The Spectacle Blog

The Short Road to Ruin: Obamacare in 2014

By on 2.7.13 | 1:52PM

If Obamacare isn't scaled back by 2014, the U.S. faces ruin. Mercatus Center research fellow Charles Blahous explains how.

When originally passed, Obamacare was projected to add $340 billion to federal deficits and $1.15 trillion to federal spending in its first 10 years (and much more subsequently). This was based on the Congressional Budget Office's (CBO) assumption that all states would expand their participation in Medicaid, adding 17 million to the rolls by 2022.

The Supreme Court's decision in June 2012 to uphold the bulk of the legislation while striking down the federal government's ability to force states to expand Medicaid, changed that picture. (The Advisory Board Company has a map up showing where states currently stand on implementing the Medicaid expansion.)

According to Blahous, CBO's new estimates reflect a few possibilities.

First is Scenario 1. Assume some states won't expand Medicaid, resulting in one-third fewer enrollees.

What happens to these six million people?

CBO assumes half will choose to go withtout insurance. This loss reduces projected federal expenditures. 

CBO further assumes the remaining three million end up in federal health care exchanges. Federal costs increase. The health care exchanges are more expensive for those in this income group -- an average federal subsidy of $9,000 a year per enrollee, versus an average federal subsidy of $7,000 per year under Medicaid

States have a fiscal incentive to decline Medicaid expansion and push eligible individuals into the more generous federal health exchanges. 

The net effect of three million uninsured individuals plus three million in health exhchanges adds $340 billion to the federal deficit and increases federal spending to $1.2 trillion in the next decade. 

And the even more costly option is Scenario 2.

Assume all states expand Medicaid and cover those earning up to 138 percent of the federal poverty level. Further assume that those eligible for the more generous federal health care exchanges (those earning between 100 percent and 400 percent of the federal poverty level) opt in. Costs rise even more dramatically. 

Blahous puts it bluntly: the only way out is to cut back on the size of the health exchange subsidies, and allow governors more flexbility to improve Medicaid's cost-effectiveness. The fiscal strains presented by ACA mean that the legislation's stated goal of providing expanded health insurance coverage isn't tenable. The financing simply does not work. 

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