Higher Costs or Less Coverage? ObamaCare's $500 Billion Dilemma

Should the official price tag for last year’s health care law have been almost $500 billion higher? A working paper released by the National Bureau of Economic Research this week suggests that either the cost may either be much higher than expected—or the law’s vaunted coverage expansion will be much smaller.

ObamaCare sets up new health insurance exchanges, but under the law, not everyone has access to the exchanges and their middle-class insurance subsidies: Those who can get insurance from their employers are prohibited from buying subsidized insurance on the exchanges—unless, that is, their employer’s insurance is deemed “unaffordable,” which is currently defined as equal to more than 9.5 percent of the employee’s income. Otherwise, however, employees with access to insurance through their jobs are barred from the exchanges—and the generous health insurance subsidies they facilitate.

So the fewer people who have access to the exchange and its subsidies, the less the law costs. But as the NBER paper by Cornell’s Richard Burkhauser and Sean Lyons and Indiana University’s Kosali Simon points out, differing understandings of the affordability requirement’s fine print could dramatically affect the number of people who have access to the exchange subsidies, and thus have major fiscal consequences down the road.

When the Congressional Budget Office delivered the official price tag for the law, they took the Joint Committee on Taxation’s narrow early guidance on how to understand the affordability requirement: As Avik Roy points out at Forbes, when the House took its final vote on the health care law, the CBO relied on JCT guidance that assumed that a relatively small number of people would have their employer’s insurance deemed unaffordable:

JCT defined “unaffordable” coverage as a self-only policy for an individual worker, in which the premiums exceeded 9.5 percent of household income. Because the average cost of an individual-only plan is about one-third that of a family plan, this tweak makes it three times as hard for an employer-sponsored plan to be deemed as “unaffordable.”

Problem is, the JCT’s guidance at the time of the vote seems to have been in error. The month following the vote, analysts at JCT put out a correction updating the affordability standard to one that would likely result in far more employer plans being officially categorized as unaffordable. 

What’s that correction worth to taxpayers? According to the NBER paper’s estimates, the strictest possible affordability standard—the one that deemed the most insurer plans unaffordable and thus allowed the highest number of people onto the exchanges—would add about $48 billion a year to the cost of the law, or nearly $500 billion over the course of the usual decade-long scoring window. Even under the most generous assumptions about the law’s cost estimates (which aren’t very realistic to begin with), that would devour all of the roughly $140 billion in supposed deficit reduction the law was officially scored to achieve.

Now, it's not a given that we'll end up with those higher costs. As others have noted, the authors of the report aren't quite offering predictions about what will happen. Instead, they're estimating the potential range of costs, from most expensive to least, depending on how the law is implemented. So it's possible that we’ll end up toward the lower end of the range, depending on how Health and Human Services Secretary Kathleen Sebelius chooses to proceed.

But landing at the cheaper end of the cost spectrum could undermine other promises made by the law’s defenders—namely the coverage expansion figures. As Roy writes:

If the JCT interpretation is correct, then millions of people who thought they were gaining coverage under the law—spouses and dependents of employed Americans—won’t. If the JCT is wrong, the CBO’s estimates of PPACA’s exchange costs are way too low. Increasing the law’s costs will upset conservatives, but decreasing the law’s coverage expansions will upset progressives...Says Burkhauser, “This is the dilemma. If the HHS Secretary decides that they really did mean single coverage, then you’re going to have several million [people who aren’t going to get coverage under the law].  The family’s [breadwinner] is given affordable coverage, but the families can’t get onto the exchange rolls.”

I can't wait to see what Sebelius does with this one. 

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  • ||

    "either the cost will be much higher than expected—or the law’s vaunted coverage expansion will be much smaller."

    I trust that our government can do both.

  • Obamanauts||

    We reject these false choices.

  • Pip||

    The bigger the government, the smaller the citizen.

    - Dennis Prager

  • Gilbert Martin||

    Indeed.

    It isn't a matter of higher costs OR less coverage.

