Sins of Omission: Obamacare And The Conspiracy of Silence

She knew and so did he.  That would be former Speaker of the House Nancy Pelosi and President Barack Obama. The quote absurdum for which Rep. Pelosi will best be remembered is “We’ll have to pass the Affordable Care Act so that we can see what is in it.”  What she really meant was, “We’ll tell you what is in it after we pass it.”  Well, now we know, thanks to recently released reports by The Joint Committee on Taxation, the House Ways and Means Committee, The Congressional Budget Office and the American Academy of Actuaries.  It will cost about twice what we were told; it will substantially increase the deficit; healthcare costs (including insurance premiums) will spike; and taxes will significantly increase for almost everyone including the middle class and, particularly, the young.  Quite a turn of events for legislation that the president assured would not increase the deficit by one dime (instead projected costs have soared), and would slash premium costs during his first term in office (premiums have actually increased more than President Obama said they would decrease). So what went wrong?

Where to begin? Let’s start with the obvious consequences of substituting centralized government management for actuarial judgment.  Actuaries or medical underwriters determine premium rates based on an analysis of anticipated future claims.  That’s why premium rates go up with age, or are higher based on the likelihood of an illness recurring, or for people who are obese or who are smokers or heavy drinkers.  To better mitigate this burden on these consumers of health care, the government has, essentially, prohibited insurers from seriously considering an individual’s health when determining premiums for an individual or a member of a relatively small group.  There is, beginning next year, a mandated government limit (cost ratio) on what insurance companies can impose for age, or a prior history of chronic illness, or say, smoking or gender.  The objectives are understandable and, perhaps, even noble, but someone (or group of someones) will pay for this avoided cost.  While our greatly expanding older population or those in poor health will enjoy lower premiums, those avoided costs will be born by younger, healthier men and women.  The actuarially based system gave credits or premium breaks to those who were young or healthy. Now risk will be redistributed at the expense of the young and healthy.

As one analyst observed, it is like what happens to the air inside a balloon when it is squeezed: one part shrinks as the other part expands.  A just- released study by the American Academy of Actuaries (authors, Kurt Giesa and Chris Carlson) finds that tens of millions of Americans will be exposed to increased insurance costs, even when one takes into account the value of Obamacare’s premium subsidies.

Obamacare’s insurance exchanges were originally designed to subsidize the purchase of regulated, private-sector insurance for those with incomes between 138 percent and 400 percent of the Federal Poverty Level ($31,809 to $92,200 for a family of four). But Giesa and Carlson estimate that 80 percent of Americans below the age of thirty in the individual market will face higher premiums, despite subsidies. “Our core finding is that young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the Federal Poverty Level, or roughly $25,000, can expect to see higher premiums than would be the case absent the Affordable Care Act, even after accounting for the presence of the premium assistance.”

Fully 80 percent of these twenty-somethings have income above $25,000. These higher costs on young people are especially significant because about two-thirds of the uninsured population is under the age of 40. Overall, the authors found that “premiums for younger, healthier individuals could increase by more than 40 percent” in the non-group insurance market due to Obamacare. These higher costs on young people are especially significant because about two-thirds of the uninsured population is under the age of 40. Overall, the authors found that “premiums for younger, healthier individuals could increase by more than 40 percent” in the non-group insurance market due to Obamacare.

Giesa and Carlson are quite specific:

“We estimate that almost 80 percent of those aged 21 to 29 with incomes greater than 138 percent of federal Poverty Level who are enrolled in non-group single coverage can expect to pay more out of pocket for coverage than they pay today—even after accounting for premium assistance… “We estimate that about one-third of those older than age 29 with incomes greater than 138 percent Federal Poverty Level will see higher premiums even after accounting for premium assistance.”

Actuaries from the international consulting firm Oliver Wyman are now predicting an average increase of roughly 50% in premiums for some in the individual market for the same coverage. That, of course, is an average. The large companies with large groups will be less affected, at least initially, because the law grandfathers in the big players that self-insure. The small businesses? That’s another story. The small businesses, the workhorses of the nation, will most certainly see a significant increase, and those insured in the individual market will get clobbered.

