Tag Archives: Exchange subsidies

A Fiscally Irresponsible Bill

Last week the Wall Street Journal, in endorsing House Republicans’ American Health Care Act, highlighted the legislation’s “fiscal bonus.” Yes, the bill’s Medicaid reforms warrant praise as a good effort to control entitlement spending. But that meritorious effort notwithstanding, the bill contains numerous structural flaws, with potentially more on the way, that could bust budgets for decades to come.

Some of the same leaders decrying or explaining away Congressional Budget Office scores showing large coverage losses due to the bill have proved far too willing to take the bill’s supposed deficit savings at face value. But a good CBO score doesn’t necessarily mean legislation will reduce the deficit; instead, it means that lawmakers and staff have worked hard to achieve a good CBO score.

CBO scores have inherent limitations — notably, the discipline (or lack thereof) on the part of lawmakers to adhere to a bill’s parameters. Two years ago this month, the Wall Street Journal endorsed a Medicare “doc fix” bill that increased the deficit by more than $140 billion in its first decade alone. In doing so, the editorial page argued that Congress’ “cycle[s] of fiscal deception” required a return to “honest budgeting,” stopping budget games by making spending increases more transparent.

Given this history, one question naturally follows: Does the American Health Care Act engage in similar cycles of fiscal deception likely to bust future budgets? Many signs point to yes. First, the bill expands access to Obamacare’s subsidy regime for calendar years 2018 and 2019. CBO believes the bill will reduce entitlement spending only slightly in its first few fiscal years — by $29 billion next year, and $42 billion the following — as the individual mandate’s repeal will cause some to drop coverage.

But in fiscal year 2020 — when the Obamacare entitlements would end and the new tax credit would begin — the bill assumes a massive $100 billion net reduction in entitlement spending. Net entitlement spending would fall still further, to $137 billion in fiscal year 2021, which begins on October 1, 2020, mere weeks before the presidential election.

With the bill’s major “cliff” in entitlement spending coming in a year divisible by four, it’s fair for conservatives to question whether these reductions will ever go into effect, and the promised deficit reduction will ever be achieved. If the “transition” provisions end up extended in perpetuity, conservatives will end up with “Obamacare Max” — an expanded Obamacare subsidy regime available to millions more individuals.

Second, the bill does not even attempt to undo the fraudulent entitlement accounting created by Obamacare. Section 223 of the reconciliation measure passed in January 2016 transferred $379.3 billion of that bill’s deficit savings back to the Medicare trust fund. That provision represented a recognition that, as vice presidential candidate Paul Ryan said on the campaign trail back in August 2012, “President [Obama] took $716 billion from the Medicare program—he raided it—to pay for Obamacare.” Not only does Speaker Ryan’s bill not attempt to make Medicare whole from the Obamacare “raid,” the managers amendment released Monday evening consumed much of the bill’s supposed savings.

Third, while conservatives have focused on the bill’s tax credits as a new entitlement, the measure effectively creates a second new entitlement, this one for insurers. CBO’s estimate of possible premium reductions by 2026 hinged in no small part on creation of a “Patient and State Stability Fund,” and use of grants from the fund to subsidize insurers’ high-cost patients. However, the bill stops federal payments to the “Stability Fund” in 2026—and therefore the score does not take into consideration that this $10-15 billion annual bailout fund for health insurers could become permanent.

Fourth, reports suggest that House lawmakers are relying upon a bipartisan group in the Senate to repeal outright Obamacare’s “Cadillac tax” (delayed until 2026 in the most recent bill), which would worsen deficits in future decades. Leadership sources pushing this move would then argue that the bill blows a hole in the budget not because it spends more money, but because it reduces revenue.

However, the 2016 reconciliation bill repealed all of Obamacare’s tax increases and its new entitlements, while leaving the deficit virtually unchanged over the next 50 years. By contrast, if lawmakers create two entitlements — the new tax credit regime and the “Stability Fund” — while also repealing the “Cadillac tax,” they will create a fiscal hole likely to reach into the trillions. To borrow a phrase, the American Health Care Act doesn’t have a revenue problem, it has a spending problem.

Budgetary “out-years” gimmicks brought us the Medicare “doc fix” mess in the first place, which should embolden conservatives to recognize fiscal chicanery and legerdemain when they see it.

Positive Medicaid reforms notwithstanding, the structure on which the American Health Care Act is based does fiscal responsibility a disservice. A conservative-controlled Congress can and should do better.

This post was originally published at the Washington Examiner.

Four Questions Following CBO’s Score

Yesterday’s Congressional Budget Office (CBO) analysis of House Republicans’ “repeal-and-replace” legislation lead to widespread news coverage of its health coverage numbers. However, several other questions reveal the “story behind the story,” which could help determine the bill’s ultimate fate:

Who Wants to Run on Premium Increases?     While some may tout eventual premium savings under the bill (about which more below), the most immediate headline involves the estimated 15-20 percent premium increases that will hit in both 2018 and 2019, because CBO believes fewer healthy individuals will sign up for coverage. As with Obamacare’s Exchanges over the past few years, that projected national average may mask significant regional differences; some areas could see premium increases well in excess of 20 percent. These premium increases (possibly coupled with insurer exits) would be the first tangible impact of Obamacare repeal many constituents face heading into the 2018 elections—not a welcome sign for conservatives who ran for years on the promise of Obamacare repeal yielding lower premiums.

Spend More Now, Save More Later—Really?            While some Republican leaders touted the bill’s supposed deficit savings, a closer look reveals significant flaws. Notably, the bill will increase the deficit in its first five years by a net of $9.4 billion, while lowering the deficit by over $345 billion in its second five years. A look at Table 3 in the score—which shows the net budgetary effects of the bill’s major coverage provisions—gives important signals as to why. Take a look at the net spending on coverage—that is, reductions in Medicaid and Obamacare subsidy spending, offset by increases in spending on the bill’s new tax credits—by fiscal year:

Fiscal Year 2017: $8 billion spending reduction
Fiscal Year 2018: $29 billion spending reduction
Fiscal Year 2019: $42 billion spending reduction
Fiscal Year 2020: $100 billion spending reduction
Fiscal Year 2021: $137 billion spending reduction

Note that these numbers above are NOT cumulative totals—they represent annual reductions in entitlement/subsidy spending. The numbers mean that, even after taking into account the new refundable tax credits (which would start on January 1, 2020, the day after the Obamacare subsidy regime expires), net spending would decline by nearly an additional $60 billion in the fiscal year ending September 30, 2020—i.e., roughly six weeks before the next presidential election.

With numbers like these, it’s not hard to argue that the new refundable tax credit will not take effect in a presidential election year—or possibly ever. Congress may instead act to perpetuate Obamacare’s existing subsidy regime, which the House Republican bill actually expands for the supposed “transition” period, into an enhanced, entrenched, and therefore permanent, entitlement.

What Will Premiums Look Like in 2027? CBO claims that “by 2026, average premiums for single policy-holders in the non-group market under the legislation would be roughly 10 percent lower than under current law.” If accurate, that estimate means that—more than 15 years after the law’s enactment—premiums might recover most (but perhaps not all) of the average $2,100 per family premium spike CBO attributed to Obamacare.

Even then, however, initial appearances can deceive. CBO noted that premiums would decline in 2026 in part because of the new, $100 billion Patient and State Stability Fund. CBO concluded that fund grants would likely be used for reinsurance payments to insurers; “if those funds were devoted to other purposes, then premium reductions would be smaller.”

That CBO analysis raises the obvious question: What happens to premiums in 2027—when the stability fund created by the legislation would expire? Or have House Republicans created in the Stability Fund what amounts to a perpetual bailout machine, a new entitlement for health insurers that they hope will keep premiums low—albeit at taxpayers’ expense?

Why Not Repeal?      Even with a new refundable tax credit entitlement, the overall CBO coverage numbers were little higher than those associated with enacting the 2015 repeal/reconciliation bill. In fact, if that 2015 reconciliation bill had repealed Obamacare’s major insurance regulations—the major drivers of rising premiums, all of which have a clear budgetary nexus—it may have achieved coverage levels higher than this “repeal-and-replace” bill.

