Where is Obamacare's Sticker Shock?
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Jonathan Cohn has a piece at the New Republic chastising those of us that are concerned about the cost of Obamacare.

The real story about Obamacare, the one the law's critics don't emphasize, is that far more people will actually pay less. And while those paying more may not be happy about it, they'll also be getting something for the extra premium dollars they pay up front.

Cohn argues that larger risk pools (as a result of the exchanges) and tax credits will make insurance cheaper for most. His argument, on its face, isn't entirely wrong. If Obamacare plays out exactly as proponents hope, then the sicker population that is riskier to insure will end up paying less for insurance because their risk will be offset by newly enrolled young, low-risk consumers. But that's a stretch and Cohn acknowledges it:

[T]he people who really will see higher prices...tend to be younger, healthier, and more affluent...These are also the people who, under the new system, will make too much money to qualify for large subsidies, enough to offset the cost of higher insurance.

And this is an important point - if the younger population opts to pay the fairly modest penalty ($95 in the first year) instead of purchasing insurance, then premiums will skyrocket for the new, forcibly enrolled sicker population. And this ignores more direct costs that will be passed on to the premiums - the health insurance tax and administrative fees levied by states for instance will raise premiums directly.

But let's assume for a second that everything does go according to plan. Plenty of young people purchase insurance on the exchanges - enough to offset the risk of insurers covering the sicker population. There's an even more direct cost associated with Obamacare - not just projections over how much premiums will rise or who will pay more.

Obamacare will cost money to implement. A lot of money. While official estimates from the CBO claim a deficit reduction of about $109 billion, they rely on shaky assumptions based in "current law" rather than "current policy". (Current law projections assume that law as written goes forward as intended - in the case of the ACA's bill, this assumption included cuts to Medicare that were set to happen (but were averted, as they have in the past with another "doc fix"); current policy projections make assumptions about policy alternatives - see CBO's latest discussion of their current law projections and current policy alternatives). Independent analysis has found that as a result of the law, spending will instead increase by around $500 billion in the first decade and $1.5 trillion in the second decade.

There's your sticker shock Mr. Cohn.

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Our Research

Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013


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