Finally! Someone Explains What All Those Obamacare Numbers Mean!

You’re going to hear a lot about Obamacare this fall, especially from Republicans. They’ll try to convince you that it was a bad deal. They’ll throw numbers at you to make you think that the cost of health insurance is spiraling out of control. In all likelihood, those numbers will be wrong, but how will you know? There are so many numbers flying around out there that even the experts are having trouble keeping track.

That’s why it’s time for a math lesson. After reading this article, you’ll know what the numbers mean — and which ones you should trust. No candidate will be able to fool you.

Millian Medical Index

And you won’t even need a calculator.

First of all, you have to understand that we’re only talking about the individual market, where people buy insurance if they’re not covered by their employer or a government program. That means the “individual mandate” and the “government-run exchanges” only affect 7 percent of the population. For the majority of the population covered by their employer, the cost of health insurance rose less in 2014 than it had in any year since the Milliman Medical Index started keeping track. We can probably thank Obamacare’s cost control provisions for some of that achievement, but that’s a conversation for another day.

For now, let’s focus on the individual market. Before Obamacare, insurers charged low rates to healthy people and high rates to sick people, making insurance unaffordable for the people who needed it the most. Obamacare banned discrimination against sick people and mandated that all people must purchase insurance. Without that mandate, insurers would have raised rates to cover the new sick customers, and healthy people would have refused to pay the new high rates, driving rates up even higher as the population became sicker on average.

When the law was passed, the Congressional Budget Office predicted that premiums would increase 10 to 13 percent, but only because people would be receiving more generous coverage. Obamacare required every health insurance plan to meet basic minimum standards. Additionally, by making it more affordable, more people would want to buy more generous coverage. If you compared plans with the same level of coverage, the CBO predicted that premiums would actually go down.

When states started announcing the premiums for their new “exchanges,” you probably started hearing about “sticker shock.” By comparing the new premiums to old quotes from health insurance websites, Obamacare critics claimed that the law had drastically raised prices. The problem with their argument was that the quotes on the old websites were very unreliable. They rarely reflected what insurers would actually charge you, once they factored in your medical history, age, gender, etc. In fact, many Americans would be denied coverage altogether. Anyone who knew anything about health insurance knew that the website quotes were lowballing the cost.

State governments like California countered by making a more reasonable comparison. They argued that the new exchange premiums were actually lower than premiums for small group coverage, for which they had better data. Obamacare critics weren’t satisfied. Small group plans may have been more expensive than the plans on the new exchange, but that’s because they offered more generous coverage.

The Manhattan Institute, led by conservative health expert Avik Roy, tried to find a middle ground by adjusting the quotes on the health insurance websites, raising the estimates for people who were “surcharged” or denied, and finding that Obamacare increased prices by 41 percent.

The problem with Roy’s analysis was that his adjusted numbers didn’t match reality. Before Obamacare, Roy suggested that 27-year-olds — the ones who were being hit the hardest, he argued — paid between $1,596 (men) and $1,980 (women) in average annual premiums. But the Kaiser Family Foundation conducted a survey in 2010 and found that they were actually paying closer to $2,630. Across the board, Roy had underestimated the pre-Obamacare cost of health insurance, and he wasn’t including costs that consumers paid out of their own pockets.

Last month, three Wharton economists used the Current Population Survey to calculate a more accurate estimate of the average pre-Obamacare premium. They found that it was basically identical to the lowest-cost plan available on the Obamacare exchanges. Compared to more expensive plans, of course, it was cheaper, but when they factored in out-of-pocket costs, they found that the new plans were 14 to 28 percent more expensive than the old ones, only slightly higher than the CBO’s original predictions.

Monthly Subsidized Premiums on Federal Exchange

But wait. The Wharton study only counted people who purchased insurance, not people who were denied or who refused because the insurer’s quote was too expensive. We’ll never know what that quote was, but we can assume it would significantly raise our estimate of the average premium. To ignore those people — and there were millions of them — is to say that they don’t matter, even though Obamacare was designed specifically with them in mind.

The Wharton study also doesn’t include the tax credits that the federal government uses to subsidize low-to-middle income buyers on the exchanges. Last month, the government announced that 87 percent of shoppers received a subsidy on the federal exchange, bringing their average monthly premium down from $346 to only $82!

That’s a 76 percent reduction, and it more than makes up for the 14 to 28 percent premium increase, which may not be much of an increase after all if you include people who didn’t buy insurance in the past.

Bottom line: On average, Obamacare clearly lowered the cost of health insurance.

Sure, some people will pay higher rates, but you have to remember that those people only paid low rates in the past because insurers were discriminating against sick people. The new market is much fairer and more affordable for more people — a fact that you might want to point out to Republicans on the campaign trail this fall.