House leadership will now face the difficult task of mustering up votes for a plan with no natural constituency. It’s the kind of legislation that leads to cynical blandishments to win votes—arguing to conservatives that the refundable tax credit is a relatively innocuous entitlement, because no one will use it; and arguing to moderates that, while many of their constituents will lose coverage under the bill, they can extend to their constituents the promise of the new tax credits, even though few will utilize them.

Instead of passing legislation that some may vote for, but few truly support, House leadership would be wiser instead to focus on enacting a bill that Members can both vote for and support. Repealing Obamacare—including the costly regulations emanating from Washington—would lower premiums, encouraging individuals to purchase coverage, and begin the process of restoring state sovereignty over health care and health insurance, an outcome for which conservatives could be proud.

What You Need to Know About House Republicans’ “Replace” Legislation

Below please find some quick fast facts on House Republicans’ “repeal-and-replace” legislation, introduced on Monday evening. (The Energy and Commerce title is here, and the Ways and Means title is here.)

What’s changed since the leaked discussion draft, dated February 10?

Several provisions have been revised, updated, deleted, or added in the intervening three weeks:

  • Increase in funding for community health centers, from $285 million to $422 million;
  • Revision to the repeal of Disproportionate Share Hospital (DSH) cuts—the cuts are restored two years sooner for states that have not expanded Medicaid under Obamacare (in the prior draft, the cuts were restored immediately for all states);
  • Several new Medicaid program integrity provisions, including those prohibiting lottery winners from retaining benefits, restricting retroactive eligibility, prohibiting presumptive eligibility for individuals who cannot provide proof of citizenship, and requiring states to make eligibility re-determinations every six months in many cases;
  • A $10 billion pool of funding ($2 billion per year for calendar years 2018 through 2022) for states that did not expand Medicaid under Obamacare;
  • Change to the inflation formula (medical inflation, instead of medical inflation plus one percent) for Medicaid per capita caps;
  • Change to the Patient and State Stability Fund, including a change to the title (previously called the State Innovation Grant program), language permitting CMS to intervene in a state if a state declines to apply for grant funding, and change in the formulae and criteria, which generally focus more upon achieving stability (based on insurers’ medical loss ratios)—the funding levels remain unchanged, at $100 billion from 2018 through 2026;
  • Removal of language allowing states to set their own essential health benefits, including both benefit mandates and cost-sharing standards;
  • Addition of language repealing actuarial value standards;
  • Removal of language requiring HHS to verify special enrollment periods, codifying a change proposed by the Department in regulations last month;
  • Removal of language permitting the perpetual offering of “grandmothered” health insurance plans—that is, plans purchased after Obamacare’s enactment, but prior to its major insurance regulations taking effect in 2014;
  • Prohibition on “grandmothered” plans receiving Obamacare subsidies in 2018 and 2019—although individuals in grandfathered plans (i.e., those purchased prior to Obamacare’s enactment) and coverage purchased off of Exchanges could qualify for subsidies;
  • Delayed repeal of Obamacare’s tax increases until 2018, as opposed to 2017 in the leaked discussion document;
  • Repeal of the Obamacare “Cadillac tax” only until 2025;
  • Removal of repeal of Obamacare’s economic substance doctrine tax increase;
  • Means testing to the refundable tax credit—individuals with incomes below $75,000, and families with incomes below $150,000, would qualify for the full credit, while individuals with incomes above $215,000, and families with incomes above $290,000, would not qualify for the credit; and
  • Removal of a cap on the exclusion for employer-provided health insurance.

What’s changed since the reconciliation legislation passed in 2015/2016?

  • Longer transition period (three years, instead of two)
  • Expansion of Obamacare subsidies during the transition period
  • Medicaid expansion remains, albeit at state option and with enhanced funding sunset for beneficiaries who enroll after January 2020
  • Elimination of repeal of risk corridors and reinsurance
  • Delay of repeal of Obamacare taxes (take effect next year, not this year, and “Cadillac tax” repeal sunsets in 2025)
  • Elimination of repeal of economic substance doctrine

What remains since the reconciliation legislation passed in 2015/2016?

  • Repeal of prevention “slush fund”
  • Defunding of certain Medicaid providers, which will eliminate federal funding for Planned Parenthood for one year
  • Repeal of Exchange subsidies (albeit delayed)
  • Repeal of enhanced federal funding for Medicaid expansion (albeit delayed, and with a phase-out/freeze instead of a funding “cliff”)
  • Repeal of DSH cuts (albeit delayed/modified)
  • Elimination of individual and employer mandate penalties
  • Repeal of most of Obamacare tax increases (albeit delayed)

What major parts of Obamacare does the bill repeal?

  • Prevention “slush fund”
  • Exchange subsidies, beginning in 2020
  • Enhanced federal match for states that expanded Medicaid, beginning with individuals enrolled after January 1, 2020
  • Actuarial value standards
  • The individual and employer mandates (penalties set to zero) effective December 31, 2015—mandates would not apply to 2016 tax filings currently taking place
  • All tax increases, except for 1) the economic substance doctrine (not repealed at all); 2) the “Cadillac tax” on high-cost health plans (repealed only until 2025)

What major parts of Obamacare does the bill NOT repeal?

Entitlements

  • Exchange subsidies revised and expanded (extended to off-Exchange populations) through 2020
  • Exchange subsidies would expire in 2020—one year later than the 2015/2016 reconciliation bill
  • Medicaid expansion available to states as an optional population beginning in 2020—the prior 2015/2016 reconciliation bill repealed categorical eligibility for able-bodied adults entirely

Tax Increases

  • “Cadillac tax”—only repealed until 2025
  • Economic substance doctrine
  • Other tax increases (except the employer and individual mandates) not repealed immediately

Major Insurance Regulations

  • Pre-existing conditions (the bill modifies the existing requirements, by allowing insurers to vary premiums by up to 30 percent for those without continuous coverage)
  • Community rating by age (the bill expands existing rate bands, and permits states to opt-out of the federal standard if they so choose)
  • Under-26 mandate
  • Essential health benefits, including limits on out-of-pocket expenses
  • Prohibition on annual and lifetime limits
  • Medical loss ratio requirements
  • Preventive service mandate (including coverage of contraception)
  • Insurance Exchanges
  • Risk corridors and reinsurance

ALL the Medicare savings

Memo to Congress on Obamacare: Take My Coverage–Please!

Last week, Vox ran a story featuring individuals covered by Obamacare, who live in fear about what the future holds for them. They included people who opened small businesses because of Obamacare’s coverage portability, and worry that the “career freedom” provided by the law will soon disappear.

Unfortunately, but perhaps unsurprisingly, Vox didn’t ask this small business owner—who also happens to be an Obamacare enrollee—for his opinions on the matter. Like the enrollees in the Vox profile, I’m also incredibly worried about what the future holds, but for a slightly different reason: I’m worried for our nation about what will happen if Obamacare ISN’T repealed.

What Obamacare Hasn’t Done For Me

Unlike many of the individuals in the Vox story, I am a reluctant Obamacare enrollee—literally forced to buy coverage on the District of Columbia’s Exchange because Washington, D.C. abolished its private insurance market. (While I did contemplate moving to Virginia, where I could at least purchase an Obamacare-compliant plan without going through an Obamacare-mandated website, such changes aren’t easy when one owns one’s own home.)

While in generally decent health, I have some health concerns: mild hypertension (controlled by medications), mild asthma, and allergies that have worsened in the past few years. I’ve gone through two reconstructive surgeries on my ankle, which I’ve chronicled in a prior article. Under “research” previously published by the Obama Administration, my health conditions classify me as one of the 129 million people with a pre-existing condition supposedly benefiting from the law.

Yet while my health hasn’t changed much since Obamacare passed and was implemented, my health insurance policy has already been cancelled once. The replacement I was offered this year included a 20 percent premium increase, and a 25 percent increase in my deductible.

If Obamacare was repealed, or if insurers stopped offering coverage, it would be an inconvenience, no doubt. I don’t know what options would come afterwards. That would depend on actions by Congress, the District of Columbia, and the insurance community. But having already lost my coverage once, and gone through double-digit premium and deductible increases, how much worse can it really get?

