The Congressional Budget Office (CBO) just rendered its latest opinion on the cost of Obamacare following the Supreme Court’s decision to uphold most of the law back in June. The numbers aren’t pretty. Despite breathless media reports of additional “savings,” the government’s bean counters actually exposed several flaws in the law that will, in the long term, lead to higher costs and reduced access to insurance coverage.
The High Court upheld the contentious individual mandate on the grounds that it is constitutional under Congress’s power to tax but allowed states to opt out of Obamacare’s order that they expand Medicaid, the joint federal-state health insurance program for low-income Americans.
The law requires states to offer Medicaid to everyone making less than 138 percent of the poverty line — just over $30,000 for a family of four. In exchange, the federal government covers the cost of the expansion for the first three years — and 90 percent thereafter. Sounds like a great deal for the states. But the administrative expenses involved in expanding the program will increase Medicaid costs for most states — even during the period when the government foots the bill, according to a new survey conducted by the Government Accountability Office.
Further, the federal “gifts” are only for the “newly eligible.” States would still have to pay for their share of the cost of coverage for those who were eligible for Medicaid before the passage of Obamacare but hadn’t enrolled. An estimated 14 million people fall into this category. Thanks to the individual mandate, many of these previously eligible people will come “out of the woodwork” to sign up for Medicaid and comply with the law. That would add billions of dollars to already strained state budgets. It’s this “woodwork effect” that scares states most. And it’s why several states have opted out of the expansion.
Texas Governor Rick Perry says he won’t be party to “bankrupting my state in direct contradiction to our Constitution.” Indeed, Texas would face $27 billion in additional costs through 2023. Even a number of Democratic governors — in Delaware, North Carolina, Missouri, Kentucky, Montana, and West Virginia — have not yet decided whether to expand Medicaid in line with Obamcare’s dictates.
Virginia Governor Bob McDonnell has said that his state “simply cannot afford this expansion.” The Old Dominion would have to add 400,000 people to its Medicaid rolls. If Virginia — which recently announced a $129 million surplus — can’t afford it, then how can states with huge deficits, like New York ($982 million) or Illinois ($43.8 billion)?
The rising number of states saying, “Thanks, but no thanks,” to Obamacare’s Medicaid money led the CBO to revise its estimate of the law’s costs. The agency estimates that the opt-outs will reduce federal spending by $289 billion. Some of the folks that would have been eligible for Medicaid will seek coverage in the exchanges — where it’s 50 percent more expensive than under Medicaid. As a result, federal spending on subsidies for the exchanges will rise by $215 billion.
But only a third of those eligible for Medicaid under Obamacare’s intended expansion of the program will qualify for subsidies on the exchanges. The remaining two-thirds have incomes that are too low, according to the law. That puts the Obama Administration in the uncomfortable position of subsidizing health coverage for the middle class — while leaving those with lower incomes to fend for themselves.
All told, the Supreme Court decision makes Obamacare $84 billion cheaper — a paltry 7 percent of the law’s total cost. Six million fewer people will be enrolled in Medicaid, and three million more will hit the exchanges. The three million remaining will be added to the uninsured rolls.
Obamacare’s champions have touted its efforts to expand access to health coverage, particularly for those at the bottom of the economic ladder. The CBO report shows instead that the law subsidizes the health care of the middle class at the expense of those who are poorer — and spends a trillion dollars to do so. That sure doesn’t sound like the answer to our nation’s healthcare woes.
Sally Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is The Pipes Plan: The Top Ten Ways to Dismantle and Replace Obamacare (Regnery 2012).