Subsidies and the Price of Health Insurance

Back in 2010 when ObamaCare was enacted, the Pelosi-Reid Congress was running its second trillion-dollar deficit, with two more still to come. So just when they were borrowing money like never before, Democrats passed the biggest entitlement in decades.

At Forbes on January 4, Ben Munro wrote that “2015 looks to be the first year healthcare spending will reach $10,000 per person.” From that alone, one might conclude that Americans are a sickly lot, for that $10K a person adds up to well more than $3T for the nation. And now it’s being reported that health insurance companies need to raise the price of premiums for 2016.

On June 1 in “Will these big Obamacare rates get approved?” at CNBC, Dan Mangan reported: “There are some eye-popping proposed Obamacare rate increases for next year.” Mangan quoted Blue Cross Blue Shield: “The main driver of the increase in the proposed rates is that the actual claims [are] significantly higher than expected.”

On June 2 in “Health insurers seek big premium hikes for ObamaCare plans in 2016,” Fox News reported: “Dozens of health insurers selling plans under ObamaCare have requested hefty premium increases for 2016, according to preliminary information published Monday by the White House […] many of which are in the double-digit percentages.”

On June 10 in “Why Are The 2016 Obamacare Rate Increases So Large?” at Forbes, Robert Laszewski, a frequent guest on cable TV news, wrote:

You just can’t look at this data and come away with a conclusion other than the big cost increases driven by too few people signing up has started. And it has started a year earlier than most of us expected. … What has concerned many actuaries is how the market penetration for Obamacare slowed considerably in year two in the states with the best first year enrollment results.

Laszewski goes into detail about the rate increases in several states, and he adds that they assume the King v. Burwell challenge is unsuccessful, which would leave the insurance premium subsidies in place. However, if the challenge is successful, and “the Court eliminates the subsidies in at least 34 states, the health plans will submit new and much higher rates in those states.”

On June 6 in “CNN: Get ready for steep ObamaCare hikes to premiums in 2016” at Hot Air, Ed Morrissey wrote:

Anyone who understands risks pools and pricing opacity could have seen this coming all along. … However, it may well be that the pricing opacity provided by insurance on routine care has encouraged more usage by members. That means more costs for insurers, who then have to either charge higher premiums to cover the outlays or use higher deductibles to force customers to pay more up front.

“Pricing opacity” is an apropos and timely term, for opacity is germane to the subsidies at issue in King v. Burwell. Like its pricing, ObamaCare’s financing is also opaque. More Morrissey:

ObamaCare offers another level of opacity on top of that. For most consumers, even the premium gets partially obscured by subsidies that are pegged to cover premium costs (but not deductibles!) above a certain percentage of income. The price hikes on premiums will get absorbed by taxpayers, which means that (a) the red ink will flow even higher, and (b) taxes and fees will have to increase in order to cover the fact that this is a net-deficit program.

Back in 2009-10 when Democrats were drafting ObamaCare, how receptive would Americans have been to it if it proposed a new dedicated tax whose revenue went solely to subsidies for low-income earners to buy health insurance policies? You may see a similarity in that to Medicare, which also has a dedicated tax. But unlike Medicare, in the ObamaCare system that we ended up getting, the subsidies aren’t financed by a dedicated tax. In that respect, the subsidies are like Medicaid. Both Medicaid and the ObamaCare subsidies are paid for with monies from the general fund of the U.S. Treasury. And because they are entitlements, the issue of whether any money is sitting in some account somewhere doesn’t arise. If one qualifies for an entitlement, it “must” be provided. Which means the Treasury must sell more securities, and America must go even deeper into debt.

Medicare benefits are paid for, and when the Medicare “trust fund” runs dry, Medicare benefits will be cut to match the revenue from its dedicated tax. But the ObamaCare subsidies are unbudgeted mandatory spending, and just like Medicaid, they constitute an unlimited, open-ended demand on the Treasury. Mangan notes “that nearly 90 percent of Obamacare exchange customers receive” subsidies.

If the subsidy program had to operate solely off of revenue from a dedicated tax, it would be far more transparent. Then, if revenues were lower than anticipated, Congress would either raise the tax rate of the dedicated tax or cut benefits. But even without a dedicated tax, if Medicaid and the subsidies were subject to the budget and appropriation processes, it would be a big improvement.

Despite all of the new ObamaCare taxes and the huge “fiscal cliff” increase in income taxes on the “evil” One Percent, Congress is still running a massive deficit. We don’t have the money for the subsidies and the Medicaid expansion; we’ll have to go deeper into debt to pay for it all. (But hey, “it’s the right thing to do.”)

The whole idea of entitlements needs to be revisited. But progressives don’t want to hear about limits; they don’t really care if the financing for an entitlement is blurry and opaque.

Progressives are always talking about how we need to have a national conversation about this, that, and the other. Okay, let’s have a national conversation about why healthcare in America is so darned expensive. But Democrats don’t want to have that conversation because the main factor that has upped the price of healthcare in America is government, and Democrats are “the party of government.”

Jon N. Hall is a programmer/analyst from Kansas City.