Obamacare Will Raise the Deficit

Conversely, I am greatly worried about what will happen if Congress doesn’t repeal Obamacare. Our nation is nearly $20 trillion in debt—yet Obamacare would spend nearly $2 trillion more on health coverage in the next 10 years.

I know what liberals are saying: “But Obamacare will reduce the deficit!” Yes, the Congressional Budget Office did issue a score saying the law will lower the deficit. But consider all the conditions that must be met for Obamacare to lower the deficit. If:

  • Annual Medicare payment reductions that will render more than half of all hospitals unprofitable within the next 10 years keep going into effect; and
  • Provisions that will, beginning in 2019, reduce the annual increase in Exchange insurance subsidies—making coverage that much more unaffordable for families—go into effect; and
  • An unpopular “Cadillac tax” that has already been delayed once—and which the Senate voted to repeal outright on a bipartisan 90-10 vote in December 2015—actually takes effect in 2020 (which just happens to be an election year); then

The Congressional Budget Office estimates that the law will reduce the deficit by a miniscule amount. But if any of those conditions aren’t met, then the law becomes a budget-buster. And if you think all those conditions will actually come to pass, then I’ve got some land to sell you.

Obamacare’s Unspoken Opportunity Costs

Even if you believe in raising taxes to reduce the deficit, Congress has already done that. Except that money wasn’t used to lower the deficit—it’s been used to pay for Obamacare. Even some liberals accept that you can only tax the rich so much, at which point they will stop working to avoid paying additional income in taxes. Obamacare brought us much closer to that point, without doing anything to put our fiscal house in order.

Likewise, the law’s Medicare payment reductions are being used to both pay for Obamacare and extend the life of the Medicare trust fund (at least on paper, if not in reality). If it weren’t for the gimmick of this Obamacare double-counting, the Medicare trust fund would have become insolvent this year. Instead, budgetary smoke-and-mirrors have allowed Democrats to postpone the day of fiscal reckoning—making the day that much worse when it finally arrives.

We Just Can’t Afford Obamacare

Whether they’re liberal websites, Democratic leaders, or Republican politicians attempting to cover as many Americans as Obamacare in their “replacement,” no one dares utter the four words that our country will soon face on any number of fronts: “We can’t afford it.”

But the fact of the matter is, we can’t afford Obamacare. Not with trillions of dollars in debt, 10,000 Baby Boomers retiring every day, and the Medicare trust fund running over $130 billion in deficits the past eight years. Our nation will be hard-pressed to avoid all its existing budgetary and financial commitments, let alone $2 trillion in spending on yet more new entitlements.

So, to paraphrase Henny Youngman, take my health coverage—please. Repeal Obamacare,  even if it means I lose my health coverage (again). Focus both on reducing health costs and right-sizing our nation’s massive entitlements.

Failing to do so will ultimately turn all 300-plus million Americans into the “faces of Obamacare”—victims of a debt crisis sparked by politicians and constituents who want more government than the public wants to pay, and our nation can afford.

This post was originally published at The Federalist.

Four Senate Republicans Propose Taxpayer Funding of Abortion

In the same week as the March for Life and the anniversary of the Roe v. Wade decision legalizing abortion nationwide, congressional Republicans are presenting strikingly different messages on the issue. While the House of Representatives on Tuesday approved legislation (H.R. 7) that would prohibit federal funding of abortions, with all House Republicans present voting for the bill, on Monday four Republican senators introduced a bill that would allow direct taxpayer funding of abortions.

That legislation, the Patient Freedom Act (the PFA, S. 191), introduced by senators Bill Cassidy (R-LA) and Susan Collins (R-ME), with Sens. Johnny Isakson (R-GA) and Shelley Moore Capito (R-WV) as original co-sponsors, would go further than Obamacare in funding abortion coverage. Whereas Obamacare provides federal funding for insurance plans that cover abortion, the Patient Freedom Act would allow for direct federal funding of abortion procedures themselves.

The PFA (text here, and a summary here) gives states a choice of three options regarding the health care system within their borders. They can:

  • Keep the regime created by Obamacare in place (i.e., the individual and employer mandates, subsidies, etc.), albeit funded at 95 percent of current levels;
  • Create a new insurance regime, funded by a rather complicated allotment formula—the allotment would equal 95 percent of the funding a state would have received under Obamacare, distributed directly to individuals through new Roth Health Savings Accounts (HSAs); or
  • Reject Obamacare entirely—and give up all federal funds associated with it.

The text of the legislation indicates a clear bias towards option two. If a state does not choose any of the three options, that state will automatically be placed in the second.

This Bill Would Repeal Abortion Restrictions

If a state chooses the second option, most of the provisions of Title I of Obamacare would not apply. That repeal would include the individual and employer mandates, and some (but not all) of the federal benefit mandates included in Obamacare.

Crucially, for states that select the second option (or the third, for that matter), the PFA would repeal Section 1303 of Obamacare, which imposes some restrictions on federal funding of abortion plans. Section 1303 permits states to prohibit abortion coverage on their insurance exchanges, and requires insurers to set up a segregation mechanism intended to keep federal insurance subsidies separate from funds that pay for abortion procedures.

Pro-life groups have attacked the Section 1303 “restrictions” as an accounting sham because money is fungible, and therefore the segregation scheme meaningless. Further, a September 2014 Government Accountability Office report noted that many insurers had not even followed the segregation regime.

However, Obamacare made an attempt, albeit a largely meaningless one, to prevent taxpayer funding of abortion. By contrast, the PFA makes no such attempt to do so.

Follow the Money

Because the PFA itself includes no restrictions on taxpayer funding of abortion, it’s critical to examine the source of funding for the new state-based allotments. While the Hyde Amendment prohibits federal funding of abortion, it does so only for appropriations provided through the U.S. Department of Health and Human Services’ spending bill. Other agencies covered through other spending bills must explicitly prohibit funding of abortion coverage, otherwise federal funding of abortion would be permitted—and potentially required by courts as a necessary medical service.

The Patient Freedom Act includes only one new appropriation, for a population health initiative created by Section 103(c) of the bill. Therefore, the bill relies on Obamacare’s existing funding stream—the insurance subsidies provided in the form of refundable tax credits—to finance the allotments to individuals’ Roth HSAs. Because that funding stream goes through the Department of the Treasury via the Internal Revenue Code, the Hyde Amendment restrictions do not apply—meaning that federal funds can, and will, finance abortion coverage.

The legislation the House passed on Tuesday (H.R. 7) included an explicit ban on using Obamacare subsidies to fund abortion, or plans that cover abortion. (The ban is in Section 201(a) of the bill.) Because the Patient Freedom Act uses the exact same funding stream to finance its allotments, the sponsors needed to include an explicit ban on abortion funding in their legislation. They did not.

Direct Funding of Abortion Procedures

Not only would the Patient Freedom Act provide federal funds to insurance plans that cover abortion, it would allow individuals to fund their abortions directly with federal funds. The federal allotments would be directly provided (using a state-based formula developed by the Department of Health and Human Services) to eligible individuals using the new Roth Health Savings Account option. Recipients can use Roth HSA funds to fund health insurance premiums, provided those premiums are for plans that meet several federal mandates, or they can use their account to fund “qualified medical expenses.”

The definition of “qualified medical expenses”—available at Section 213(d) of the Internal Revenue Code here—includes no prohibition on abortion as a medical expense. Because the Internal Revenue Code is not subject to the Hyde Amendment, that law’s restrictions would not apply. Therefore, individuals could use federal dollars deposited into their Roth HSA to fund abortion procedures.

Current law does permit some tax breaks for abortion coverage. The tax code exempts employer-provided health insurance premiums from income and payroll taxes. Because some employer plans cover abortion, individuals receive a tax benefit for abortion coverage. Likewise, individuals can currently use their HSA funds to pay for abortions, given the definition of “qualified medical expenses.”

However, in both those cases, individuals and employers are using their own money to fund abortion procedures, and receiving a tax break from the federal government for doing so. By contrast, the Patient Freedom Act goes further, allowing the direct use of the federal government’s money to cover abortions, and plans that cover abortions.

That is a significant expansion of federal abortion funding that exceeds anything in Obamacare. And it’s a strikingly odd message for the senators to send on a week when many conservatives are focusing on protecting innocent life, not using taxpayer funds to destroy it.

