The American Interest
Analysis by Walter Russell Mead & Staff
Obamacare’s “Silver Lining” Looking Rather Dubious

Regular readers of the blog will know that we are not exactly fans of Obama’s health reform, but a new piece in the Wall Street Journal suggests that it may have a silver lining.

Backers of Obamacare have argued that the changes in insurance law will make it easier to raise the Medicare eligibility age because seniors will no longer be barred from buying private insurance due to pre-existing conditions. Raising the eligibility age to match increases in life expectancy is an essential part of any serious move to balance the U.S. budget over the long term. If Obamacare makes this more politically palatable, so the argument goes, it should be seen as a victory for fiscal prudence.

This is a good point, as far as it goes, but as usual there are serious complications. In particular, it’s not clear whether the change will result in substantial savings for the government or simply push the costs around. Many of the seniors pushed out of Medicare will be shifted to the expanded Medicaid program, another government-funded insurance scheme, while others will need government assistance to purchase a private plan on the exchanges. In both of these cases, the savings will be minimal or nonexistent:

Those findings also noted that the health law’s federal subsidies for older people who purchased insurance through the exchanges, and enrollment of some of the lowest-income seniors onto the law’s expanded Medicaid program, would reduce the savings to the federal government by around a quarter, to $113 billion.

The CBO estimated that if the Medicare age increased, around half of 65- and 66-year-olds would get insurance from their employers, and that another 5% would go uninsured.

Of the rest, roughly one-third would buy plans through new insurance exchanges, where some of them would get federal tax credits toward the cost of premiums, and another third would enroll in the law’s expanded Medicaid program, which will mostly be funded by the federal government. The remainder would still qualify for the Medicare program because of disability.

Nor will this be good for the young, who may have to pay considerably higher premiums if older employees choose to remain on their employer’s insurance rolls:

The study found that because of the health law’s restrictions on how much prices can vary by age, having older, sicker people participating in the insurance exchanges could drive up premiums for everyone in those exchanges by 3%, or $141 for each enrollee in 2014. Young adults in the exchange under the age of 30 would see 8% increases in their premiums.

As with many of the technocratic programs the administration is so fond of, the logic appears sound but fails to hold up under real-world pressures. Like any other top-down reform of this scope, it is simply impossible to account for all of the nuances and unforeseen side effects, no matter how good things look on paper.

We’re going to be seeing a lot more of these kinds of surprises as Obamacare continues to roll out in the years ahead.

Published on November 27, 2012 12:20 pm