109 billion figure associated with repealing the law was not an exact estimation (in reverse) of the law’s deficit impact – largely because CBO assumes a repeal bill would not take effect immediately.  That said, because CBO hasn’t re-estimated the full law, the score of the repeal measure is the closest approximation we have to the measure’s full fiscal effects.

Summary of CBO Analysis of PPACA

This afternoon the Congressional Budget Office released their re-estimate of the health care law in light of the Supreme Court’s ruling, along with a new cost estimate for repealing the legislation.  In sum, CBO said that the Supreme Court ruling will:

  • Decrease the net cost of the law by $84 billion through 2022;
  • Result in about 3-4 million additional individuals remaining uninsured; and
  • Raise premiums on the individual market by 2 percent, or about $400 per family – that comes in addition to the $2,100 per family premium increase CBO previously predicted back in 2009.

To be clear, in re-estimating the impact of the law’s Medicaid expansion – which the Court’s ruling made optional – CBO did NOT attempt to determine which states would and would not expand their Medicaid programs.  When assessing the outcome of the ruling, CBO concluded that:

  • About one-third of the potential newly eligible Medicaid population will reside in states that will fully expand coverage under the law’s parameters (i.e., up to 138 percent of poverty).  These individuals will be enrolled in Medicaid, as they would have been prior to the ruling.
  • About one-half of the potential newly eligible Medicaid population will reside in states that will partially expand coverage under Medicaid (i.e., more than exists currently, but not up to 138 percent of poverty).  CBO assumed that 40 percent will reside in states that expand up to 100 percent of the poverty level, and 10 percent will reside in states that expand Medicaid to some level below 100 percent of poverty.  Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while those individuals with incomes under 100 percent of poverty will either be enrolled in Medicaid, if their state has expanded the program to cover them, or will not obtain access to coverage if their state has not expanded Medicaid to cover them (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
  • About one-sixth of the potential newly eligible Medicaid population will reside in states that will NOT expand coverage under the Medicaid expansion at all in the next decade.  Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while all those individuals with incomes under 100 percent of poverty will not obtain access to coverage (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
  • CBO also concluded that “about one-fifth” of those already eligible for Medicaid will no longer enroll in the programs – diminishing the “woodwork effect,” whereby individuals come “out of the woodwork” and discover they have been eligible for Medicaid for some time.

In total, CBO concludes that about 6 million fewer people will be enrolled in Medicaid under the law due to the ruling and its impacts; between 2-3 million of these will receive subsidies on insurance Exchanges in lieu of Medicaid coverage, while between 3-4 million will remain uninsured, thus diminishing the law’s reduction in the number of uninsured Americans.

With respect to the budgetary impacts of these changes, CBO estimates that the federal government will save $6,000 in Medicaid costs for each individual that does not enroll in the Medicaid program.  Conversely, CBO estimates each individual who receives an Exchange subsidy instead of joining the Medicaid expansion will cost the federal government a net of $3,000 – that’s the difference between the amount the taxpayers will spend on insurance subsidies ($9,000) and the amount taxpayers would have spent on Medicaid coverage instead ($6,000).  On net, CBO believes the Court ruling will reduce Medicaid spending by $289 billion, while increasing spending on Exchange subsidies by $210 billion (with a further $5 billion impact of interactions).

Finally, CBO included the following paragraph on page 15 of its analysis of the Court ruling:

The additional enrollees [i.e., those previously projected to enroll in Medicaid, but who will now receive Exchange subsidies in light of the Court’s ruling] are likely to spend more on health care, on average, than those previously expected to purchase insurance through the exchanges because people with lower income generally have somewhat poorer health.  As a result, CBO and JCT now estimate that the premiums for health insurance offered through the exchanges, along with premiums in the individual market, will be 2 percent higher than those estimated in March 2012.