This post was originally published at The Federalist.

Unwinding Obamacare: Why Congress Must Rescind the Massive Medicaid Expansion

This report was originally published by the Palmetto Promise Institute, and is available in PDF form on their website here.

As Congress prepares to consider legislation repealing and replacing Obamacare in 2017, unwinding that law’s massive expansion of Medicaid should stand at the top of the Congressional agenda. The source of most of the law’s spending, Medicaid expansion has resulted in exploding enrollment, creating state budget shortfalls that legislatures will need to remedy in 2017.

Moreover, Obamacare’s expansion of Medicaid to the able-bodied has undermined Medicaid’s original mission to provide services to the most vulnerable in society—including seniors and individuals with disabilities. The law effectively discriminates against vulnerable populations, providing states with more federal funding to cover the able-bodied than individuals with disabilities. Sadly, even as able-bodied beneficiaries have flooded into Medicaid, hundreds of thousands of individuals with disabilities continue to suffer long waits for needed care.

Congressional Republicans have put forward proposals seeking to reform Medicaid, transforming the program into a system of block grants or per capita allotments that will provide greater flexibility to states in exchange for a fixed federal spending commitment. However, such reforms are necessary—but not sufficient—in reforming the Medicaid program. First and foremost, Congress should take immediate action to unwind Obamacare’s Medicaid expansion, re-orienting the program to serve the most vulnerable populations for which it was originally designed.

History of Medicaid and Obamacare

As originally enacted into law in 1965, the Medicaid program provided federal matching funds to states to cover certain discrete populations, including the blind, seniors, individuals with disabilities, and needy parents. Obamacare changed the program fundamentally by expanding the program to all low-income adults; under Section 2001 of the law, all those with incomes under 138 percent of the federal poverty level (FPL) qualified for Medicaid coverage.[1] The statute as written made expansion mandatory for all states participating in Medicaid. States could decline to expand Medicaid, but in so doing, they would have had to forfeit all federal Medicaid funds, including funds for their existing aged, blind, and disabled populations.

In June 2012, the Supreme Court struck down the mandatory nature of Medicaid expansion as unconstitutionally coercive. Speaking for a seven-member majority, Chief Justice John Roberts concluded that “the threatened loss of 10 percent of a state’s overall budget [i.e., the federal share of Medicaid spending]…is economic dragooning that leaves states with no real option but to acquiesce in the Medicaid expansion.”[2] The Court left the expansion, and the rest of the law, intact, but prohibited the federal government from withholding all Medicaid funds from any states that chose not to pursue the categorical expansion to all adults with incomes under 138 percent FPL.

Because the Supreme Court ruling gave them a free choice about whether or not to embrace Obamacare’s Medicaid expansion, states—the “laboratories of democracy”—have taken different approaches. Some states, fearing that the federal government will renege on its promised high levels of funding, declined to expand. Some states passed a traditional Medicaid expansion, ratifying Obamacare’s massive new entitlement as its authors intended. Other states have utilized a system of premium assistance—also called the “private option”—that uses Medicaid dollars to subsidize private Exchange insurance coverage for individuals qualified for Medicaid under the Obamacare expansion.

Whether through the “private option” or traditional Medicaid, outcomes for states embracing Obamacare’s massive expansion of Medicaid to the able-bodied have been little different. States that have embraced Obamacare’s expansion have faced spiking enrollment and skyrocketing costs, all while perpetuating a system that encourages discrimination against the most vulnerable. Policy-makers should closely examine these cautionary tales as they look to rescind and replace Obamacare.

Exploding Enrollment, Skyrocketing Spending

The evidence among those states that have expended Medicaid demonstrates the massive effects on state budgets—due in large part to skyrocketing enrollment. A recent report by the Foundation for Government Accountability showed how the Medicaid rolls exploded in states that chose to expand the program under Obamacare. In a whopping 24 states that decided to expand, state Medicaid programs exceeded the highest enrollment projections:

  • Arizona predicted a maximum enrollment of 297,000; by September 2016, 397,879 had enrolled in Medicaid;
  • Arkansas predicted a maximum enrollment of 215,000; by October 2016, enrollment had reached 324,318;
  • California predicted a maximum enrollment of 910,000; by May 2016, enrollment had more than quadrupled prior maximum projections, reaching 3,842,200;
  • Colorado predicted a maximum enrollment of 187,000; by October 2016, enrollment hit 446,135;
  • Connecticut predicted a maximum enrollment of 113,000; by December 2015, 186,967 had enrolled;
  • Hawaii predicted a maximum enrollment of 35,000; by June 2015, enrollment had exceeded that projection, reaching 35,622;
  • Illinois predicted a maximum enrollment of 342,000; by April 2016, nearly double that amount—650,653—were enrolled;
  • Iowa predicted a maximum enrollment of 122,900; by February 2016, enrollment had reached 139,119;
  • Kentucky predicted a maximum enrollment of 188,000; by December 2015, enrollment more than doubled the initial expectation, reaching 439,044;
  • Maryland predicted a maximum enrollment of 143,000; by December 2015, enrollment reached 231,484;
  • Michigan predicted a maximum enrollment of 477,000; by October 2016, enrollment exceeded that projection, reaching 630,609;
  • Minnesota predicted a maximum enrollment of 141,000; by December 2015, enrollment hit 207,683;
  • Nevada predicted a maximum enrollment of 78,000; enrollment more than doubled those maximum projections, reaching 187,110 by September 2015;
  • New Hampshire predicted a maximum of enrollment of 45,500; by August 2016, enrollment reached 50,150;
  • New Jersey predicted a maximum enrollment of 300,000; twelve months after expansion began, in January 2015, enrollment totaled 532,917;
  • New Mexico predicted a maximum enrollment of 140,095; by December 2015, enrollment had reached 235,425;
  • New York predicted a maximum enrollment of 76,000; by December 2015, nearly four times as many had enrolled—a grand total of 285,564;
  • North Dakota predicted a maximum enrollment of 13,591; by March 2016, a total of 19,389 had enrolled;
  • Ohio predicted a maximum enrollment of 447,000; by August 2016, enrollment hit 714,595;
  • Oregon predicted a maximum enrollment of 245,000; by December 2015, enrollment hit 452,269;
  • Pennsylvania predicted a maximum enrollment of 531,000; by April 2016, enrollment had hit 625,970;
  • Rhode Island predicted a maximum enrollment of 39,756; in December 2015, enrollment reached 59,280;
  • Washington state predicted a maximum enrollment of 262,000; by July 2016, enrollment had more than doubled the highest enrollment projections, reaching 596,873; and
  • West Virginia predicted a maximum enrollment of 95,000; enrollment in December 2015 hit 174,999.[3]

While Medicaid is considered a counter-cyclical program—one in which enrollment typically rises during recessions, as household incomes shrink and individuals lose access to employer-sponsored coverage—Obamacare’s Medicaid expansion went into effect at a time of steady, albeit slight, economic growth. In other words, Medicaid enrollment under the Obamacare expansion could eventually exceed these figures—even as the actual enrollment numbers themselves exceeded projections prior to implementation, in some cases by several multiples.

By contrast, enrollment in health insurance Exchanges remains far below expectations set at the time of the law’s passage. Just before Obamacare passed in March 2010, the Congressional Budget Office (CBO) concluded that in 2016, the Exchanges would enroll a total of 21 million Americans.[4] For the first half of 2016, the Exchanges averaged enrollment of only 10.4 million—less than half the original CBO projection.[5]

Moreover, an analysis of Exchange enrollees shows enrollment concentrated largely among the individuals who qualify for the largest subsidies. According to an analysis conducted by the consulting firm Avalere Health, 81% of eligible individuals with income below 150 percent FPL—who are eligible for both subsidized premiums and reduced cost-sharing—have selected an Exchange plan.[6] On the other hand, only 16% of those with incomes between 300 and 400 percent FPL—who qualify for modest premium subsidies, but not reduced cost-sharing—have enrolled in Exchange coverage, while only 2% of individuals with incomes above 400 percent FPL—who do not qualify for subsidies at all—have signed up.[7] When it comes to both Medicaid expansion and Exchange coverage, the evidence suggests that only those individuals who receive free, or heavily subsidized, insurance have signed up in great numbers.