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Similar versions of this op-ed were published in today’s South Florida Sun-Sentinel and Huffington Post.

Reader Request: Who Will Benefit from ObamaCare?

CBO Estimates vs. Actual Obamacare Premiums

A reader asks: Under ObamaCare, what will happen to the millions of people who don’t file tax returns, are illegals, etc? Will there be more uninsured than before? Will this new law raise the cost of health insurance?

The individual mandate does not apply to undocumented immigrants, who are also ineligible for Medicaid and the subsidies available under the Affordable Care Act. To answer the question that’s really on your mind: The new law does not allocate any of your tax dollars to them.

Where it does allocate tax dollars is to American citizens and legal immigrants who cannot afford health insurance. It’s true that some of these folks don’t file federal income tax returns because they don’t earn enough income. (They still pay a lot, however, in state, local, and payroll taxes.) They will not be eligible for the subsidies offered on the new exchanges because those subsidies come in the form of tax credits. However, if they work for a company that has more than 50 employees, they will be able to receive health insurance from their employer. If not, their fate likely depends on geography. So far, about half of the states have chosen to expand Medicaid eligibility up to 133 percent of the poverty line, all of which will be covered by federal funding. If you’re poor and uninsured and you live in one of the states that refused to expand Medicaid, you’re S.O.L., as the kids say.

By the time the ACA is fully implemented a decade from now, the Congressional Budget Office projects that it will reduce the number of Americans without health insurance by 25 million, leaving 31 million uninsured. That’s not a complete solution, but it sure is a giant leap in the right direction. It will certainly save thousands of lives.

The CBO also predicted that the ACA will lower the cost of health insurance for the individual market, where the exchanges and subsidies are targeted. Critics latched onto the prediction that people will pay 10 to 12 percent more, but that’s a misleading statistic. They’ll be paying more because they’ll be receiving more. The CBO predicts that people will be able to afford better plans; hence, the higher cost. When they compared policies with the same quality, the CBO found that premiums will fall by 14 to 20 percent — and that doesn’t include the subsidies from the government that will make the plans even cheaper.

As it turned out, the CBO was wrong: Under ObamaCare, premiums are falling more than 20 percent!

The first evidence of this success came in May when California announced the premiums that insurers will be charging on the individual market exchange next year. Plans that were supposed to cost $400 to $500 per month are actually going to cost $200 to $300.

And in case you thought California was a fluke, New York just released its individual market premiums for 2014, and they’re going to be 50 percent lower than what they are now!

The New York rates are even more newsworthy because they prove that the individual mandate is essential and cannot be postponed.

In 1993, New York passed a law requiring insurers to charge everyone the same price. As I noted in my op-ed last week, without an individual mandate, this is a recipe for extremely high premiums because healthy people will choose not to buy insurance, leaving only the sick people who are willing to pay high rates because they need the insurance so badly.

That’s exactly what happened in New York. For two decades, they’ve had the highest insurance costs in the country. Currently, only 17,000 people purchase health insurance on their individual market.

But all that will change in 2014 for one reason and one reason only: ObamaCare. The individual mandate and the subsidies will bring healthy people into the market, spreading the costs of health care among less expensive patients.

It’s important to remember that we’re only talking about the individual market. If you get insurance from your employer or the government, these numbers don’t apply to you.

It’s also important to note that someone has to pay for those subsidies. This fact alone has caused some confusion, so let me add one more myth to last week’s listMyth #5: ObamaCare will force everyone to pay higher taxes.

There are a few new taxes under the ACA, like 10 percent on indoor tanning and a higher penalty on non-medical withdrawals from Healthcare Savings Accounts, but the majority of Americans will never have to pay these taxes. The only taxpayers who will definitely face a higher rate are the richest 2 percent, who earn more than $200,000.

In other words, the cost of ObamaCare is far less than its critics would have you believe.

We Don’t Have a Government Spending Problem. We Have a Health Care Problem.

Nobody’s happy about the sequester, the government spending cuts that took effect a few days ago, but most people think it was a necessary evil.

Evil? Maybe. Necessary? Absolutely not.

In June 2011, before Congress passed the Budget Control Act, the Congressional Budget Office released its annual “Long-Term Budget Outlook.” This is the best nonpartisan projection we have of what the federal budget would look like without the sequester.

The CBO considered two possibilities.

First, what would the budget look like if Congress did absolutely nothing? The Bush tax cuts would expire as scheduled, Obamacare would take effect, and Medicare payments to doctors would remain at current rates. They called this the “Extended-Baseline Scenario.”

Second, what if Congress stopped all those things from happening? They extended the Bush tax cuts permanently, repealed Obamacare, and raised Medicare’s payment rates for doctors every year. They called this the “Alternative Fiscal Scenario.”

