The Cost Explosion of Obamacare Begins to Hit Home

The Cost Explosion of Obamacare Begins to Hit Home

iStockphoto/The Fiscal Times

When Democrats insisted on turning their attention to the health-system overhaul in 2009 rather than the jobs crisis, they argued that the rapid increase in health-care costs kept American businesses from creating employment opportunities. 

Barack Obama insisted that greater government control over insurance plans, including a first-ever mandate for citizens to buy insurance, would “bend the cost curve downward.” Rates of increase in premiums and delivery costs would allow the economy to recover more quickly – and don’t forget that this would all be deficit-neutral, thanks both to tax increases and savings from greater efficiency.

RELATED: One Trillion in New Taxes from Health Care Reform is Coming  

Congress passed the Patient Protection and Affordable Care Act (PPACA, better known as ObamaCare) three years ago.  Most of the claims made about the program have already proven false. For instance, it’s not deficit-neutral at all.  Obama actually adds $6.2 trillion to long-term national debt, and that’s assuming that the Independent Payment Advisory Board (IPAB) plays the role of rationing board provided in the bill.    Otherwise, the costs escalate even further.

And it’s not just government that will feel a bigger bite.  This week, a new study from the Society of Actuaries found that the changes made by the PPACA will increase claims costs by almost a third for Americans on individual health insurance plans.  Those are the plans purchased through Obamacare’s state health-insurance exchanges, whose premiums are also expected to sharply rise next year when the PPACA law takes full effect.

On top of that, Americans will start paying higher taxes to pay for the broad subsidies that the PPACA provides in order to make the coverage mandate politically palatable.  Eric Pianin detailed the $1 trillion in tax hikes on Tuesday at The Fiscal Times, also pointing out the bipartisan push to roll back one tax in particular on medical devices, a push that succeeded on a 79-20 vote.  The tax would have slowed innovation and increased costs throughout the provider chain.  Its repeal, however, will make ObamaCare even more of a deficit driver than it has already become.

What happened? First, the impact of the individual mandate and the must-issue regulation means that the risk pools will add more sick people – whose average claims will be more expensive than the wellness claims of the healthier members in the pool.  The crafters of the legislation assumed that the influx of younger and healthier adults into the risk pools would keep average claims costs from rising, but there aren’t enough younger people to achieve balance. Part of that is due to the imposition of requirements for insurers to provide coverage for “children” up to 26 years of age on the family plans of parents, where family coverage formerly stopped at 18 or 22 for college students.

The fate of younger Americans in the PPACA is especially interesting. According to the analysis provided by USA Today, Kathleen Sebelius finally admitted that costs will increase for healthier and younger Americans because they usually opted for catastrophic plans "that don't really pay anything unless you get hit by a bus." Healthy adults don’t need better coverage than this, however.  For instance, the average annual cost for an individual comprehensive plan in Minnesota in 2007 was $3,627, which comes to $302 a month. Outside of ending up in the hospital – which a catastrophic plan would cover at a much lower cost – the only way a policyholder would get their money’s worth out of a comprehensive plan at that price would be to have a monthly visit to the doctor, complete with labs. 

The rational choice in that case would be to choose catastrophic coverage and use health-savings accounts (HSAs) to shelter pre-tax cash to use on routine visits.  Instead, Sebelius practically brags in her response this week about picking the pockets of younger, healthier Americans to reduce costs for older – and on average wealthier – Americans.  It’s a perverse and regressive redistribution of costs, and it’s one of the reasons why the PPACA’s fiscal claims are proving to be fantasy.

So what do we do about this train wreck?  Can it be stopped before the inevitable crash?  At least for now, the answer is no. Investors Business Daily’s editors claimed last week that “repeal is still a viable option,” suggesting that the near-weekly doses of bad fiscal news from the PPACA would force Democrats into admitting that the system would be a disaster.  At about the same time, the Senate proved IBD wrong by voting down abudget amendment offered by Ted Cruz (R-TX) to repeal the law, on a party-line 45-54 vote.  Even if the budget amendment had passed, it would almost certainly have prompted a rare veto from President Obama, as would any attempt to defund PPACA even if the Democrat-controlled Senate somehow decided to pass such a budget.

Therein lies the problem.  Voters had the opportunity to repeal ObamaCare by essentially repealing Barack Obama himself in the 2012 election.  Instead, voters gave Obama another four years, essentially guaranteeing that ObamaCare will take effect.  Once that begins in 2014, it becomes much more difficult to roll back.  Insurers will no longer be able to offer catastrophic coverage, and employers will find that it’s either easier to pay the fines for refusing to provide comprehensive coverage – or stop providing full-time employment. 

Small wonder, then, that stock prices for agencies like Manpower and Kelly have “soared,” as corporations start rethinking the cost of in-house employment with the ObamaCare overhead costs in play.  As the Washington Post points out in its article, the use of part-timers will let employers off the hook, but will force taxpayers to provide even more in subsidies than projected for those workers to buy insurance through the exchanges, which will make Obamacare’s deficits soar further still.

Even if Republicans take the White House and both chambers of Congress in 2016, it may be far too late to undo the damage.  Both the insurance markets and employment paradigms will have entirely shifted, and a repeal would not return us to status quo ante.  The disaster that follows will be President Obama’s legacy, but our continuing headache as well.