Just as enrollment for subsidized Medicaid under Obamacare dramatically exceeded expectations, so too have per-enrollee health costs for Medicaid participants. In the official 2014 report on the state of Medicaid’s finances, government actuaries acknowledged for the first time that per-enrollee costs for Obamacare’s newly eligible Medicaid enrollees ($5,488) exceeded those of previously eligible Medicaid participants ($4,914).[8] Actuaries had previously assumed that per-enrollee costs for the newly eligible population would be 30 percent lower than spending on existing populations—but the actual data suggested otherwise.[9] At the time, the actuaries believed some of the higher Medicaid spending arose because of pent-up demand—newly insured individuals requesting care for long-ignored medical conditions—a phenomenon they suggested might fade over time.[10]

But contrary to the expectations of government actuaries, costs for newly eligible beneficiaries continued to increase for a second straight year in 2015. Whereas the gap between per-enrollee costs for newly eligible beneficiaries and existing beneficiaries stood at approximately $500 in 2014, in the following year the gap grew to over $1,000—an average cost of $6,366 for every newly enrolled adult, versus $5,159 for every adult previously eligible for Medicaid.[11] As a result, the Congressional Budget Office likewise increased their estimates of per-enrollee spending on Obamacare’s Medicaid expansion—at least in the short term.[12] CBO still believes that per-enrollee spending on Obamacare’s Medicaid expansion will stabilize at lower levels over time, despite the evidence that actual costs continue to exceed prior assumptions by sizable margins.

The combination of higher-than-expected enrollment and higher-than-expected enrollee costs has created a “double whammy” for state budgets. While the federal government paid 100 percent of the cost to cover Obamacare’s Medicaid expansion population for the law’s first three years, states must contribute 5 percent of costs for the newly eligible beginning in 2017, rising to 10 percent by 2020—a share proving larger than expected, and one placing fiscal strains on states.

With the new entitlement costing much more than expected, states may have to cut other critically important spending priorities to continue funding Obamacare’s expansion of Medicaid to able-bodied adults. In Kentucky, costs for fiscal years 2017 and 2018 are now estimated at $257 million—more than double the original estimate of $107 million.[13] As a result, education, transportation, corrections, and other priorities will receive $150 million less from the state budget. Ohio’s budget for Medicaid expansion more than doubled from the $55.5 million originally projected, likewise robbing other important state spending programs.[14]

Even Democrats serving in state legislatures have expressed alarm at the rising tide of spending associated with Obamacare’s Medicaid expansion, and the other programs being cannibalized to pay for this new entitlement. In Oregon, facing a $500 million Medicaid-imposed budgetary shortfall over the next three years, Democratic state Senator Richard Devlin noted that “the only way to keep this [budget situation] manageable is to keep those costs under control, get people off Medicaid.”[15] In New Mexico, also facing pressures due to higher-than-expected enrollment, Democratic state Senator Howie Morales expressed anguish over the fiscal choices:

When you’re looking at a state budget and there are only so many dollars to go around, obviously it’s a concern. The most vulnerable of our citizens—the children, our senior citizens, our veterans, individuals with disabilities—I get concerned that those could be areas that get hit.[16]

Sen. Morales’ comments eloquently describe the plight that legislators face. States that expand Medicaid may have to cut important programs for individuals with disabilities, seniors, and the most vulnerable—to provide additional taxpayer funds for an expansion of Medicaid to able-bodied adults.

Undermining the Most Vulnerable

Supporters’ claims to the contrary, Medicaid expansion actually undermines principles of social justice and fairness—in which our society focuses the safety net first and foremost on those unable to provide for themselves. Expanding Medicaid under Obamacare serves only to endorse a horrifically unfair system created by the law, which effectively discriminates against individuals with disabilities—prioritizing coverage of able-bodied adults over protecting the most vulnerable in society.[17]

How does this happen in practice?

In 2013, the congressionally-appointed Commission on Long-Term Care heard testimony about the significant numbers of individuals with disabilities on waiting lists for home- and community-based services (HCBS).[18] Because coverage of HCBS—as opposed to institutional care in a nursing home—remains an optional service for state Medicaid programs, Americans in 42 states remain on lists waiting for access to home-based care.[19] More than 582,000 individuals—including nearly 350,000 with intellectual and developmental disabilities, over 155,000 aged and/or disabled individuals, over 58,000 children, more than 14,000 individuals with physical disabilities, and more than 4,000 Americans with traumatic brain injuries—remain on Medicaid waiting lists.[20] All these individuals could benefit from home-based care that would improve their quality of life, and could keep them from requiring more costly nursing home care in the future—yet they must wait in the Medicaid queue, in many cases for years on end.

Yet even as more than half a million Americans with disabilities wait for service, Obamacare prioritizes coverage of able-bodied adults over treating the most vulnerable—providing states as much as 45 cents on the dollar more to cover the able-bodied than individuals with disabilities. In 2017, the law provides a federal match for expansion populations—that is, individuals with incomes under 138 percent of the federal poverty level—of 95 percent, dipping slightly to 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and future years.[21] Conversely, states wishing to expand coverage to individuals with disabilities—to eliminate their Medicaid waiting lists—will receive only the normal Medicaid matching rate, which for the current fiscal year ranges from 50 percent to 75 percent, based on states’ relative income.[22] In other words, in 2017, states will receive at least 20 cents, and as much as 45 cents, more on the dollar for covering able-bodied adults than they will ending waiting lists for individuals with disabilities seeking care.

Sadly, some states have responded to Obamacare’s perverse incentives in predictable ways. In the few years since the law took effect, the most vulnerable in society have suffered, while able-bodied adults received a new, taxpayer-funded entitlement:

  • A recent report from Illinois found that 752 individuals with disabilities died while awaiting access to home- and community-based services since Obamacare’s expansion took effect. Ironically enough, on the very day that Illinois voted to expand Medicaid to the able-bodied early, it also cut funding for medication and services provided to special needs children.[23]
  • In Arkansas, while Gov. Asa Hutchison pledged to cut his state’s waiting list for individuals with disabilities in half, instead it has grown by 25 percent—even as Hutchison has embraced Medicaid expansion to the able-bodied. The individuals waiting for care include ten-year-old Skylar Overman, whose mother worries she will die before she ever receives access to the in-home care she needs.[24]
  • In Ohio, Gov. John Kasich’s administration cut Medicaid eligibility for 34,000 individuals with disabilities, even while expanding the program to the able-bodied.[25]

Any law that results in these types of inequities—the most vulnerable cast aside to hasten access to care for the able-bodied—cannot be considered compassionate or just.

The disparities and perverse incentives present in Obamacare apply to South Carolina just as much as they do in other states. The law provides massive incentives for South Carolina to expand Medicaid to these able-bodied adults—many of whom may be unemployed or under-employed—rather than ending waiting lists for individuals with disabilities. In fiscal year 2017, South Carolina will receive a 71.3 percent match from the federal government for the traditional Medicaid program—including coverage for individuals with disabilities.[26] Yet Obamacare will provide a 95 percent match should the state choose to expand Medicaid to able-bodied adults. Effectively, the law provides South Carolina with nearly 25 cents more on the dollar should the state discriminate against the most vulnerable in our society.

South Carolina has rightly rejected the effective discrimination perpetuated by Obamacare, for multiple reasons. The state has a list of 5,656 individuals with disabilities waiting to receive HCBS.[27] Providing enough funding to end the Medicaid waiting list should stand as the state’s pressing health care priority—not expanding health coverage to able-bodied adults, many of whom would exceed the income limits to qualify for Medicaid if they pursued full-time employment. The fact that Washington does not agree with South Carolina’s decision to prioritize the most vulnerable—because federal officials want the state to put the able-bodied, rather than individuals with disabilities, at the head of the Medicaid line—is a reason for Washington to change its priorities, not South Carolina.

Not a Panacea for Hospitals

In many states debating the future of Medicaid under Obamacare, hospital associations have served as the biggest supporters of expansion. Hospitals claim that expanding Medicaid will result in substantial improvements to their bottom line, making the difference between facilities remaining open or shutting their doors. Unfortunately, however, Medicaid expansion will not make a meaningful impact on hospitals’ bottom line.

