Obamacare by the Numbers
by Steve Murphy | Posted November 24, 2013
Let's say you were put in charge of Obamacare. It sounds like a daunting business — to provide affordable healthcare insurance for 30 million uninsured Americans. But what if you didn't have to make a profit and were handed $940 billion for giving your product away free to some customers and selling it at steep discounts to others? Throw in $5 billion more for web site development and a $700 million marketing budget to lure reluctant customers.
Too timid to give it a try? OK, let's double the size of the slush fund to $1.8 trillion, pass a law forcing everyone to buy health insurance, and write a regulation that makes the existing policies of perhaps 100 million Americans illegal. I know what you are thinking: even an idiot could sell healthcare insurance, at a discount, to people required by law to buy it. There must be a catch.
And you would be right. But the catch is not the intransigent website problems or greedy, uncooperative insurance companies or bitter Republicans with their feeble attempts to defund the program. The catch is Obamacare itself — an immense, overreaching, already tottering Rube Goldberg contraption that cannot possibly succeed, no matter how much money is thrown at it.
True, most of us would do a better job at salesmanship than President Obama, at least those of us with a couple of years of high school under our belts. We certainly wouldn't have lied to our customers, at least not as often. None of us would have botched the website. We would have had it working like a charm, on time, and for a small fraction of the cost of the three-year, $600 million hack job that still crashes regularly at every whim of its spaghetti code. The frugal among us would have had the insurance industry do it for free. Why not? Look at the profits insurance companies will receive from inflated Obamacare premiums — not to mention the revenues from more than 30 million new customers to be sent goosestepping their way.
Millions of people who thought they would get subsidies earn too little to qualify — another awkward messaging problem for Obamacare navigators.
Nevertheless, we too would fail. A secure, fully operational website will not help. Indeed, it will simply expose and magnify the defects of Obamacare more quickly. Delays to fix the rollout or extend the individual mandate will only postpone the inevitable. When Obamacare is finally deemed open for business, with its shiny, new "tech-surged" website at the floodgates, the deluge of customers qualifying for subsidies and free health insurance will no doubt be flawlessly processed. So too will be the trickle of paying customers. The numbers — provided by the government (the White House, Health and Human Services, the Congressional Budget Office [CBO]) and the insurance industry — are bad. They have always been bad; intentionally hidden or obscured, only to be dismissed as insignificant when becoming visible or clear. And, as emerging enrollment data and insurance cancellation notices reveal, they are getting worse. Much worse.
The paltry enrollment to date provides a mere glimpse of the actuarial havoc to come, as predominantly high-cost customers — the old, the sick, the poor, the unemployed, the desperate — flock to enroll, while the low-cost, young, and healthy customers stay away, as they should, in droves. For a plan purporting to rescue the uninsured by giving 51% of them free medical care and 39% of them subsidies, this should not be unexpected; nor should the shock that $1.8 trillion (already twice the estimate of the $940 billion celebrated only three years ago) is woefully inadequate. Always surprised, always last to know, Mr. Obama will soon be asking for more.
According to the CBO, Obamacare will reduce the number of uninsured by 14 million in 2014. This will be accomplished, courtesy of the individual mandate, by moving nine million uninsured into Medicaid and five million uninsured into the Obamacare exchanges. In addition, two million with "substandard" individual health insurance policies will be switched to the exchanges, creating a total of seven million Obamacare customers. With incomes between 100% and 400% of the federal poverty level (FPL), they will receive subsidies (averaging $5,290 in 2014) to make their new, government-mandated, "quality" health insurance "affordable." These seven million "partial-payers" will become America's next entitlement class. It will grow rapidly to 24 million by 2023. The average subsidy will also grow (to $7,900), costing taxpayers well over $1 trillion.
Of this initial seven million, 2.7 million must be healthy, in the 18-34 age range, and undaunted by the exorbitant premiums they will be charged to defray the cost of insuring the older and sicker. Snaring them will be no small feat. Apart from rate shock, there is the Obamacare provision that allows them to stay on a parent’s plan until age 26, shrinking the young Obamacare customer pool roughly by half.
People in the other half of the desired customer pool are told that they should be happy paying high rates today; they too will pay lower rates later, when they are old and need the benefits. Medicare is cited as a successful program exemplifying the beneficence of such inter-generational subsidization. It's an excellent example, ironically. Medicare is a program that pays benefits to the old, using taxes paid by the young, which is on track to become insolvent by 2026. This statement clearly applies to Obamacare, except that Obamacare premiums are extraordinarily higher than Medicare taxes and Obamacare will go broke long before 2026. Unfortunately, this poses a difficult messaging problem for Obamacare navigators, who will persuade few with the "Hey kid, sign right here. Sure you'll get screwed by Obamacare, but you're already getting screwed by Medicare" angle.
