The Real Cost of Obamacare

November 22, 2013 Topic: EconomicsPolitical Economy Region: United States

The Real Cost of Obamacare

What happens when "30 to 50 percent of all employers" drop health coverage?

Everything is “on track.” Over the course of three and a half years, that’s what Obama administration officials repeatedly told Congress.

On October 1, the day the administration opened its website, only six living, breathing human beings enrolled in Obamacare. It turned out that the predictable little “bumps and glitches” were instead wholesale information-system failures.

Federal officials and their contractors worked furiously around the clock, and Secretary of Health and Human Services Kathleen Sebelius told Congress that the government’s website would be working properly by November 30. We’ll see.

Meanwhile, HHS unveiled the first month’s results, and they were poor. While the states administer seventeen exchanges, the federal government is fully or partially responsible for thirty-six state and territorial exchanges. Though more than 27 million Americans visited federal and state websites, only 1.5 million completed applications to enroll in a health plan.

Worse, only 106,185 persons have thus far taken a health plan. Of these, only 26,391 enrolled through the federal exchanges, while 79,391 enrolled in the state exchanges. Altogether, that’s only 1.5 percent of the total projected enrollment of 7 million expected to be enrolled by March 31, 2014.

Obamacare’s website problems are technical, and can be solved by technically competent staff. It will be fixed, sooner or later.

But fixing Obamacare’s website problems will not bring back the cancelled insurance policies of millions of Americans, soften the rate shock of those enrolling in the exchanges, or reverse the perverse economic incentives hardwired into the body of the law.

Administrative improvements, better software, or more competent staff will not roll back the law’s health care cost increases, or reduce taxpayers’ burdens, or restore long-established but broken relationships between doctors and patients.

Already disturbing patterns are starting to emerge.

As noted, preliminary HHS numbers show that only 106,185 persons have enrolled in “private” health insurance in the exchanges, but we do not know the composition of this population. They could be predominantly younger and healthier, or they could be older and sicker, desperate for coverage or subsidies.

If it turns out to be an older and sicker group of enrollees, then the health care costs and premium increases in the exchanges are going to be even higher than the rate shockers already published. A twenty-six-year-old California female, for example, might be faced with a $170 monthly premium for a “bronze” plan, plus a fat $4,500 deductible.

If younger and healthier men and women in California and elsewhere find that hard to stomach, they’ll just go bare and pay the paltry penalty (maybe). After all, they can rely upon the hospital emergency room for nonurgent care or sign up for coverage when they get sick. This invites an unstable health-insurance market, higher rates of uninsurance, and even more wasteful cost shifting.

Team Obama is all about central planning on the grand scale. They can only hope that their carefully calibrated combination of “carrots” (insurance subsidies) and “sticks” (mandate tax penalties) can lure enough younger and healthy enrollees into their exchanges to cross-subsidize older and sicker persons.

They really need a robust pool of younger and healthier applicants. If not, the administration could preside over insurance-market mayhem. Ugly stuff.

Preliminary HHS numbers also show that while little more than one hundred thousand persons have signed up for private coverage in the exchange, almost four hundred thousand are eligible for welfare—mostly in the form of Medicaid, a poorly performing government program.

Last May, the Congressional Budget Office (CBO) projected that thirteen million more Americans would be added to the Medicaid rolls over the next ten years, at an additional cost to the taxpayers of $709 billion. (CBO, it should be noted, has a long history of underestimating the true cost of government health programs.)

An imbalance between paying and non-paying enrollees through the Obamacare exchanges is not a good thing. It’s the sort of imbalance that could explode CBO cost projections, deepen middle-class anger and incite a taxpayers’ revolt.

While Obamacare’s insurance rules have already resulted in more than 5 million Americans having their individual insurance policies cancelled, a potentially much larger disruption looms over the horizon: the mass disruption of employer-based group insurance.

With the onset of Obamacare, businesses and even public institutions are responding by cutting employees hours and relying more on part-time employment. Much depends on how firms will respond to the employer mandate and its delay, as well as the complex set of incentives created by generous exchange premium subsidies for low-income workers and new mandates and taxes on group insurance.

While official government estimates of the numbers of persons dumped out of employment-based insurance tend to be conservative, independent projections are much higher. Former CBO Director Douglas Holtz-Eakin, for example, says that as many thirty-five million Americans could be dumped out of employer coverage into the exchanges. McKinsey and Company, a Chicago-based consulting firm, has estimated that anywhere between 30 to 50 percent of all employers could drop coverage.

If the more modest government estimates are wrong, the cost of taxpayers’ insurance subsidies will explode, and the Obamacare exchanges could become a huge taxpayer money pit.

Right now, the preliminary numbers are not enough to forecast the success or failure of Obamacare. But the White House and its congressional allies better get some much better numbers at the end of November. After all, they designed this contraption. Blaming others for this mess is getting old.

Robert E. Moffit is a senior fellow at The Heritage Foundation and a co-author of Why Obamacare is Wrong for America.