The difference is stunning. In the Extended-Baseline Scenario, the government’s debt never increases. Relative to the size of the economy, it’s the same in 2033 as it was in 2013. Meanwhile, in the Alternative Fiscal Scenario, it skyrockets. By 2033, it’s double what it was in 2013.

The Alternative Fiscal Scenario is what scared legislators into passing the Budget Control Act. They decided to slash government spending across-the-board by over $2 trillion over the next decade in order to avoid a massive increase in debt.

But why were they looking at the Alternative Fiscal Scenario? After all, the Extended-Baseline Scenario showed that the debt problem disappeared if Congress simply did nothing. Why didn’t they just…do nothing?

Well, if they did nothing, taxes would go up, and doctors’ payments wouldn’t. The politics speaks for itself.

Instead of doing nothing, Congress made 84 percent of the Bush tax cuts permanent at the beginning of this year, and of course, doctors’ payments continue to rise.

And that’s why they needed the sequester to rein in rising debt.

But that doesn’t explain why the sequester was an across-the-board cut in government spending when, according to the CBO, we don’t have an across-the-board spending problem.

Let’s look at the 2011 Budget Outlook one more time.

In the Alternative Fiscal Scenario, it’s true that spending increases dramatically — from 24.1 percent of our nation’s income in 2011 to 33.9 percent in 2035. But it’s not across-the-board. In fact, if you exclude health care programs and interest payments, federal spending actually decreases from 17.1 percent in 2011 to 14.6 percent in 2035!

In other words, we don’t have a spending problem. We have a health care problem!

If we had the health care costs of the average industrialized country – which has a higher life expectancy than us, by the way – we’d save over $2.5 trillion over the next decade, far more than the sequester.

And yet, looking at these numbers, our legislators decided to slash government programs across-the-board, the vast majority of which nothing to do with the problem. They chose to kick 70,000 kids out of Head Start; eliminate funding for 1.2 million disadvantaged students; serve 4 million fewer Meals on Wheels; eliminate nutrition assistance for 600,000 women and children; kick 120,000 families out of low-income housing; kick 100,000 homeless people out of shelters; conduct 2,100 fewer food inspections; conduct 1,200 fewer workplace safety inspections; treat 373,000 fewer mentally ill Americans; employ 1,000 fewer federal law enforcement agents; prosecute 1,000 fewer criminal cases; issue 1,000 fewer science research grants; guarantee $540 million less in loans to small businesses; conduct 424,000 fewer HIV tests; and treat 7,400 fewer AIDS patients. And that’s only this year, when less than 10 percent of the sequester will kick in.

All because they didn’t want to deal with the real problem.

Last month, the CBO published a new Budget Outlook. Including the effects of the sequester, it shows debt declining for the next few years, and then in 2019 it starts to rise again. That’s the dirty little secret that Congress won’t tell you: Even $2 trillion in spending cuts can’t stop the rise in debt…because spending simply isn’t the problem.

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This op-ed was published in today’s South Florida Sun-Sentinel.

Don’t Attack Big Government Until You’ve Done the Math

“We have to get rid of Big Government,” said a friend of mine recently, as if it was obvious. I looked around the table and saw only nodding heads.

So I asked my friend: What exactly do you want to get rid of? Social Security? Oh no, she said.

Medicare? No. Medicaid? No. The Children’s Health Insurance Program? No. The Defense Department? No.

Then you don’t want to get rid of Big Government.

Those five programs make up two-thirds of the federal budget. They are Big Government, and the American people love them — even most of the people who say, “We have to get rid of Big Government.”

Of course, that’s not what she meant. When she said “Big Government,” she wasn’t talking about those programs.

She was talking about Obamacare, which will account for 3 percent of the federal budget in the coming decade. She was talking about food stamps, which comprise another 2 percent of the budget. She was talking about welfare, which takes up a whopping 0.4 percent.

I hope she wasn’t talking about the Department of Education, but even if she was, its budget is roughly the same as the amount allocated to food stamps.

So anyone who thinks they can “get rid of Big Government” by attacking these programs is either uninformed, lying, or very bad at math.

It’s exactly this kind of misunderstanding that allows politicians to foist their radical agendas on an unwilling public.

Witness the “sequester” debate. Why is the government planning to cut its spending by $1 trillion over the next decade, starting with an $85 billion cut to this year’s budget that takes effect on March 1? Because people are somehow under the impression that it has grown too big.

It’s hard to square that belief with this week’s report from the Congressional Budget Office. It shows the size of our federal government relative to the overall economy, and believe it or not, it’s been shrinking for many years!

This year, the federal government will spend 22 percent of our nation’s income, the same as it did in 1981. In fact, throughout most of Ronald Reagan’s two terms in office, federal spending was higher, as a percent of our nation’s income, than it is today.