In September 2016, staff at the non-partisan Congressional Budget Office (CBO) released a report illustrating the minimal impact of Medicaid expansion on hospitals’ profitability.[28] The paper analyzed the effects of several changes associated with Obamacare on two variables: hospitals’ aggregate profit margin nationwide, and the percentage of hospitals with negative margins. The analysis estimated these two factors in 2025, and compared hospital profitability with 2011, before most of Obamacare’s major provisions took effect.

The CBO analysis found that, under the best possible scenario, hospitals will fare no better in 2025 than they did prior to Obamacare’s major provisions taking effect—and they could fare much worse. A scenario that coupled the law’s Medicare payment reductions with its coverage expansions yielded a best-case scenario similar to the status quo ante: about one quarter of hospitals with negative profit margins (26% in 2025, versus 27% in 2011), and an aggregate margin of 6.0% in both cases.[29] However, should hospitals fail to achieve the productivity gains contemplated under Obamacare, margins will fall significantly—with as many as half of all hospitals having a negative profit margin by 2025, and the industry as a whole barely profitable.[30] Thanks to Obamacare, hospitals will struggle mightily just to tread water—and many may end up sinking financially.

The CBO paper also specifically examined whether all states expanding Medicaid would make a material impact on its analysis. Would a broader expansion of insurance coverage overcome the damaging fiscal effects of Obamacare’s Medicare payment reductions? CBO concluded that broader Medicaid expansion would have a minor impact:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.[31]

Despite claims from some hospital executives that Medicaid expansion represents a make-or-break financial decision for their industry, non-partisan experts disagree.

The real problem for hospitals lies elsewhere within Obamacare, in the Medicare productivity adjustments that will affect hospitals each and every year. The Medicare actuary, along with other non-partisan experts, has made annual warnings every year since the law’s passage concluding the productivity reductions are unsustainable, and will make most hospitals, skilled nursing facilities, and home health agencies unprofitable in the coming decades.[32] The September CBO report confirms, and further validates, the Medicare actuary’s work highlighting the unrealistic nature of the payment reductions used to fund Obamacare.

As has been explained elsewhere, hospitals made a terribly unwise bargain when negotiating behind closed doors with the Obama Administration: They agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured Americans.[33] Hospital lobbyists themselves know full well that the agreement they negotiated will ultimately destroy the industry.

At a televised event in August 2010, months after the law passed, Chip Kahn—the CEO of the Federation of American Hospitals, which represents the for-profit hospital industry—admitted his knowledge of Obamacare’s long-term effects on the hospital sector.[34] Then-Medicare actuary Richard Foster asked Kahn why hospitals agreed to what appears on its face to be a bad deal: Perpetual Medicare payment reductions in exchange for a one-time increase in insured Americans. Mr. Kahn first claimed that “from the hospital industry standpoint, there never was any kind of illusion that this was some kind of standard that we could meet in terms of improving quality”—even though the law itself assumes that hospitals will become more productive year-over-year, and reduces their Medicare payments accordingly.[35] When pressed on this issue—what will happen to the hospital industry when these year-on-year reductions cascade over time—Mr. Kahn eventually threw up his hands: “Now, you could say, did you make a bad deal? And fortunately, I don’t think I’ll probably be working after 2020. [Laughter.]…I’m glad my contract only goes another six years. [Laughter.]”[36]

The candid comments by the head of the Federation of American Hospitals months after the law passed say it all. In endorsing Obamacare, hospital lobbyists knew they were agreeing to provisions that would decimate their industry in the long run—but didn’t care, because those devastating provisions would only take effect well after they had retired. These incredibly cynical comments provide two additional reasons for legislators not to embrace Medicaid expansion. As both the CBO analysis and Mr. Kahn’s comments indicate, expanding Medicaid will not solve hospitals’ financial difficulties, which arise from a self-inflicted blow—namely, agreeing to massive Medicare payment reductions that overwhelm the comparatively small revenue gain associated with Medicaid expansion. But while expanding Medicaid will not save hospitals in the long term, it will serve to sink state budgets, leaving them with the worst of both worlds on the fiscal front.

Work Disincentives

Supporters of Medicaid expansion claim that the additional federal funds generated by expansion have created jobs and economic growth. In reality, expanding Medicaid has only created additional disincentives for work, according to non-partisan economic experts.

Many studies claiming Medicaid expansion will create jobs represent one-sided—and therefore highly biased—analysis, examining the federal revenue flowing into states as a result of expansion without studying the impact of the tax increases necessary to generate said revenue. However, many studies—including a seminal analysis undertaken by President Obama’s former chief economic adviser, Christina Romer—find that the economic damage—in technical terms, the deadweight losses associated with Obamacare’s tax increases—will vastly outweigh any job gains associated with Medicaid expansion.[37]

Ironically, one of the architects of Obamacare disputes the economic theories put forward by Medicaid expansion proponents. In a New York Times op-ed, former Obama Administration advisor Zeke Emanuel stated that “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”[38] Likewise, two Harvard economists note that viewing the health system as a jobs program will ultimately increase spending and raise health costs, limiting access for the poor: “Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.”[39]

Rather than creating jobs, the Congressional Budget Office (CBO) believes that Medicaid expansion will discourage work. In part of its 2014 update on Obamacare’s effects on the labor supply—in which CBO asserted that the law as a whole will reduce the supply of labor provided by the equivalent of 2.5 million jobs by 2024—the budget office noted that “expanded Medicaid eligibility under [the law] will, on balance, reduce incentives to work.”[40] For instance, individuals who exceed Medicaid eligibility limits by even one dollar could face hundreds, or thousands, of dollars in premiums and co-payments to obtain subsidized Exchange coverage; such workers will likely work fewer hours to keep their income below eligibility caps.

Medicaid expansion will discourage work precisely because most of the participants in the expansion are able-bodied adults of working age. According to analysis conducted by the liberal-leaning Urban Institute, nearly nine in ten individuals (88.1%) who would benefit from Medicaid expansion in South Carolina represent adults without dependent children.[41] Moreover, the vast majority of South Carolinians to be covered under expansion would come within the ages of 19-55—prime working ages for most Americans. More than one-quarter (27.6%) of would-be beneficiaries of expansion are aged 19-24, with a further 21.9% aged 25-34, and more than one-third (35.5%) aged 35-54.[42]

The Urban Institute data strongly suggest that the vast majority of the potential beneficiaries from Medicaid expansion in South Carolina constitute individuals who could be in work, or preparing for work. Indeed, many South Carolinians working full-time would generate enough income not to qualify for benefits under Medicaid expansion. In 2016, 138 percent of the federal poverty level represents an income of just under $16,400 for an individual.[43] A South Carolinian working a full-time job (40 hours per week, 50 weeks per year) at a wage of $8.25 per hour would earn $16,500 annually, thereby exceeding the limit to qualify for Medicaid benefits.

However, CBO believes the Medicaid “benefit cliff” will discourage individuals from working, precisely because they wish to remain eligible for benefits. A December 2015 CBO paper quantified this impact: Analysts concluded that Obamacare’s Medicaid expansion will reduce beneficiaries’ labor force participation by about 4 percent, by “creat[ing] a tax on additional earnings for those considering job changes” that would raise their income above the threshold for eligibility.[44]

While Obamacare’s massive expansion of Medicaid to the able-bodied discourages work and will reduce the labor supply, unwinding the expansion will produce salutary economic effects. Tennessee’s decision to roll back a Medicaid coverage expansion in 2005 encouraged more individuals to join the labor force, in order to obtain employer-sponsored health coverage.[45] If states wish to grow their economies and encourage work, unwinding Obamacare provides a better approach to achieving those objectives.

“Private Option” Results in Greater Public Spending

While some supporters of Medicaid expansion believe that the so-called “private option”—using Medicaid dollars to purchase Exchange coverage for beneficiaries—represents an efficient use of taxpayer dollars, evidence suggests otherwise. In 2012, immediately following the Supreme Court ruling that made Medicaid expansion optional for states, the Congressional Budget Office (CBO) considered expansion through health insurance Exchanges significantly more costly than expansion through traditional Medicaid:

For the average person who does not enroll in Medicaid as a result of the [Supreme] Court’s decision and enrolls in an Exchange instead, estimated federal spending will rise by roughly $3,000 in 2022—the difference between estimated additional Exchange [premium and cost-sharing] subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000.[46]

Providing Medicaid beneficiaries private coverage through the insurance Exchanges could cost approximately 50% more, according to CBO’s 2012 estimate—a concern other non-partisan experts have flagged.

