White House Expands Health Insurance Exchange Request by $111 Billion

Published March 20, 2012

President Obama’s fiscal year 2013 budget includes a request for significant expansion in the mandatory outlays for taxpayer-funded subsidies through the health insurance exchanges—a figure which may formally eliminate any estimated advantages of his signature health care law in lowering the federal deficit.

The budget requested additional outlays of $111 billion through 2022, bringing the total subsidy funding to $478 billion over the seven years the exchanges are slated to be active.

At the time of its passage, the Congressional Budget Office (CBO) estimated Obama’s law would create $143 billion in deficit reduction over ten years. That number has since shrunk significantly because of the inability of the administration to implement the CLASS Act, a long-term care provision which made up $86 billion of those savings but was not actuarially sound.

Sebelius: ‘No Idea’ of Deficit Effect

Under questioning from Sen. Ron Johnson (R-WI) at a recent Senate hearing, Health and Human Services Secretary Kathleen Sebelius admitted she did not know whether, in the wake of this new request, Obama’s law would shrink or grow the deficit.

“The CLASS Act—I think we all ended up recognizing that was not going to work out; that wasn’t going to be financially solvent,” Johnson said. “Now we’ve reduced that $143 billion by $86 billion, by not getting revenue from the CLASS Act—and now another $111 billion because we’ve increased the mandatory costs of the exchanges, correct? So, when you add those together, that’s $197 billion added to the first 10-year cost estimate of Obamacare, so now we are instead of saving $143 billion, we are adding $54 billion to our deficit, correct?”

“I’m assuming the numbers are correct.  I’m sorry I don’t have them,” Sebelius answered, adding that she had “no idea” whether Johnson’s depiction of Obama’s law as actually adding to the deficit was correct or not.

Shifting from Medicaid to Exchanges

According to Avik Roy, a senior fellow at the Manhattan Institute and a health care equity analyst, the $111 billion increase results primarily from a reevaluation of how many individuals will end up on Medicaid and how many will receive subsidized coverage through the insurance exchanges.

“While we’re still waiting to for a publicly available explanation from the White House, it appears that the $111 billion increase in the White House’s projection for Obamacare exchange subsidies is driven by a slight change to a formula used to calculate certain early retirees’ eligibility for Medicaid, called MAGI,” Roy said. “This change led to a big increase in subsidies for the exchanges, and a big decrease in subsidies for Medicaid, on the order of $275 billion.”

However, CBO’s overall projections for Medicaid enrollment are still up, due largely to less optimistic projections for employment in a stagnant economy. According to the CBO’s calculations, 17 million people will be added to Medicaid and another 22 million will be subsidized through Obama’s health insurance exchanges through 2022. And CBO estimates taxpayers will spend $168 billion more on Medicaid than they predicted just last year over that period.

‘Trouble with Math’

This increased budget request is a sign of the administration’s lackluster effort to predict what Obama’s law would ultimately cost the taxpayers, Roy notes.

“What this episode highlights is how tiny modifications in economists’ projections can have huge impacts on the spending associated with our new health law,” Roy said. “If, for example, more employers dump their workers onto Obamacare subsidies than the government currently anticipates, taxpayers could be on the hook for hundreds of billions, if not trillions, in unexpected new spending. Imagine entrusting the fiscal stability of the country to your local weatherman, and you have some idea of the scale of the problem.”

House Republican Study Committee Chairman Jim Jordan (R-OH) agrees, saying the incident indicates a lack of seriousness in calculating the ramifications of Obama’s health care law.

“Washington is plagued with people who have trouble with math. That’s why our debt is now bigger than our economy,” Jordan said.


Internet Info:

“Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” Congressional Budget Office: http://cbo.gov/publication/43076