What’s Missing — October 21, 2013
The implementation of the health insurance exchanges that began on October 1 has not been an unqualified success. The Congressional Budget Office estimates for the costs of Obamacare are based on an enrollment of 7 million during the first six-month open enrollment period. So far, fewer than 500,000 people have enrolled, according to a report from the AP.
But new enrollees are not the only things missing. The employer mandate has been delayed for one year, and several other provisions have been delayed as well.
The employer mandate, like the individual mandate, sets a requirement that must be met or the offending party must pay a fine. Under the Affordable Care Act, all employers with more than 50 full-time employees must provide health insurance to their employees or pay a fine. The requirement was to have begun next year, but it has been delayed until 2015.
Another provision delayed until 2015 is the limit on out-of-pocket health costs that individuals must pay. That provision would have limited individual out-of-pocket and deductible costs to $6,350 for individuals and $12,700 for a family.
The insurance exchanges that would have offered small businesses the same kind of marketplace as the new exchanges do for individuals also have been delayed for another year.
There are also concerns about the privacy of patient information. Opponents of Obamacare have jumped on this issue, citing the kinds of information individuals are asked to provide and the use of “navigators,” people hired to help other people sign up for health insurance and who will have access to private information for enrollees. This could become a major concern, especially considering the less-than-satisfactory roll-out of the healthcare.gov website.
Good for Small Business — October 17, 2013
Much of the criticism leveled against the Affordable Care Act bashes its impact on small business. That impact, though, is probably more beneficial than harmful.
Under the law, companies with 50 or more employees must offer health insurance to their employees or pay a fine. That requirement does not apply to the 96% of U.S. businesses that have fewer than 50 employees. Nor does it apply to the more than 90% of the businesses above that threshold that already offer health insurance. Only about 3% of American businesses with between 40 and 75 employees are likely to be affected by the rule.
The good thing about Obamacare for small businesses is that it will make it easier for an entrepreneur to start a business because the small business insurance exchanges provide a way for a new business owner to get health insurance for himself or herself and the employees of the business. The cost of that insurance also should be lower because the exchanges effectively allow small business to pool their risks to get better rates.
A 2009 study of small businesses found that the nation’s small business sector is among the smallest in the developed world and that could have been due to the fact that the U.S. lacked “some form of universal access to health care.” Obamacare changes that and should encourage, rather than discourage, new small businesses.
The Government Shutdown — October 16, 2013
The longer the government shutdown continues, the more it costs the U.S. economy. And it appears that the main reason that the U.S. House of Representatives cancelled a hastily scheduled vote on a plan to reopen the government and extend the debt ceiling deadline is directly related to Obamacare.
As we noted Tuesday evening, an advocacy group called Heritage Action issued a statement opposing the House plan, saying that it would “include [votes on the plan] as a key vote on our legislative scorecard.” Heritage Action is a staunch opponent of implementing Obamacare, and the group’s stand apparently forced the cancellation of last night’s scheduled vote.
It is not much of a stretch then to lay the costs of the government shutdown and the threat to cut off the federal government’s ability to borrow as another economic impact of Obamacare. In an earlier look at the economic impact of the federal government shutdown, we noted that research firm IHS Inc. (NYSE: IHS) estimated the closure to cost about $160 million a day. The longer the shutdown lasts, the larger the costs are sure to be.
A new study by Macroeconomic Advisers for the Peterson Foundation concludes that a “crisis-driven fiscal policy” has cost the U.S. 900,000 jobs and raised the unemployment rate by 0.6%. And the evidence is pretty compelling now that Obamacare continues to drive the crisis.
Tax on Medical Devices — October 15, 2013
One area of potential agreement between Democrats and Republicans in the fight that has resulted in a government shutdown and a potential default on federal debt is the imposition of a 2.3% tax on medical devices that is projected to raise $30 billion to help pay for Obamacare over the next decade.
More than 260 members of the House and 30 Democratic senators oppose the medical device tax, which was included in the Affordable Care Act. Supporters of the tax say it is justified because the medical device industry will benefit from the larger pool of insured people that comes with Obamacare.
The opposition to the tax sides with device makers who claim the tax will force them to eliminate jobs and cut spending on research and development.
In the great scheme of the Affordable Care Act, an annual loss of $3 billion in revenue does not seem like much. The total cost of Obamacare over the next 10 years, remember, is $1.7 trillion, or an average of $170 billion a year. The medical device tax is among the various taxes that were created in the Affordable Care Act that reduce that 10-year spending total by about $500 billion. The medical device tax represents 6% of the total $500 billion cost reduction. If the tax is eliminated, either it will have to be replaced or the federal deficit will have to rise by $3 billion a year.
