Tuesday, February 4, 2014

CBO Budget Report Shows Bad News for Obamacare Projections

The Congressional Budget Office (CBO) came out with their 2014-2024 Budget Outlook today. Although the entire document makes for a good read, I was most interested in the findings surrounding the Affordable Care Act (ACA), or what is more accurately labeled as Obamacare. I know there are those who like to think of Obamacare as the greatest innovation in the American health care industry, and would like to claim that it provides more accessible and affordable healthcare, although that is just another broken promise amongst broken Obamacare promises. For proponents, the price tag is worth the effort, which is why they are to look at the report as good news. However, when looking at the CBO report, I can only reaffirm what I can describe is my animus towards a further governmental intervention into an essential sector of the economy. What did the CBO report that I found perturbing?

For one, there is an issue with cost projections. Obama promised that Obamacare would not add a dime to our deficits, and also promised that Obamacare would not cost over $900B. Medicaid spending is expected to accelerate in 2014 because of the ACA (p. 13). Assuming no changes are made, the insurance exchanges are expected to increase spending by $18B this year alone (ibid). Spending for the combination of Medicaid and other health care programs is going to double, "largely because the ACA is expanding eligibility for Medicaid and providing subsidies for health insurance purchased through exchanges (p. 57)." Because of the ACA (those are the CBO's words, not mine), the percent of GDP that is to be spent on healthcare will increase from 5.1 percent of the GDP to 6.1 percent by 2024 (p. 16). What is the current projected grand total of Obamacare? $1.487T (Table B-1), which is nearly $600B more than he had promised.

Aside from cost, there is an issue with the labor participation rate, which has an effect on the employment rate. One of the provisions in Obamacare is to mandate that employers with over fifty employees have to either provide health insurance or pay a fine. Intuitively speaking, providing healthcare to employees, much like one's wage (see minimum wage argument), is a cost of labor. If the cost of each labor unit increases enough, the employer will be incentivized to reduce costs elsewhere, and that would include decreasing the amount of workers (p. 124). There were those who thought that the idea that Obamacare would cause higher unemployment was hogwash. Truth be told, this was one of those "wait and see" moments because we were waiting to have [preliminary] numbers come in. We've waited, and now what we're seeing isn't pretty. The ACA will further depress the labor force participation rate than the retiring Baby Boomers (p. 38), which means that the laws surrounding the ACA create a negative effect on employment. How much of an effect will that be? The CBO estimates that from 2017 to 2024 (p. 117), the number of hours worked will be reduced by 1.5-2 percent as a result of the ACA. Back in 2011, the CBO initially projected that the ACA would only cause 800,000 unemployed as a result of this bill (CBO, 2011, p. 31). However, the new projections put the full-time equivalent (FTE) decrease at 2.5 million by 2024 (CBO, 2014, p. 117), which is triple the initial estimation! Furthermore, the CBO estimates a reduction of roughly one percent in aggregate labor compensation over the period of 2017-2024 (ibid). Although employment is supposed to increase from 2017 to 2024, thanks to Obamacare, it will increase less than it would have otherwise.

There is also the matter of the number of the uninsured in this country. Obama promised universal healthcare, but once again, the CBO is still projecting that 31 million will be uninsured (Table B-2), which is a long ways away from the goal. Furthermore, Obama won't be able to keep his promise of "if you like your healthcare plan, you can keep it" because an estimated 12 million will lose their insurance because of Obamacare (ibid). And more bad news for Obamacare: there will be 2 million less insured this year because of implementation issues (Table B-4).

For those who were worried about taxes beforehand, you certainly have a right to be. One tax implemented is an excise tax on healthcare insurers (p. 88). The CBO is projecting a whole slew of other excise taxes [that will amount to $130B], three quarters of which will come from the ACA (ibid). The fines under Obamacare, which are not being called "taxes," even in spite of the Supreme Court ruling the individual mandate's justification under the Taxation Clause, will total to $27B in 2014 in rise substantially because of the ACA (p. 89). It's no surprise here that the Obamacare taxes will distort work incentives or create other economic distortions (p. 118, 122). Also, you have to love how the CBO calls the insurance subsidies an implicit tax on work (p. 120).