    It WILL be a case of higher costs AND less coverage.

  • ||

    You know what Sebilius needs? A troop of charming lil tykes to explain to America why Obamacare is the bestest thing ever, and how people should just STFU and accept that it's gonna happen.

  • DailyKos||

    "PRESENT!"

  • ||

    I explicitly said "charming".

  • mr simple||

    So you're saying that pretty much everything about Obamacare is fucked up and anyone still trying to defend this abortion of a bill is either a liar or an idiot? Got it.

  • mr simple||

    US Appeals court just ruled the mandate unconstitutional.

  • ||

    link?

  • JoJo Zeke||

  • ||

    thank you.

  • ||

    and

    "The Appeals Court for the 11th Circuit, based in Atlanta, found that Congress exceeded its authority by requiring Americans to buy coverage, but also ruled that the rest of the wide-ranging law could remain in effect."

    http://www.cnbc.com/id/44121839

  • mr simple||

    Sorry, I just got a push message from CNBC. They didn't have a story up yet.

  • Max||

    Abortion? Abomination, I dare say.

  • T||

    Now, it's not a given that we'll end up with those higher costs.

    HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

    You're funny.

  • ||

    Obama is going to go down in history as the biggest fuckup president of all time, despite his original intention to go down as the legendary "first black president". Oops. Sorry, buddy.

  • ||

    Oh, he's legendary all right.

  • Pip||

    Oh, he's legendary legion all right.

  • ||

    Sure, I'll buy that. He's bad on a biblical scale. Real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes. The dead rising from the grave! Human sacrifice, dogs and cats living together. . .mass hysteria!

  • ||

    sounds like ya got trouble my friend.

  • JoeBiden||

    I told you trains would fix it!!

  • Hitler||

    They laughed at me, too, Joe.

  • ||

    We are on a bullet train to Idiotville as a civilization. Obama will be the worshiped in the future as the moment their culture took over.

  • ||

    Guess there's no choice but to start working on robots to take over everything.

    I'll be in my garage.

  • T||

    Sigh. I guess I have to really work on polar bears for when your robots go berserk and try to take over.

  • ||

    Yes, it's all about checks and balances. I got a neighbor who is breeding killer monkeys.

  • Ska||

    I'm working on new Brawndo flavors to seize this historic opportunity. Green hasn't been testing as well as I'd hoped with our focus groups.

  • T||

    Probably not enough electrolytes. You need to add more.

  • ||

    Its got what plants crave!

  • ||

    The only real question is: will it but Idiotville, Morontown, Simpletonburg, or Tarddington-By-The-River?

  • ||

    NutraSweet Center.

  • Brett L||

    Pretty sure the Brits laid claim to Tarrington-By-the-River earlier this week.

  • Brett L||

    I'll be putting my 'tarded fingers through a mangle if anyone needs me.

  • ||

    Twitsburgh?

  • ||

    Dipshitlandia.

  • ||

    Detroit?

  • ||

    Dorklahoma.

  • ||

    Mongolopolis?

  • juris imprudent||

    Excellent alt text on 2nd pic.

  • Jeff P.||

    Not since the cover of Todd Rundgren's Hermit of Mink Hollow have I seen such a long face...

  • ||

    Obviously you've never seen a picture of John Kerry.c

  • Ska||

    Herman-Munster-ass-looking mother fucker.

  • Zeb||

    How many businesses will just drop employee health plans altogether because of the law?

  • sevo||

    "How many businesses will just drop employee health plans altogether because of the law?"
    I'll bet there are accounting departments all over the country running numbers on fine-vs.-costs right now.

  • ||

    Could be slow at first, as businesses will be concerned that not providing health insurance puts them at a hiring disadvantage. But once a tipping point is reached, most of them, based just on economics (the fine is much lower than the cost of coverage).

  • ||

    None. Once doing so becomes a federal offense. Duh.

  • sarcasmic||

    It's that the point?
    Regulate private health insurance out of business, blame it on the free market, and then all that is left is single payer.