It wasn’t until Bill Clinton came into office that our government made a consistent effort to shrink the size of government. Remember Clinton’s 1996 State of the Union? “The era of big government is over.” It sure was. By the end of his term, the federal government spent less money, relative to the size of the overall economy, than at any time since the mid-1960s.

George W. Bush reversed that trend, but even Bush’s government paled in comparison to Reagan’s. In 2007, federal spending was 19.7 percent of our nation’s income, a far cry from the peak of 23.5 percent in 1983.

That’s a quarter of a century during which our federal government was smaller than it used to be.

That ended with the Great Recession, of course. When Bush left office, he handed over the reins to 24.4 percent of our nation’s spending.

But most of that increase was temporary. Just as economists predicted, that number has fallen, and it will continue to fall as the economy improves and grows faster than the government.

And that’s why the sequester is a misguided attempt to fix an illusory problem. The federal government has not gotten bigger in the last three decades, and it’s only getting smaller.

There is one part of the budget that’s been growing, however, and that’s health care. As medical costs grow faster than inflation, so do the budgets of Medicare, Medicaid, and CHIP. If you want to slow the long-term growth of the government, that’s the problem you have to solve.

But don’t take it out on innocent programs that have nothing to do with the budget deficit and even less to do with so-called “Big Government.”

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This op-ed was published in today’s South Florida Sun-Sentinel.

Barack Obama Is Not the “Ice Cream President”

There’s an email making the rounds that tells a story about two little girls who run for class president in grade school. One girl works hard, runs a good campaign, and promises to do her best if elected. The other girl promises to give everyone ice cream. The teacher asks the children how they’ll pay for the ice cream. They have no idea, but they vote for the ice cream girl anyway.

That, says the email, is how Barack Obama won the election. He promised to give away free stuff that we can’t afford.

Bill O’Reilly got the ball rolling on this theory when he said, “It’s not a traditional America anymore, and there are 50 percent of the voting public who want stuff. They want things. And who is going to give them things? President Obama.”

Earlier that day, a Romney supporter told me that he expected his candidate to lose because Obama “bought” votes by “giving away” food stamps and welfare.

We have such short memories.

It was the Republican president George W. Bush who expanded eligibility for food stamps in the 2002 farm bill. It was 99 Republican representatives who voted to expand the program further in the 2008 farm bill. And it was that same Republican president who waived one of the work requirements for 32 states in November 2008.

That’s why the food stamp program added more recipients under Bush than it did under Obama.

The welfare claim is even more ridiculous. We may not remember the food stamp expansion under Bush, but surely we remember welfare reform under Bill Clinton. In 1996, Congress ended “welfare as we know it” and replaced it with “Temporary Assistance for Needy Families” (TANF), a program whose budget hasn’t changed in 16 years. It was $16.6 billion in 1996, and it’s $16.6 billion today.

In the year before welfare reform, 4.7 million Americans received assistance from the program. Today, only 2 million receive assistance from TANF.

When TANF was created, 68 percent of families with children in poverty received welfare. Today, only 27 percent get it.

Low-income entitlement spending has increased, but it would’ve increased under any president. Most of it is what economists call “automatic stabilizers” because they automatically increase during recessions. More people become unemployed. More people fall into poverty. More people lose their health insurance. So more people qualify for unemployment insurance and food stamps and Medicaid.

Since the end of the recession, low-income entitlement spending has been falling. In the next decade, the Congressional Budget Office says that it will return to the same level it’s been for the last forty years: a little more than 1 percent of our nation’s income. If you exclude health care, where costs are rising for completely separate reasons, the CBO expects low-income entitlement spending to fall below its forty-year average in coming years.

The CBO is making these projections, of course, based on the Obama administration’s budget. The president who is supposedly giving away free stuff, it turns out, is actually planning to reduce low-income entitlements.

What’s particularly galling about the Republicans’ argument is that Romney was the candidate who couldn’t explain how he’d pay for everything he was promising. Romney was the candidate who wanted to add a $480 billion tax cut to a $1.3 trillion deficit. Romney was the candidate who wanted to add $200 billion in new Pentagon spending every year.

It was the Republican president George W. Bush who turned a surplus into a deficit. It was Bush who took the nation into two wars while passing two massive tax cuts. It was Bush who signed Medicare Part D without figuring out how to pay for it.

Are we all suffering from a collective bout of amnesia?

The Romney camp’s explanation for their electoral loss fits right in with the broader picture they tried to paint of the Obama presidency. In their world, Barack Obama “has fundamentally changed the relationship between government and the people of this country,” as Jon Stewart put it in his debate with O’Reilly.

But it’s simply not true.

And the truth matters. Obama didn’t win the election because he’s giving away free stuff, and perpetrating such a myth only serves to obscure what’s really going on and what really needs to be done in Washington.

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This op-ed was published in today’s South Florida Sun-Sentinel.