The only silver lining is that risk corridor program is supposed to save money (p. 114-115). Risk corridors notwithstanding, the numbers do not look promising. Granted, the CBO keeps emphasizing the uncertainty of its projections (p. 22) because a lot needs to unfold before we know the full effects of Obamacare. I agree: we're going to have to wait and see. Knowing that these projections have a propensity for getting worse as time passes, I can only surmise that Obamacare is going to have a larger, negative impact on the economy than any of us can foresee.

5 comments:

  1. In regard to the adverse impact on work participation, what that means is a matter of perspective. Surely you'd not suggest that everyone should be working, a child, or retired. Those who are going to be impacted, either choosing not to work or working less, were the marginal cases for whom working was barely worthwhile. Now they have some flexibility rather than being forced to work or be one accident away from bankruptcy.

    Maybe you were able to find the section that says it, but I could not see any projections of how ACA would affect healthcare costs in terms of encouraging, or discouraging, expensive or useless treatments. That would dramatically change costs.

    "Obama promised universal healthcare, but once again, the CBO is still projecting that 31 million will be uninsured (Table B-2), which is a long ways away from the goal."
    That's also 14 million fewer than current, and a 5 percent lower rate for US residents.

    "And more bad news for Obamacare: there will be 2 million less insured this year because of implementation issues (Table B-4)."
    Can you explain how you got this? I am not seeing that plainly stated and don't know how you inferred it. The text does mention fewer people getting insurance through exchanges or Medicaid, but it doesn't seem to suggest that adding them together is proper. It does say that 1 million will be uninsured as a result of the technical problems.

    There is some good news for the ACA, relatively-speaking:
    "Estimated premiums for 2014 have been reduced on the basis of a preliminary analysis of premiums for plans offered through exchanges"
    Of course, as with all of this, it is immediately followed with caveats about the limited data and time range that they have.

    "Knowing that these projections have a propensity for getting worse as time passes, I can only surmise that Obamacare is going to have a larger, negative impact on the economy than any of us can foresee."
    In other words, "I don't have the ability to predict much about what will happen, but I am sure that it will be worse, because I already predicted that it would be bad."

    ReplyDelete
    Replies
    1. Andrew, thank you for your comments. I might as well dive in:

      "Surely you'd not suggest that everyone should be working, a child, or retired." Are you suggesting that the labor participation rate is already too high? Given current US demographics, what would make for a "proper" labor participation rate?

      "Those who are going to be impacted, either choosing not to work or working less, were the marginal cases for whom working was barely worthwhile." I know that the more you make, the smaller your subsidy, but are you going to argue that anything below 400% of the FPL is marginal?

      "I could not see any projections of how ACA would affect healthcare costs in terms of encouraging, or discouraging, expensive or useless treatments. That would dramatically change costs." Agreed. My guess is that the CBO projections are too preliminary to make that sort of analysis.

      "Can you explain how you got this? I am not seeing that plainly stated and don't know how you inferred it." Looking at the first row of [Insurance Exchanges], the net result [in the Difference column] is -1. The same goes for the Medicaid and CHIP row, which totals to -2 [million].

      "In other words, 'I don't have the ability to predict much about what will happen, but I am sure that it will be worse, because I already predicted that it would be bad.'" If only it were a matter of a gut feeling. Precedent tends to help with discerning these matters. Looking at ACA projections alone, the projected price tag has gone up since the bill's enactment [and this doesn't even account for a per capita adjustment]. Although there are exceptions, I have found that the government has this uncanny ability to underestimate the costs of its programming.

      Delete
  2. "Given current US demographics, what would make for a "proper" labor participation rate?"