As noted above, this 2 percent increase – or nearly $400 for a family, given an average premium of $19,200 per year – comes in addition to the $2,100 per family premium increase CBO previously predicted when the law first passed.  Recall that candidate Obama repeatedly promised premiums would go down by $2,500.  This development takes him even further away from keeping that promise.

Obama the Story Teller

In an interview with Charlie Rose yesterday, President Obama said his biggest mistake as President was that he was too focused on “getting the policy right….The nature of this office is also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times.”

The President’s comments indicating he was too focused on policy may seem to some like the famous response from an interviewer asking for a job applicant’s biggest flaw: “My biggest flaws are that I work too hard and care too much.”  But when it comes to health care, we actually disagree with the President.  He HAS been good at telling stories – quite a lot of them actually:

Story #1 – “If You Like Your Plan, You Can Keep It:”  The Obama campaign platform promised that “you will not have to change plans.  For those who have insurance now, nothing will change under the Obama plan – except that you will pay less.”  But the Administration’s own estimates revealed that Obamacare’s onerous regulations will force most firms – and up to 80 percent of small businesses – to give up their current plans, thus subjecting them to costly new mandates that will increase premiums.  Millions more seniors will lose access to the Medicare Advantage plans they have and like.

Story #2 – Obamacare Will Cut Premiums by $2,500 per Family:  Candidate Obama repeatedly promised premiums would go down by $2,500 – and would go down that amount by this year.  But since making that promise, premiums have gone up by nearly $2,400 per family – from $12,680 in 2008 to $15,073 in 2011, according to Kaiser Family Foundation data.  And the legislation he signed into law will result in even more massive premium increases.  The Congressional Budget Office projects that individual health insurance premiums will increase by $2,100 per family as a result of Obamacare.

Story #3 – No New Taxes on the Middle Class:  After telling the squeezed middle class during his campaign that he would not raise “any of your taxes,” President Obama’s health care law broke that promise no fewer than 12 separate times.  These massive revenue increases will have a devastating effect over the coming years; destructive taxes on job creators will harm an economy struggling to grow.

Story #4 – Individual Mandate, Part I:   In 2008, candidate Obama claimed that penalizing people for not buying health insurance was like “solv[ing] homelessness by mandating everyone buy a house.”  Yet Obamacare created an unprecedented federal requirement for all citizens to purchase a product merely because they exist.

Story #5 – Individual Mandate, Part II:  In 2009, President Obama told George Stephanopoulos that “For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.”  Yet more than two years later, his Administration argued before the Supreme Court that Obamacare’s individual mandate “operates as a tax law.”  But President Obama still refuses to acknowledge his individual mandate is a multi-billion dollar tax increase on the middle class – and has gone so far as to criticize others for playing politics regarding the issue.

Story #6 – Protecting Medicare:  In an address to Congress in 2009, President Obama claimed he would “protect Medicare.”  Yet former Speaker Pelosi admitted in an interview last year that Democrats “took a half a trillion dollars out of Medicare in [Obamacare], the health care bill” to pay for more federal spending.  That doesn’t protect Medicare – that undermines Medicare.

Story #7 – Federal Spending on Obamacare:  Candidate Obama promised his health care plan would cost “$50-65 billion a year when fully phased in.”  However, the Congressional Budget Office now projects that the REAL cost of the coverage expansions will be $250 billion in 2021 and $261 billion in 2022 – more than four times the levels of spending candidate Obama promised.

Story #8 – Containing Health Care Costs:  In June 2009, President Obama claimed that any health care legislation must control costs: “If any bill arrives from Congress that is not controlling costs, that’s not a bill I can support.  It’s going to have to control costs.”  However, according to the Medicare actuary, national health spending will go up by $478,000,000,000, thanks to Obamacare.

Story #9 – Taxing Health Benefits:  Candidate Obama promised not to “tax health benefits,” and derided his opponent’s proposals to do so.  But Obamacare FORCES people to buy insurance, so the federal government can tax it at a whopping 40 percent rate.

