Obamacare’s “Monstrous Forecasting Boo-Boo”


Monday April 4th, 2016   •   Posted by Craig Eyermann at 6:01am PST   •  

stethescope_MLLast month, the Congressional Budget Office released a report examining the state of the subsidies that would be paid out to people who purchased health insurance through the government’s Affordable Care Act exchanges in each state over the years from 2016 through 2026.

CBO reports typically make for some pretty dry reading, so we’re happy to have come across the investing and financial analysis site The Motley Fool’s Sean Williams’ take on the report’s findings, in which he describes a mistake of “monstrous proportions” made by the federal government.

While most other news coverage of the report have focused on the CBO’s latest downward revision of its original forecast of 21 million Americans enrolling in Affordable Care Act health insurance down to its newest projection of just 12 million, a nearly 43% miss, Williams focuses in on the report’s latest projections for enrollment in the federal government’s Medicaid and Children’s Health Insurance Program (CHIP) welfare health insurance programs, where he finds that the government made a “monstrous forecasting boo-boo”:

Initial estimates from back in 2010 pegged Medicaid and CHIP combined enrollment at about 52 million in 2016. The actual figures? How about 68 million current enrollees in 2016, or a difference of 16 million. The report notes that total Medicaid/CHIP enrollment grew by 3 million last year, and it’s expected to swell to 74 million by 2026.

How did the federal government miss so badly? The CBO believes that fewer people than expected enrolled in employer-sponsored plans because they were eligible for free healthcare under the expanded Medicaid program. Traditional Medicaid fully covers consumers making up to 100% of the federal poverty level. Obamacare’s expanded Medicaid program, which 31 states and Washington, D.C., took advantage of, covers people earning up to 138% of the federal poverty level. The federal government appears to not have understood the magnitude of the lure to drop out of employer-sponsored care and be covered by Medicaid.

Those 16 million additional Medicare and CHIP enrollments represent nearly a 31% forecasting miss, but the impact is worse where the government’s finances are concerned because the number of Americans receiving benefits from these welfare programs is so much bigger.

But wait—the magnitude of the government’s forecasting error from when the Affordable Care Act was passed into law is even worse than it first appears, because when the federal government made its forecast, it expected that these welfare programs would be expanded in every state. Williams explains:

What’s even more egregious is that this estimate in 2010 was done before a Supreme Court decision in 2012 that allowed states the right to choose whether or not they wanted to expand their Medicaid program.

When President Obama initially signed the Affordable Care Act into law in March 2010, Medicaid expansion was mandatory. However, a ruling of 7-to-2 by the Supreme Court allowed individual states to make the decision of whether or not to expand. Ultimately, 19 states have chosen not to. Their reasoning? The federal government offered financial assistance to all expanding states between 2014 and 2016 but fully plans to pare back its assistance to just 90% from 100% between 2017 and 2020. The holdout states simply felt that they would be left on the hook for too much additional revenue generation to cover these new Medicaid members. If Medicaid expansion was mandatory, the CBO estimates another 4 million people would be enrolled.

This 16 million-person shortfall is far from insignificant. In fact, the CBO estimates that the federal government’s failure to accurately forecast how many people would be enrolled in Medicaid/CHIP to be $146 billion over the next decade. When taking into account factors like the estimated $46 billion the federal government will save by paying out less than expected in subsidies for marketplace exchange enrollees, as well as the $28 billion less it’s expected to collect in revenue because the Cadillac Tax will be suspended for an additional two years, Obamacare is now expected to cost $136 billion more than originally forecast over the long-term.

The magnitude of how badly the federal government messed up its forecasts of enrollments in both Affordable Care Act and Medicaid/CHIP welfare health insurance programs is a major reason why the CBO determined earlier this year that repealing Obamacare, as the Affordable Care Act is popularly known, would reduce the nation’s budget deficits and the growth of the national debt over the next 10 years.

References

Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51385-HealthInsuranceBaseline_OneCol.pdf. March 2016.




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