    For an overall rate? I couldn't say. It's not a useless number, but the distribution of that participation matters at least as much. I'd rather have a lot of parents at home or working part time than have them working full time while someone else is unemployed. For all I know we're at exactly the right overall rate, but the distribution is sub-optimal (I'm certain of the latter part, but not the former).

    "I know that the more you make, the smaller your subsidy, but are you going to argue that anything below 400% of the FPL is marginal?"

    I'm not saying that the income is marginal, but that the overall situation is. For example, a mother might be working to have insurance and paying for a sitter or daycare. With the subsidy she could afford to work less or not at all and still have insurance. If you added up her income and utility from all of this, she was clearly close to even between working and not working for the subsidy to tip her over.

    "Looking at ACA projections alone, the projected price tag has gone up since the bill's enactment [and this doesn't even account for a per capita adjustment]."

    We can argue about whether the per capita adjustment should be up or down. I'm expecting down, in the long term. Short term it looks to be going up, I suspect in part because people are still getting used to having healthcare and are still in the habit of using the emergency room. Hopefully that habit will be ended with experience, education, and greater availability of providers. Fixing some regulations would go a great deal toward helping with the last one.

    ReplyDelete
  3. "I'd rather have a lot of parents at home or working part time than have them working full time while someone else is unemployed." This makes me wonder two things, the first of which is what structural changes occurred to get us to the point where it now typically takes two parents to work full-time in order to maintain a middle-class lifestyle. Not to seem too nostalgic, but it didn't used to be that way. Second, I did not find anything in the CBO report nor have I come across any academic literature suggesting that the labor force changes would be more conducive to childrearing. Do you know of something that I do not?

    "I'm not saying that the income is marginal, but that the overall situation is….she was clearly close to even between working and not working for the subsidy to tip her over." If the overall situation is marginal, wouldn't be better to target those in need? I'm slightly worried because the people over at Mother Jones concede that Obamacare has turned into means-tested welfare. This makes my mind go back to the recommendation you made earlier about extending maternity leave for mothers, and making me ask the question of "why is it that families need so much more government assistance than they used to?" I know life isn't easy, but I have to ask the overarching question of "isn't this [amount of government] overkill?" (I know it's not even six in the morning yet and my responses may or may not be the best quality given the hour at which I write these comments, but I couldn't get back to sleep until I replied to your response)

    "We can argue about whether the per capita adjustment should be up or down. I'm expecting down, in the long term." Unless the CBO had the foresight to realize that SCOTUS was going to rule that Medicaid funding from the federal government was not obligatory, then the per capita adjustment would have to be upward.

    "Short term it looks to be going up, I suspect in part because people are still getting used to having healthcare and are still in the habit of using the emergency room. Hopefully that habit will be ended with experience, education, and greater availability of providers." This assumes that Obamacare will a) create more healthcare options for consumers, and b) there won't be longer waiting lines/there might be shorter waiting lines. As nice as it would be for either or both to happen, I cannot assume that will end up being the case; I actually expect the opposite to happen, which is why I would postulate that the per capita costs would increase greater than anticipated.

    ReplyDelete
  4. "This makes me wonder two things, the first of which is what structural changes occurred to get us to the point where it now typically takes two parents to work full-time in order to maintain a middle-class lifestyle. Not to seem too nostalgic, but it didn't used to be that way."

    I'd guess that one part was that women could work. That gets the ball rolling on more household income, allowing for higher prices and expected standards of living. Throw in the stagnation of working class wages and it's no wonder that householes would need two incomes.

    "Second, I did not find anything in the CBO report nor have I come across any academic literature suggesting that the labor force changes would be more conducive to childrearing. Do you know of something that I do not?"
    It is merely theory, though I think a reasonable one, that people with other demands on their time and resources will be the most likely to be impacted by something that reduces the need for work. That said, I don't think Obamacare is the ideal way to help working parents; I think I've previously expressed my support for daycare and maternity/paternity leave.

    ReplyDelete