Story #10 – Health Care Negotiations on C-SPAN:  Candidate Obama said he would televise all health care negotiations on C-SPAN, but the process leading up to Obamacare was plagued with notorious backroom deals.  Worse yet, Obama adviser David Axelrod received a multimillion dollar severance package indirectly paid for by the pharmaceutical industry, as part of its “rock-solid deal” with Democrats in Congress and the Administration.

So yes, President Obama is good at telling stories – quite good, in fact.  The problem is that few of them happen to be true.

Obamacare: $2.6 Trillion in Change Special Interests Can Believe In

A new paper, co-written by former HHS official Joel Ario and released online by Health Affairs yesterday, talks about special interest lobbying both prior to and after the enactment of Obamacare.  The article profiles various industries, and explains why they have offered support for the law:

Ario and his co-author note that all these Obamacare giveaways have been financially beneficial to the health care sector: “The large influx of new paying customers helped the bottom line for some health care businesses.  On Wall Street, the valuation of the health sector has risen 36 percent since the passage of health reform in 2010, four times faster than the rate of increase of the Standard and Poor’s 500 average.”  They add that special interests have spent much of the past several years lobbying for more waivers and favors from the Obama Administration:

The leading representatives of business, insurers, providers, and patients have privately negotiated aggressively with government officials to wrest further concessions in exchange for their support or their retreat from earlier opposition.  From the perspective of stakeholders, influence on critical implementation decisions is more efficacious than joining the rabble at a town-hall meeting or squandering resources on a national advertising campaign when the key decision makers are few in number and squirreled away in government agencies.

Some may find it surprising that a former Administration official like Ario – who left HHS to “cash in” with a lucrative law-and-consulting gig – would co-author an article discussing “rabble” at town hall meetings.  Some would also find it surprising his public admission that backroom lobbying – aka cutting a “rock-solid dealaway from the C-SPAN cameras – is far preferable to engaging with actual constituents.  Then again, even Jack Abramoff admitted last week that Obamacare is a massive giveaway to special interest lobbyists and their clients, “who want to use the government as a bludgeon against competition.”  So when it comes to Obamacare’s $2.6 trillion in new spending, granting backroom deals for special interest lobbyists is just another day at the office.

Obamacare’s Prevention Priorities: Mammograms, No; Jungle Gyms, Yes

Last week, the New York Times reported on a study conducted by the Mayo Clinic, which found that the number of women in their 40s obtaining mammograms declined “in the year after an expert panel’s recommendation that women delay regular breast cancer screenings until age 50.”  The “expert panel” in question is the US Preventive Services Task Force – referenced 21 different times in Obamacare, and granted the power by the law to set federal coverage standards for preventive coverage by insurers.

The Mayo study leads to the unsurprising conclusion that if a government board decides a treatment is not “approved,” people will receive less of that treatment.  Empowering a government board will decrease access to preventive care screenings, as insurance companies will likely follow the directives of a federally-backed panel.  So rather than keeping choices between patients and doctors, Washington has effectively short-circuited that process, because the rulings of a government board will lead insurance companies to stop covering preventive treatments.

Unfortunately, it’s not just access to mammograms that may be affected – prostate cancer screening may well be next.  Earlier this year, the US Preventive Services Task Force released its final recommendations regarding prostate cancer screening.  Even before the Task Force’s draft recommendations were issued last October, insurers were already re-evaluating whether or not to cover screening tests in light of the Task Force’s decision.

Yet even as the recommendations from the Preventive Services Task Force have reduced the use of preventive care screenings, the Administration has been promoting “preventive services” elsewhere.  Over the past several months, HHS has been handing out grants from Obamacare’s prevention new “slush fund” to finance things like jungle gyms, bike paths, and crosswalks.  So when it comes to prevention funding from this Administration, the mantra appears to be “Mammograms, no; jungle gyms, yes!”