Obamacare Raises Costs for Feds, States, Individuals

Published May 31, 2016

Proponents of the Patient Protection and Affordable Care Act (PPACA) argued the legislation would reduce costs, but analysis from policy experts and the chief Medicare actuary now reveals not only will federal costs rise, but the costs to states, insurers, employers, and most individuals—virtually all parties in the system—will also increase. 

Fundamentally Flawed Approach

According to Robert Book, a senior research fellow in health economics at the Heritage Foundation Center for Data Analysis, the new approach is incapable of realizing cost benefits.

“Once the reform is fully phased in after 2014, people who are subsidized will pay a fixed percentage of their income as their insurance premium. The federal government will pick up the rest,” Book said. “This will increase the costs to taxpayers, not reduce it.”

If an individual chooses not to pay the individual mandate penalty and instead to buy insurance, their personal expenditures will increase, either by the cost of the full premium or the subsidized premium funded by federal taxpayers.

“Essentially, the government always comes out with more money if people don’t buy insurance, because then the government does not have to subsidize them or the government receives the penalty,” Book said. “Any positive budget numbers are dependent on a certain number of people remaining uninsured and paying the penalty, which raises their personal costs.”


Insurers Pass Along Costs

A recent report by Centers for Medicare and Medicaid Services actuary Richard Foster also found Obama’s legislation would increase costs. According to Sally Pipes of the Pacific Research Institute, a key reason for the finding is the regulatory changes which will raise costs for insurance companies, who will pass these on to their customers in the form of higher rates.

“Lifetime caps, a ban on rescission, kids on a policy until age 26—these things are all going to have huge cost impacts on insurance companies, employers, and individuals,” Pipes said. “That’s one reason proponents often failed to specify which costs would be lowered and for whom.”

Perils of Ignoring History

Book says even the tax on high-value health plans will not lower health premiums, contrary to predictions from analysts such as Christina Romer of the Council of Economic Advisers that insurers and employers will alter their plans to avoid the tax. 

“What they are leaving out is that Health and Human Services is going to be defining a minimum benefits package. The history of regulatory agencies defining benefits, which so far is only at the state level, is that benefits tend to get more and more generous,” Book said. “States say that you have to cover this, you have to cover that. All of these things increase costs, some by a tiny bit, some by a huge amount. We’re about to see that on a national scale.”

Loren Heal ([email protected]) writes from Neoga, Illinois.

Internet Resources:

CMS Actuarial Report on PPACA: http://heartland.org/healthpolicy-news.org/article/27696/CMS_Actuary_Report_on_Obamacare.html