How Much Will Obamacare Cost? Bet on 'More Than Expected'

As the nation prepares for the second enrollment period under The Affordable Care Act in November, there is officially no way of figuring out what Obamacare is going to do to federal deficits compared to the estimates used to push the program through Congress.

Back in 2009, it was really important to President Obama that people understand he would not "sign a plan that adds one dime to our deficits—either now or in the future. Period." He sold the plan as costing about $938 billion in its first decade of operation (2010 through 2019) but saving about $143 billion overall because of the various taxes and other revenue it raised. A 2012 Congressional Budget Office (CBO) report figured that Obamacare would shave $109 billion off the deficit between 2013 and 2022.

This past June, however, the CBO said it will no longer try to estimate the law's effects on the deficit. There have been too many delays, postponements, modifications, you name it, to the original bill. "Isolating the incremental effects of those provisions on previously existing programs and revenues four years after enactment of the Affordable Care Act is not possible," the CBO concluded.

So what's going on? The deficit for fiscal year 2014, which ended on September 30, came in at "just" $483 billion and 2.8 percent of GDP, the lowest figures in years. President Obama was quick to say it was because of his signature health-care reform plan. "Healthcare has long been the single biggest driver of America’s future deficits," reportsThe Hill. "Healthcare is now the single biggest factor driving those deficits down."

At the same time, the CBO (and everyone else) expects deficits to start growing again in fiscal 2016, so it's a bit premature to break out the bubbly just yet. Senate Republicans have just released a report based on CBO data claiming that Obamacare will end up adding $300 billion to federal deficits between 2015 and 2024.

The Republican report is ultimately a political document, so its methods and conclusions deserve to be taken with more than a few grains of salt. But if past experience with massive government-run health care programs is any indicator, the odds are high that Obamacare will end up costing way more than it was supposed to.

Indeed, all signs suggest that overall health-care spending, including the government's already-large share, will keep growing over the next decade.

Official figures show that local, state, and federal governments will spend a record-high 46 percent of all health-care dollars this year and the percentage is expected to grow over the next decade, to 48 percent.

The New York Times reports that by 2023, all spending on health care will equal 19.3 percent of GDP, which is "two percentage points more than last year." So whether it's through taxes, increased premiums, or out-of-pocket costs, we'll be paying more for health care in the coming years.

If that's disappointing, it's not exactly surprising. Government-run health-care programs have a track record of costing more than advertised.

Here are three examples to think about as the health care reform law gears up for its second year of sign-ups (for more information, go here).

1. Massachusetts Commonwealth Care. This is the plan supported by Gov. Mitt Romney that provided the very model for Obamacare. It guaranteed universal coverage and subsidized insurance premiums for low-income residents. Initial cost estimates came in at $472 million while actual costs were closer to $628 million for an error ratio of 1.2:1.

2. Medicare. In 1967, Congress estimated that the nation's single-payer system for the elderly, Medicare, would cost $12 billion in 1990. The actual price tag was $110 billion, for an error ratio on 9.17:1.

3. Medicaid DSH program. Medicaid pays for health insurance for the poor (its expansion represents the main way Obamacare in enrolling new beneficiaries). The "disproportionate share hospital program" (DSH) gives money to facilities that serve a large number of poor patients. In 1987, Congress figured DSH payments would be less than $1 billion in 1991. Instead, they totaled $17 billion, creating an error ratio of 17:1.

Read more about phony-baloney health care accounting here and here. And check outReason's special collection of new stories about "The Sad Story of Obamacare."

How Much Does Obamacare Rip Off Young Adults? We Ran The Numbers. Here Are The Results.

Obamacare is still struggling to sign up young people. In order to offset the high cost of the older, and probably less healthy people who are joining Obamacare plans, the White House must coerce a sufficient number of thirty-somethings to also join. Problem is, the health plans are too pricey to make economic sense for many young adults.

Just how costly are the Obamacare plans for young beneficiaries?

We ran the numbers. Here are our results:

Overall, the Federal government reports that 32% of on-exchange enrollees as of March 1st are under the age of 34. And many of these are teenagers who are part of family policies, not the young yuppies that Obamacare is fervently targeting. Earlier estimates showed only 20% of enrollees were between the ages 18 and 34.

The final number of young enrollees is well below the required cohort. Premiums will rise next year as a result of the adverse selection of older, and probably less healthy consumers. Why are young adults staying away? In one word, economics.

Obamacare is asking young adults to effectively subsidize the healthcare costs of older Americans. So far, Millennials are resisting this age-based transfer of wealth. Many are clearly opting instead to remain uninsured, or else they are buying cheaper health plans that don’t conform to Obamacare’s regulatory dictates.

My AEI colleague Kelly Funderburk and I looked at four states: Arizona, Illinois, Pennsylvania, and Texas. We then looked at a typical 30-year-old at one of six different annual income brackets: $20,000 in annual income, $25K, $30K, $35K, $40K, and $45K. For each of the four states, we computed how much an Aetna AET +2.67% Classic Silver plan would cost the same 30-year-old at each of these six income bands. We looked at monthly premiums, deductibles, and out of pocket limits. We chose the Aetna plan because it is generally considered a higher quality insurance, operated across all of these markets, and represented a median price point among the offerings.

Look at our numbers (laid out in the charts below) and you’ll see why so many Millennials have Obamacare sticker shock. Someone, for example, earning $25K annually in Arizona will pay $2,424 in total monthly premiums for Obamacare (10% of their annual income) and still be stuck with a $4,000 deductible and a $5,200 cap on their out of pocket costs. The same person in Illinois will pay $3,576 in annual premiums, and in low cost Texas $2,460.

What about the same 30 year old who now earns $30,000 annually – the average salary for a pre-school teacher according to census data? In Arizona, their annual cost for carrying the Obamacare plan runs $2,772 and their deductible is $5,000. In Illinois, the same person will spend $4,092 for the same health plan, and also have a $5,000 deductible before their full health coverage kicks in.

Even someone earning $20K a year (the average salary for a full-time cashier) and eligible for Obamacare’s rich “cost sharing subsidies” is still going to find coverage pricey. In Pennsylvania, which was the lowest cost of the four states, the annual premium will run $1,620 for a plan that still leaves them with a $600 deductible. In Illinois, that same plan will cost $2,868 annually with the same $600 deductible. Premiums alone will eat up a whopping 14% of their annual income.

See the accompanying charts for a more detailed breakdown of our data. The numbers show why Obamacare has been such a tough sell among the young. These high prices are a direct consequence of the way the law was designed.

The health plans intentionally keep prices higher for young adults to subsidize older beneficiaries. Now, the White House is wringing its collective hands that the pool of applicants is skewing to older Americans. But this demographic distortion shouldn’t come as a surprise. It begs the question whether anyone in Washington did any market research before they launched this scheme, to see whether Millennials would show up?

Note: ”FPL” is the percent of Federal Poverty Level that each income band represents. Data is from healthcare.gov. While premium subsidies attach to all income ranges shown — up to 400% FPL, the actual premiums advertised on healthcare.gov for this model 30-year-old consumer do not decline through all of the corresponding income ranges. This is because subsidies are calculated off the second cheapest silver plan in each market, and since the Aetna plan is typically costlier than the cheapest alternative, the subsidies get exhausted sooner. Data is computed for the most populous county in each state.

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