In yet another just-released study by the Society of Actuaries, underlying claims costs on which premiums are based will jump by one-third across the United States as a result of Obamacare, with some states such as Ohio, California, Wisconsin, Indiana, and Maryland seeing increases ranging from 62% to 81%.  The Obama Administration’s assumption has always been that the younger, healthier newly insured Americans would bend the cost curve down, but an influx of sick people joining the insurance rolls for the first time will, in fact, overwhelm the expected lower costs from younger and healthier participants according to the Society of Actuaries.

Then there is the matter of the new sales tax on the purchase of health insurance, which we suppose was just one of the things Former Speaker Pelosi said we could learn about after Obamacare was passed.  This new sales tax on the purchase of health insurance will cost about  $101.7 billion, which makes it larger than all the other industry-specific taxes combined, about which we’ve previously written (more on those taxes later).

This spanking new sales tax will start at $8 billion in 2014, increasing to $14.3 billion in 2018, and will continue to increase each year until it exceeds $100 billion. The new health insurance tax will increase costs for individuals and families purchasing coverage on their own, small businesses, seniors and people with disabilities enrolled in a Medicare Advantage plan, and state Medicaid managed care plans.  Ironically, this new health insurance tax is far greater than the minimum penalty for those who choose not to buy health insurance.  Think about that.  It further incentivizes young, healthy people to forgo purchasing insurance until they need medical care.

Now comes a 96-page report from the Joint Committee on Taxation, which could have been titled “You Ain’t Seen Noth’in Yet” as Rocksteady said after revealing secrets about Batman (for those old enough to remember comic books).  The report describes the 21 tax increases included in Obamacare, totaling $1.058 trillion.  We’ve covered many of those taxes in prior essays, but here’s a few to refresh the reader’s memory: additional 9% payroll tax on wages and self-employment income; a new 3.8 percent tax on dividends, capital gains, and other investment income for individual taxpayers earning over $200,000 ($250,000 for families); a new 40% excise tax on higher-quality, higher-premium plans; added pass-along taxes on drug manufacturers and imported medications; taxes on medical devices (think pacemakers, home-testing devices, etc.); then, of course, there is the Individual Mandate Excise Tax. Beginning next year, anyone not buying “qualifying” health insurance must pay an income tax surtax. It goes up each year until 2016 and beyond when a couple would pay a tax of the higher of $1,360 or 2.5% of adjusted gross income.

Prior to this year, those with health savings accounts, flexible spending accounts or health reimbursement accounts could use the pre-tax funds in these accounts for medical expenses without a doctor’s prescription. Beginning January 1^st this year, however, employees were saddled with a $2,500 cap on the amount of pre-tax salary deferrals they can make into a healthcare flexible spending account. There previously had been no cap. To add insult to injury, employees must forfeit unused funds in these accounts at the end of the plan year. This year, taxpayers facing high medical expenses won’t be able to deduct those expenses until they exceed 10% of adjusted gross income (AGI) instead of 7.5% of AGI as had been the case until Obamacare kicked in.

John C. Goodman, author of “Priceless: Curing the Healthcare Crisis” (Independent Institute, 2012) and President of the National Center for Policy Analysis opines “The Obamacare health insurance tax hits some of the most vulnerable people in our society, including poor people in Medicaid managed care plans and seniors in Medicaid advantage plans. It is also a tax on middle-income families who were promised by this Administration that their taxes would not rise.”  Case-in-point, Medicare Advantage beneficiaries will see costs rise from $16 to $20 per member per month in 2014, increasing to between $32 and $42 by 2023. The costs for Medicare Advantage coverage over the next ten years is expected to reach $3,590. Individuals on Medicaid managed care will see increase costs of about $1,530 per enrollee between 2014 and 2023.

The Congressional Budget Office (CBO) agrees, writing that the health insurance sales tax will be “largely passed through to consumers in the form of higher premiums.”

This is not a pretty picture.  Even worse, it isn’t even a complete picture. There are now 20,000 pages of regulations (800 pages were added just last week) with more coming.  And as the regulations continue to add up so will, you can bet, the costs.  It is time for the Administration to level with the people about where this is headed and what the costs are going to be. The people need the truth…the whole truth…and nothing but the truth.