  • ||

    I actually work in this area. McKinsey did a survey where they came up with 30% saying it would be likely they drop coverage. The CBOs projections main assumption was that no large employer would drop coverage. If that happened, all bets are off. I interviewed a CMO at a large aerospace company last fall...they were nearly 100% they would drop it come 2014. Strange days...

  • Barack Obama||

    Let me be clear. If you like your health insurance plan, you will be able to keep it.

  • ||

    You can take it home and put it on the wall if you really like it.

  • ||

    The mid-sized company I work for would save 2-3 million a year. Why wouldn't they drop coverage?

    They tout their health plan as being "fantastic" but the last place I worked for was much better - no 80/20 pay-in.

  • Tman||

    If you think about it, I would be questioning the leadership of my company if they DIDN'T drop our health care coverage if it would truly make that much of a difference in the bottom line. Everyone would be forced to go with the government enforced "insurance exchanges" of course, and the coverage would be terrible, but I don't want my company to have to lay people off just so they can keep providing health insurance. The government requirements for the insurance that employers must provide will be more expensive than what they are spending now.

    I would be cleaning up my resume if our executives didn't do the right thing for the health of our company. An employer isn't a social benefits provider, it's a freaking profit driven entity. No profits = no job.

  • Barry O||

    A company that thinks only about profit isn't a healthy company. These selfish entities are why we are still in a recession. If only they cared more about society, companies would hire people despite the uncertainty and extra cost. They can afford it. All companies have tons of extra money. Then, unemployment would go down, as would the ranks of the uninsured, because unselfish companies provide health insurance for their employees. Then, the economy would rebound causing my approval rating to go up, which would increase my chances of re-election. Instead of thinking about such factors, companies are instead being selfish and merely thinking about themselves instead of ME. People and companies merely thinking about profit is what caused the recession I inherited.

  • sarcasmic||

    "Sebelius tells the harrowing story of the first time she popped her claws."

    She looks ready to cough up a hairball and lick her ass.

  • Paul||

    Higher Costs or Less Coverage?

    Yes! Absolutely!

  • Brett L||

    This is my surprised face.

  • Hank||

    The funniest thing about wishing I could follow SugarFree on Twitter is this kid.

    "I love Craig Molloy!" indeed.

    Besides Gaius Marius, what other H&R-ers tweet?

  • ||

    If you knew Craig Molloy, you'd love him too.

  • Tim||

    "I'll take failed government policies for $500 billion Alex."

  • ||

    Oh, and since contrary to Obama's explicit statement, the health exchanges are open to illegal aliens, that will increase costs as well.

  • ||

    You couldn't go very wrong operating on the assumption that the truth is the opposite of everything he says.

  • JoJo Zeke||

    O/T, but simply must be shared:

    Music teacher caught having sex with doll outside school

    Seriously. MUST-READ. ;)

  • Catholic Church||

    We need to recruit this guy.

  • Brett L||

    Having a Rule 34 (book, not internet law) moment.

  • Almanian||

    Oh, yeah, thanks for this! Went onto my FB IMMEDIATELY.

    Could this guy look any more like a stereotypical creeper? *shudder*

    Cue the fucking "Dueling Banjos" music...

  • ||

    He is yet to be convicted of a crime, yet he has been ordered to stay away from the school?

    Isn't the school grounds public property? If school isn't in session, he has as much right to be there as any other person.

  • Paul||

    I thought "doll" was a euphemism for a hot chick. Imagine my disappointment.

  • Untermensch||

    …depending on how Health and Human Services Secretary Kathleen Sebelius chooses to proceed.

    I'm late to the party, but this sentence shows how wrong everything is, regardless of the substance. Congress has passed a law and they don’t know what it will do. Instead we get an unelected mandarin who will decide (unilaterally) what the real law will be. I’d like to think I lived in a nation with the rule of law, but instead we see a nation with the rule of petty bureaucrats.

  • rsi||

    (RE:Former KS gov k Sebilius in the photo)
    are you asking
    What's the Matter with Kansas?

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