The nine million uninsured who are ushered into Medicaid are mostly childless adults living in poverty. They reside in the 26 states employing the Medicaid Expansion. When applying for Obamacare, they will be given Medicaid, right after being informed that they won't get a nickel in subsidy money. Alas, millions of people who thought they would get subsidies earn too little to qualify — another awkward messaging problem for Obamacare navigators, who, for example, must explain to an individual making $11,500 per year why he won't get a subsidy, while an individual down the block, making $24,000 a year, will get $1,500.
In apologizing for lying about the ability of people to keep their healthcare providers and plans, Mr. Obama lied again.
For residents of the 24 states that have not expanded Medicaid, HealthCare.gov blithely points out, "you may not have as many options for health coverage." If you are poor, your total number of options is one. And it's not good. For example, an Alabama resident with an annual income of $11,400 (99% FPL) must buy an Obamacare policy costing $3,030 per year, offset by a subsidy of $0.00. Where did the Obamacare wizards think that people with an annual income of $11,400 could come up with $3,030 for Obamacare, when even the $95 fine for declining it is beyond their reach?
The Obamacare Medicaid Expansion, projected to cost federal taxpayers $709 billion, will add 13 million Americans to Medicaid by 2023 — all nonpaying customers. Furthermore, it is likely that this group will consume its "free" healthcare at a much higher rate than normal. That is, the cost will be much greater than $709 billion.
Many of the two million previously insured are people who thought they would be able to keep their existing plans and doctors, if they liked them, period. They may find solace in not being the only ones to be fooled — as they are joined by millions of other individuals who have recently had their "substandard" health insurance plans cancelled. And let's not forget President Obama, the Democrats in both houses of Congress who passed Obamacare in March of 2010, and the tens of millions of other Americans who thought that Obamacare would also reduce the deficit, "bend the health care cost curve down," and shrink health insurance premiums by $2,500.
Amid the furor that he repeatedly and knowingly misled Americans with his incessant if-you-like-it-you-can-keep-it-period incantations, Mr. Obama submitted a most spurious apology (exquisitely characterized by Stephen Cox, in “What? When? Why?”). He expressed sorrow for those "finding themselves in this situation, based on assurances they got from me," right after dismissing the people receiving cancellations as "a small percentage of folks who may be disadvantaged."
But in June of 2010, the Obama administration knew that "66% of small employer plans and 45% of large employer plans will relinquish their grandfather status by the end of 2013” and that 40 to 66% with individually-purchased plans would suffer the same fate. For three and a half years, therefore, the White House has anticipated that as many as 100 million could lose their policies — hardly a "small percentage of folks." That is, in apologizing for lying about the ability of people to keep their healthcare providers and plans, Mr. Obama lied again.
To date, over five million individuals have already received cancellation notices. Together with millions more who will receive them by the time the Obamacare website is fixed, they will rush to the Obamacare exchanges, which have subsidy money for only two million. Where will Mr. Obama get the money for this "train wreck"? Then there is the second, much bigger, wreck arriving next year, when the employer mandate kicks in. And how much money will be needed to bail out health insurance companies, whose profits will shrink or vanish if Obama's youthful fan base doesn't show up in numbers large enough to prevent the so-called adverse selection "death spiral"?
The fallout from this follow-on wreck will peak just before the 2014 elections. What then will Mr. Obama and Democrat candidates have to say about the disruption and premium increases caused by Obamacare? With the Obamacare rollout last October, outrage was expressed by Republican and independent voters, while Democrat voters were silent. But their support was only apparent; they were in a sullen Obamacare transition from infatuation to familiarity. Next October they will be among many of the 100 million new and angry Obamacare customers clamoring for subsidy money. Many will be employed by insurance companies clamoring for bailout money.
How surprised will President Obama be when he is finally notified of the anger and unrest of more than "a small percentage of folks"? Whom will he blame for the mess this time? Doctors and hospitals, for charging too much? The old and the sick, for being too old and sick? What will be his solutions? What will he say they will cost? Will anyone believe him, or care about anything he has to say?
Steve Murphy is a retired missile defense systems engineer and software developer living on top of Green Mountain in Huntsville AL, where he does a little consulting, plays the stock market and writes — mostly about economics, science, and American life. He can be contacted at email@example.com.
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