Government auditors have raised significant concerns that the “private option” waiver method of providing coverage improperly wastes taxpayer funds. In an August 2014 report, the Government Accountability Office (GAO) noted that, when approving the first instance of this “private option” model in Arkansas, the federal Department of Health and Human Services (HHS) “did not ensure budget neutrality,” which is required under federal law, in three key areas:

  • “HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs—significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program—without requesting any data to support the state’s assumptions.” GAO concluded that these higher payment assumptions increased the program’s budget caps by $778 million—or nearly 20% of the approximately $4.0 billion, three-year budget for the program.
  • “HHS gave Arkansas the flexibility to adjust the spending limit if actual costs under the demonstration proved higher than expected…one which HHS has not provided in the past.”
  • “HHS in effect waived its cost-effectiveness requirement that providing premium assistance to purchase individual coverage on the private market prove comparable to the cost of providing direct coverage under the state’s Medicaid plan—further increasing the risk that the demonstration will not be budget-neutral.”[47]

The GAO report illustrates how, in order to ensure that Arkansas endorsed Obamacare’s massive new entitlement, federal officials raised the budgetary caps required under law so high that they became nearly meaningless—and then gave Arkansas officials discretion to raise them even higher. Such actions represent a disservice to taxpayers in all states, including South Carolina. The GAO report demonstrates why unwinding the law’s Medicaid expansion—in all its forms, including the “private option”—represents the wisest way to protect taxpayer funds.

How to Unwind Obamacare’s Medicaid Expansion: Congress

As Congress considers legislation to repeal Obamacare in January 2017, it should embark on a three-step approach to unwind the law’s massive Medicaid expansion:

  • First, Congress should take action to freeze enrollment in the Medicaid expansion immediately after enactment of the repeal bill. Freezing enrollment will hold those currently on Medicaid harmless, while beginning a process to roll back the higher levels of spending associated with Medicaid expansion.
  • Second, Congress should roll back the enhanced federal match for expansion populations, consistent with budget reconciliation legislation that Congress passed, and President Obama vetoed, during the 114th Congress.[48] Ending the enhanced federal match by 2019 will eliminate the discrimination inherent in Obamacare—whereby states receive a higher match to cover able-bodied adults than individuals with disabilities.
  • Third, Congress and states should reorient Medicaid towards the vulnerable populations for which the program was originally designed. Added flexibility from Congress, and the incoming Trump Administration, will allow states to achieve additional savings in their Medicaid programs—savings that will permit states to achieve other important priorities, like reducing waiting lists for individuals with disabilities seeking access to home-based care.

While proposals to transform Medicaid into a block grant or per capita allotment would give states welcome flexibility from Washington’s dictates, lawmakers must focus first on unwinding Obamacare’s Medicaid expansion—and eliminating distortions to the program caused by same. Any block grant or Medicaid funding formula that uses the years 2014 through 2017 as a “base year” will perpetuate the inequities caused by the Obamacare expansion—the massive enrollment of able-bodied adults, and the increased spending by states that used the prospect of a 100% federal match to increase Medicaid reimbursements. States that made the policy choice to keep Medicaid focused on the most vulnerable in society should not be penalized by a block grant formula that rewards those states who embraced Obamacare’s expansion of Medicaid to the able-bodied.

How to Unwind Obamacare’s Medicaid Expansion: The States

The states also have a role, albeit a limited one, in the undoing of Obamacare’s massive Medicaid expansion. As state legislatures reconvene, they can:

  • Continue to resist calls for expanding Medicaid to able-bodied adults. No state is expected to expand or choose a “private option” scheme in their new legislative terms, but fiscally responsible legislators should nevertheless arm themselves with the facts of this paper and prepare for misguided calls for subjecting more states to the excessive costs of Medicaid expansion.
  • Pass resolutions memorializing Congress to resist attempts to retain any of the core principles of Obamacare, including Medicaid expansion, as having a negative impact on state budgets and state policies. Both with respect to the costs of Medicaid expansion, and with respect to skyrocketing premiums in health insurance Exchanges, states and consumers alike are begging for relief from Obamacare. If enough states call for a top to bottom repeal and replace of Obamacare, including Medicaid expansion, consumers will win.
  • Prepare for possible common sense solutions, formerly known as “Obamacare off-ramps,” that will insure freedom for the insured without bullying businesses or individuals into plans they don’t like and doctors they don’t want. Members of both the United States House and Senate previously introduced such plans in the last Congress.[49] The new Trump Department of Health & Human Services, and specifically the Centers for Medicare and Medicaid Services (CMS), should provide guidance on blanket waivers designed to maximize flexibility for state Medicaid programs immediately upon taking office.[50]

Need for Reform

Even prior to Obamacare, Medicaid stood as a program in need of significant reform. The program has nearly tripled as a share of state budgets since 1987, yet provides beneficiaries with care of questionable quality.[51] Results from Oregon suggest that newly enrolled individuals in Medicaid used the emergency room at rates 40 percent higher than the uninsured—a disparity that persisted over time—yet did not achieve measureable improvement in their physical health outcomes.[52] With high (and growing) levels of spending coupled with subpar outcomes, states should use the flexibility promised from the Trump Administration to rethink their approach to Medicaid.

However, such efforts should come only after Congress has first backed down Obamacare’s massive expansion of Medicaid to the able-bodied. Restoring Medicaid as a safety net program for the most vulnerable in society would unwind more than $1 trillion in projected spending over the coming decade providing coverage to the able-bodied.[53] Just as important, it would remove the inequities created by Obamacare, and put all states on a level playing field for the reformed Medicaid program that should follow.

Mr. Jacobs is the Founder and CEO of Juniper Research Group, a policy research and consulting firm.



[1] Patient Protection and Affordable Care Act, Public Law 111-148, as amended by the Health Care and Education Reconciliation Act, Public Law 111-152, http://housedocs.house.gov/energycommerce/ppacacon.pdf, Section 2001(a).

[2] NFIB v. Sebelius, 567 U.S. __ (2012).

[3] Jonathan Ingram and Nicholas Horton, “Obamacare Expansion Enrollment Is Shattering Projections,” Foundation for Government Accountability, November 16, 2016, https://thefga.org/download/ObamaCare-Expansion-is-Shattering-Projections.PDF, p. 5.

[4] Congressional Budget Office, estimate of H.R. 4872, Health Care and Education Reconciliation Act, in concert with H.R. 3590, Patient Protection and Affordable Care Act, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf, Table 4, p. 21.

[5] Centers for Medicare and Medicaid Services, “First Half of 2016 Effectuated Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[6] Avalere Health, “The State of Exchanges: A Review of Trends and Opportunities to Grow and Stabilize the Market,” report funded by Aetna, October 2016, http://go.avalere.com/acton/attachment/12909/f-0352/1/-/-/-/-/20161005_Avalere_State%20of%20Exchanges_Final_.pdf, Figure 3, p. 6.

[7] Ibid.

[8] The numbers in parentheses represent revised 2014 data cited in the 2015 actuarial report, based on actual spending patterns. The numbers initially cited in the 2014 actuarial report were $5,514 for newly eligible adults, and $4,650 for previously eligible adults.

[9] Centers for Medicare and Medicaid Services Office of the Actuary, “2014 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2014, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf, pp. 36-37.

[10] Ibid.

[11] Centers for Medicare and Medicaid Services Office of the Actuary, “2015 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2015, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2015.pdf, p. 27.

[12] For an analysis of the ways that the Medicare actuary’s office and CBO have changed their baseline projections of Medicaid spending over time, see Brian Blase, “Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems,” Mercatus Center, September 2016, https://www.mercatus.org/system/files/mercatus-blase-medicaid-structural-problems-v1.pdf, pp. 15-20.

[13] Christina Cassidy, “Rising Cost of Medicaid Expansion is Unnerving Some States,” Associated Press October 5, 2016, http://bigstory.ap.org/article/4219bc875f114b938d38766c5321331a/rising-cost-medicaid-expansion-unnerving-some-states.