See also: King v. Burwell -- More than Tax Credits

Back in 2010 when ObamaCare was enacted, the Pelosi-Reid Congress was running its second trillion-dollar deficit, with two more still to come. So just when they were borrowing money like never before, Democrats passed the biggest entitlement in decades.

At Forbes on January 4, Ben Munro wrote that “2015 looks to be the first year healthcare spending will reach $10,000 per person.” From that alone, one might conclude that Americans are a sickly lot, for that $10K a person adds up to well more than $3T for the nation. And now it’s being reported that health insurance companies need to raise the price of premiums for 2016.

On June 1 in “Will these big Obamacare rates get approved?” at CNBC, Dan Mangan reported: “There are some eye-popping proposed Obamacare rate increases for next year.” Mangan quoted Blue Cross Blue Shield: “The main driver of the increase in the proposed rates is that the actual claims [are] significantly higher than expected.”

On June 2 in “Health insurers seek big premium hikes for ObamaCare plans in 2016,” Fox News reported: “Dozens of health insurers selling plans under ObamaCare have requested hefty premium increases for 2016, according to preliminary information published Monday by the White House […] many of which are in the double-digit percentages.”

On June 10 in “Why Are The 2016 Obamacare Rate Increases So Large?” at Forbes, Robert Laszewski, a frequent guest on cable TV news, wrote:

You just can’t look at this data and come away with a conclusion other than the big cost increases driven by too few people signing up has started. And it has started a year earlier than most of us expected. … What has concerned many actuaries is how the market penetration for Obamacare slowed considerably in year two in the states with the best first year enrollment results.

Laszewski goes into detail about the rate increases in several states, and he adds that they assume the King v. Burwell challenge is unsuccessful, which would leave the insurance premium subsidies in place. However, if the challenge is successful, and “the Court eliminates the subsidies in at least 34 states, the health plans will submit new and much higher rates in those states.”

On June 6 in “CNN: Get ready for steep ObamaCare hikes to premiums in 2016” at Hot Air, Ed Morrissey wrote:

Anyone who understands risks pools and pricing opacity could have seen this coming all along. … However, it may well be that the pricing opacity provided by insurance on routine care has encouraged more usage by members. That means more costs for insurers, who then have to either charge higher premiums to cover the outlays or use higher deductibles to force customers to pay more up front.

“Pricing opacity” is an apropos and timely term, for opacity is germane to the subsidies at issue in King v. Burwell. Like its pricing, ObamaCare’s financing is also opaque. More Morrissey:

ObamaCare offers another level of opacity on top of that. For most consumers, even the premium gets partially obscured by subsidies that are pegged to cover premium costs (but not deductibles!) above a certain percentage of income. The price hikes on premiums will get absorbed by taxpayers, which means that (a) the red ink will flow even higher, and (b) taxes and fees will have to increase in order to cover the fact that this is a net-deficit program.

Back in 2009-10 when Democrats were drafting ObamaCare, how receptive would Americans have been to it if it proposed a new dedicated tax whose revenue went solely to subsidies for low-income earners to buy health insurance policies? You may see a similarity in that to Medicare, which also has a dedicated tax. But unlike Medicare, in the ObamaCare system that we ended up getting, the subsidies aren’t financed by a dedicated tax. In that respect, the subsidies are like Medicaid. Both Medicaid and the ObamaCare subsidies are paid for with monies from the general fund of the U.S. Treasury. And because they are entitlements, the issue of whether any money is sitting in some account somewhere doesn’t arise. If one qualifies for an entitlement, it “must” be provided. Which means the Treasury must sell more securities, and America must go even deeper into debt.

Medicare benefits are paid for, and when the Medicare “trust fund” runs dry, Medicare benefits will be cut to match the revenue from its dedicated tax. But the ObamaCare subsidies are unbudgeted mandatory spending, and just like Medicaid, they constitute an unlimited, open-ended demand on the Treasury. Mangan notes “that nearly 90 percent of Obamacare exchange customers receive” subsidies.

If the subsidy program had to operate solely off of revenue from a dedicated tax, it would be far more transparent. Then, if revenues were lower than anticipated, Congress would either raise the tax rate of the dedicated tax or cut benefits. But even without a dedicated tax, if Medicaid and the subsidies were subject to the budget and appropriation processes, it would be a big improvement.

Despite all of the new ObamaCare taxes and the huge “fiscal cliff” increase in income taxes on the “evil” One Percent, Congress is still running a massive deficit. We don’t have the money for the subsidies and the Medicaid expansion; we’ll have to go deeper into debt to pay for it all. (But hey, “it’s the right thing to do.”)

The whole idea of entitlements needs to be revisited. But progressives don’t want to hear about limits; they don’t really care if the financing for an entitlement is blurry and opaque.

Progressives are always talking about how we need to have a national conversation about this, that, and the other. Okay, let’s have a national conversation about why healthcare in America is so darned expensive. But Democrats don’t want to have that conversation because the main factor that has upped the price of healthcare in America is government, and Democrats are “the party of government.”

Jon N. Hall is a programmer/analyst from Kansas City.

See also: King v. Burwell -- More than Tax Credits