Obamacare: The Great Satan

While I'm of the opinion that Republican party appears to have fielded some spectacularly asinine presidential candidates, they raised some points about Obamacare that I could not refute in yesterday's post due to my own ignorance.  So I did some research.  Medicare is in fact insolvent.  The Congressional Budget Office did estimate that Obamacare will remove 800,000 jobs (more on that later).  


In terms of basic effects, CBO estimates that the number of insured non-elderly will increase from the current 83 percent to 95 percent, or 32 million people in 2016 or 34 million in 2021.  They estimate that 6 million people will take replace direct insurance purchased directly from the insurer with subsidized insurance through their employer, and 1 million will replace insurance through their employer with Medicaid.  They further estimate that between 2012 and 2021, Obamacare will reduce the deficit by $210 billion.  Somehow I expected socialism to be more insidious...


The $210 billion in deficit reduction will occur in entitlement spending (mandatory recurring costs that Congress cannot defund):  this will occur because revenue gaining mechanisms are included in the legislation in the form of fines to employers who don't provide healthcare and taxes on health insurance with high premiums.  There will be an additional discretionary (spending funded by annual Congressional appropriations) cost of $5 to $10 billion annually to accommodate the additional workload required of the IRS and Health and Human Services.  The total discretionary administrative costs for the period of 2012-2021 is estimated at $100 billion, with $85 billion of that sum representing in the operating costs of the cognizant organizations regardless of whether Obamacare was enacted.  For the period between 2022 and 2031, Obamacare is (tentatively) estimated to reduce the budget by  0.5 percent GDP annually.  


In terms of revenue, net outlays for Obamacare are estimated at $1.04 trillion for 2012-2021, of which $732 billion will be funded through reduced Medicare expenses (because Obamacare replaces those portions of Medicare) and $510 billion through increased revenues.  


The impact on businesses is estimated to be minimal.  Employer-paid insurance premiums are tax exempt.  Premiums purchased by the individual are subsidized on a sliding scale, with fewer subsidies the wealthier the individual.  Insurance policies with high premiums are punitively taxed.  Any business with more than 50 employees that does not offer health insurance will be fined $2,000 per employee beyond the first 30.  Part-time employees do not count in this calculation, however.  Firms with fewer than 25 employees and with average salaries of less than $50,000 are eligible for subsidized insurance premiums.  The smallest businesses are eligible for up to 35 percent subsidies.  


Medicaid will be expanded to anyone earning 138 percent of poverty level income; Medicare enrollment is expected to be reduced to 60 percent of what it would have been without Obamacare.  


The 800,000 decrease in jobs cited by Michelle Bachmann is a correct figure, however, it was the estimated reduction for 2021 and the decrease will be on the supply side of things rather than the demand side:  

The net reduction in the supply of labor is largely attributable to the substantial
expansion of Medicaid and the provision of subsidies that will reduce the cost of
insurance obtained through the insurance exchanges. Those changes in law will effectively increase individuals' financial resources, which will encourage some people to work fewer hours or to withdraw from the labor market. In addition, the phaseout of the subsidies as income rises will effectively increase marginal tax rates, which will also discourage work. But because most workers who are offered insurance through their job will be ineligible for the subsidies and because most people will have income that is too high to be eligible for Medicaid, those effects on financial resources and marginal tax rates will apply to only a small segment of the population.

Or, in more detail:  

Changes to the insurance market, including provisions that prohibit insurers from denying coverage to people because of preexisting conditions and that restrict how much premiums can vary with an individual's age or health status will increase the appeal that health insurance plans offered outside the workplace have for older workers. As a result, some older workers will choose to retire earlier than they otherwise would.

In contrast, another feature of the Medicaid expansion removes an existing disincentive to work for many low-income individuals. People currently become ineligible for Medicaid if their income rises above a certain level; for working parents, the median income threshold for eligibility among states was 64 percent of the federal poverty level in 2009. The health care legislation will allow parents to work and still qualify for Medicaid until their income exceeds 138 percent of the poverty level. Moreover, parents whose income exceeds the new threshold may be able to work and receive the subsidies for insurance purchased through the exchanges.

Employers' decisions to hire workers will also be affected in some cases by the health care legislation. Employers with 50 or more employees will be required to pay a penalty if they do not offer insurance or if the insurance they offer does not meet certain criteria and at least one of their workers receives a subsidy from an exchange. Those penalties, whose amounts are based on the number of full-time workers in the firm, will, over time, generally be passed on to workers through reductions in wages or other forms of compensation. However, firms generally can not reduce workers' wages below the minimum wage, which will probably cause some employers to respond by hiring fewer low-wage workers. Alternatively, because firms are penalized only if their full-time employees receive subsidies from exchanges, some firms may instead hire more part-time or seasonal employees. 

The conclusion to be drawn from the CBO's analysis is that Obamacare expands coverage, decreases the deficit, increases business for insurance companies (by subsidizing the insurance for people who would otherwise be unable to afford it), decreases the number of people on Medicare (by replacing it with subsidized private insurance), makes the job market less competitive by removing 800,000 people from it (because they retire earlier, or spouses don't work because they don't need the additional revenue to pay for health insurance), and improves the standard of living.  


The downside is that the average cost of premiums is likely to go up (although this will be balanced by lower health care costs due to an increase in preventative medicine), and some of the brunt of costs are shouldered by businesses (although this is mitigated through tax incentives and subsidies, and will most likely be reflected, in the long run, in lower wages for the employee).  


To me, it seems like the benefits outweigh the costs.  I'm going to read the actual legislation over the next few days to get a better idea of exactly where revenue is coming from; what subsidies, tax exemptions, and penalties will look like in more detail; and also to make sure that the legislation doesn't just shift costs from insolvent Medicare to Obamacare without ensuring that they're funded.  The CBO analysis also mentioned in passing cost reduction through increased efficiency in terms of bundling expenses and some other measures, and I'd definitely curious to see what is planned for that.  


Also, has anyone read or seen anything in the news that outlined Obamacare?  It definitely seems like information that the media should be providing, given that it will doubtless be a major issue in the upcoming presidential campaign, and somehow I don't feel like the voting populace should be left to judge the issue solely on the unsubstantiated partisan ranting of Bachmann, Pawlenty, Santorum, and Ron Paul.