Medicaid Expansion — October 14, 2013
When the U.S. Supreme Court upheld the Affordable Care Act (Obamacare) in 2012, it excluded the law’s requirement that states had to cover their poorest citizens or lose federal Medicaid funding. Under the act, the federal government would have paid 100% of the cost for this expansion to Medicaid, tapering off to 90% in five years. The Supreme Court ruling left it up to the states to decide whether to offer expanded Medicaid coverage to its poorest citizens.
Under the Obamacare law as originally enacted, adults with income that fell below 138% of the poverty level would have been covered by Medicaid. Those with incomes of up to 400% of the poverty level would have received federal subsidies to help with the cost of buying insurance on the state exchanges.
As of mid-September, some 28 states have either adopted Obamacare’s Medicaid expansion or are considering doing so. One state — Arkansas — has adopted an alternative that allows the state essentially to privatize an expansion to Medicaid. Of the remaining states, 15 have determined that they will not participate in expanded Medicaid, and seven more are likely non-participants.
The costs of non-adoption are more difficult to tease out than the costs of adoption. Business will continue as usual presumably, meaning that the uninsured will go on using hospital emergency rooms to get care that could be delivered far more cheaply in other ways, and that will do nothing to reduce the 18% of GDP the United States now spends on health care.
The Cost of Insurance — October 11, 2013
Obamacare’s two goals — lowering the portion of GDP spent and insuring more people — do not appear to be compatible. If more people are insured and the federal government is picking up the tab for a portion of that insurance, surely it will cost more and spending will rise.
That’s right. According to a report from the Congressional Budget Office (CBO), there are 55 million non-elderly Americans currently uninsured. By 2016, Obamacare is expected to reduce that number to around 31 million by insuring 25 million new enrollees. The average subsidy for each of these people for each of the next three years will be around $5,300. By 2023, the average subsidy will reach $7,900 per person.
CBO also expects penalty payments from employers and individuals, excise taxes on so-called cadillac plans, and other program savings to reduce the total 10-year cost of around $1.7 trillion to about $1.2 trillion over the 10-year period from 2014 to 2023. CBO figures the annual cost averaged over the 10 years at $109 billion a year.
Obamacare also includes provisions that lower net spending on Medicare ($711 billion over 10 years) and raise revenue by adding new or raising existing taxes ($569 billion). The total over the next decade comes to $1.28 trillion.
Notice that forecast federal outlays of about $1.2 trillion to insure 25 million people is offset by new revenues totalling $1.28 trillion.
We should also note that the average $109 billion spent annually on insuring new enrollees will not go into federal coffers, but instead to private insurance companies. If you haven’t heard any wailing from the insurance industry about the evils of Obamacare, now you know why.
There is more to Obamacare and U.S. health care spending than insurance though. We will look at some of the other issues over the next several days.
Obamacare and Healthcare — October 10, 2013
The Affordable Care Act — aka Obamacare — was enacted with two primary goals in mind. First, to lower the 17% to 18% of U.S. gross domestic product (GDP) that now goes to pay for health care. And second, to add millions of Americans who lack health insurance to the insurance rolls at a price they can afford. The political battle has been fierce, but it appears for now that the demand to defund Obamacare is no longer being made as a precondition for ending the federal government shutdown.
To reach the program’s goals, the law requires that businesses that employ more than 50 full-time employees offer health insurance to those employees or pay a fine. The law also mandates that every person must have insurance or pay a fine, the so-called individual mandate. The requirement for businesses to offer coverage has been delayed for another year, but the individual mandate goes into effect on January 1, 2014. Opponents of Obamacare have pushed for a delay in enforcing the individual mandate as well.
According to a cost estimate prepared by the Congressional Budget Office, delaying the individual mandate would raise the federal deficit by $35.4 billion over the first 10 years of Obamacare. In addition to the higher costs, fewer people who are currently uninsured would purchase insurance — 11 million fewer.
Without an individual mandate, people who are uninsured have no incentive to purchase insurance when they are healthy, but under other program rules would be able to purchase insurance when they got sick and needed it. Because these people would not have paid premiums when they were healthy, insurance costs would rise for everyone, defeating one of the main goals of the program, which is reducing U.S. expenditures on health care.