[14] Ibid.

[15] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[16] Ibid.

[17] See also Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[18] The author served as an appointee to the commission, whose work can be found at www.ltccommission.org.

[19] Kaiser Family Foundation, “Waiting List Enrollment for Medicaid Section 1915(c) Home- and Community-Based Services Waivers,” Kaiser Commission on Medicaid and the Uninsured 2015 survey, http://kff.org/health-reform/state-indicator/waiting-lists-for-hcbs-waivers/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

[20] Ibid.

[21] Section 2001(a) of PPACA.

[22] “Federal Financial Participation in State Assistance Expenditures,” Federal Register November 25, 2015, pp. 73781-82, Table 1, https://aspe.hhs.gov/sites/default/files/pdf/167966/FMAP17.pdf.

[23] Nicholas Horton, “Hundreds on Medicaid Waiting List in Illinois Die While Waiting for Care,” Illinois Policy November 23, 2016, https://www.illinoispolicy.org/hundreds-on-medicaid-waiting-list-in-illinois-die-while-waiting-for-care-2/.

[24] Jason Pederson, “Waiver Commitment Wavering,” KATV June 15, 2016, http://katv.com/community/7-on-your-side/waiver-commitment-wavering.

[25] Chris Jacobs, “Obamacare Takes Care from Disabled People to Subsidize Able-Bodied, Working-Age Men,” The Federalist November 18, 2016, http://thefederalist.com/2016/11/18/obamacare-takes-care-disabled-people-subsidize-able-bodied-working-age-men/.

[26] “Federal Financial Participation,” Table 1.

[27] Kaiser Family Foundation, “Waiting List Enrollment.”

[28] Tamara Hayford et al., “Projecting Hospitals’ Profit Margins Using Several Alternative Scenarios,” Congressional Budget Office Working Paper 2016-04, September 2016, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51919-Hospital-Margins_WP.pdf.

[29] Ibid., Table 6, p. 29.

[30] Ibid.

[31] Ibid., p. 34.

[32] For the most recent version, see John Shatto and Kent Clemens, “Projected Medicare Expenditures under an Illustrative Alternative Scenario,” Office of the Actuary, Centers for Medicare and Medicaid Services, June 22, 2016, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2016TRAlternativeScenario.pdf.

[33] Chris Jacobs, “The Report Every State Legislator Should Read,” National Review September 27, 2016, http://www.nationalreview.com/article/440411/obamacare-medicaid-expansion-hospitals-wont-benefit-says-cbo.

[34] American Enterprise Institute, “Medicare after Reform: the 2010 Medicare Trustees Report,” August 6, 2010, video available through C-SPAN at https://www.c-span.org/video/?c4402939/chip-kahn.

[35] Ibid.

[36] Ibid.

[37] Chris Conover, “Will Medicaid Expansion Create Jobs?” Forbes February 25, 2013, http://www.forbes.com/sites/chrisconover/2013/02/25/will-medicaid-expansion-create-jobs/#73893e3e3d25.

[38] Ezekiel Emanuel, “We Can Be Healthy and Rich,” New York Times February 2, 2013, http://opinionator.blogs.nytimes.com/2013/02/02/we-can-be-healthy-and-rich/.

[39] Kate Baicker and Amitabh Chandra, “The Health Care Jobs Fallacy,” New England Journal of Medicine June 28, 2012, http://www.nejm.org/doi/full/10.1056/NEJMp1204891.

[40] Congressional Budget Office, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf, Appendix C: Labor Market Effects of the Affordable Care Act: Updated Estimates, pp. 117-27.

[41] Genevieve M. Kenney et al., “Opting in to the Medicaid Expansion Under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?” Urban Institute, August 2012, p. 9, Appendix Table 2, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412630-Opting-in-to-the-Medicaid-Expansion-under-the-ACA.PDF.

[42] Ibid., p. 8, Appendix Table 1.

[43] “Annual Update of the HHS Poverty Guidelines,” Federal Register January 25, 2016, pp. 4036-37, https://www.gpo.gov/fdsys/pkg/FR-2016-01-25/pdf/2016-01450.pdf.

[44] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[45] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research, NBER Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[46] Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012, https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/43472-07-24-2012-CoverageEstimates.pdf, p. 4.

[47] Government Accountability Office, “Medicaid Demonstrations: HHS’ Approval Process for Arkansas’ Medicaid Waiver Raises Cost Concerns,” Report GAO-14-689R, August 8, 2014, http://www.gao.gov/assets/670/665265.pdf, p. 3.

[48] Section 207 of H.R. 3762, Restoring Americans’ Health Care Freedom Reconciliation Act of 2015.

[49] Palmetto Promise Institute, “King v. Burwell: The Obamacare Off-Ramp?” Health Care Fast Facts May 2015, http://www.kbcsandbox4.com/palmetto/wp-content/uploads/2015/05/King-v-Burwell-Fast-Facts.pdf.

[50] Chris Jacobs, “Reforming Medicaid, Beginning on Day One,” Chris Jacobs on Health Care December 12, 2016, http://www.chrisjacobshc.com/2016/12/12/reforming-medicaid-beginning-on-day-one/.

[51] National Association of State Budget Officers, Fiscal Survey of States: Spring 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Reports/Spring%202016%20Fiscal%20Survey%20of%20States-S.pdf, p. 63; National Association of State Budget Officers, 1996 State Expenditure Report, April 1997, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1996.PDF, Table 3, p. 11.

[52] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533; Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[53] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5.

Putting Obamacare in a Deep Freeze

As they debate various ways to repeal and replace Obamacare, Republicans in Congress have proposed a transition between the current regime and the more market-oriented solution they wish to create. As part of that transition, Congress should explore putting an immediate freeze on new Obamacare enrollment. Such a freeze would allow currently enrolled Americans to maintain their coverage while halting the growth in spending on the law’s costly taxpayer subsidies.

Medicaid Freeze

There are good policy reasons to include a freeze on enrollment as part of repeal legislation. The “Better Way” alternative to Obamacare released by Speaker Ryan in June proposed that “states that have not expanded Medicaid under Obamacare as of January 1, 2016…would not be able to do so.” If the House intends to freeze enrollment by preventing new states from implementing Medicaid expansion, reason dictates that it should also prevent new individuals in states that have already expanded Medicaid from joining the entitlement.

Previous research suggests that the existence of a Medicaid entitlement for the able-bodied significantly decreases job-search activity, employment, and enrollment in employer-sponsored health coverage. The Foundation for Government Accountability (FGA) has demonstrated that freezing enrollment would allow individuals currently on Medicaid to transition out of poverty and into work in a relatively short period of time, and that there is broad public support for such a move.

Freezing enrollment would also begin to unwind the inequities in the current system, which rewards states that have expanded Medicaid for discriminating against the most vulnerable. Some governors have indicated their desire to preserve the expansion in their states. But keeping Medicaid expansion in some states would set up a direct conflict with other states that are explicitly prohibited from expanding under the House Republican plan. As a compromise, Congress should instead freeze enrollment in those states that have already expanded Medicaid, as a way to begin dismantling the new entitlement for the able-bodied.

King v. Burwell

When it comes to insurance Exchanges, Republicans had previously proposed freezing enrollment in Obamacare’s subsidy regime. Last year, the Supreme Court considered the case of King v. Burwell, which had the potential to strike down taxpayer-funded subsidies in states with a federally run insurance exchange (i.e.  most of them). Ahead of that case, Senators Ron Johnson and Ben Sasse both proposed different transitional arrangements that would allow individuals receiving subsidies at the time of the ruling to continue their coverage for some period of time, without allowing new individuals to qualify for taxpayer-funded coverage.

Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, the transition plans by Sasse and Johnson provide just as sensible a template now as they did then. Admittedly, insurers may not want to offer coverage where only unsubsidized individuals can join exchanges, as those unsubsidized individuals would likely be the costliest to insure. But the plans laid out by Sasse and Johnson provide two possible blueprints for unwinding Obamacare, including its taxpayer-funded exchange subsidies.

Obama Precedent

In considering the practical effects of an enrollment freeze, Republicans should examine how President Obama tried to minimize the impact of his “Lie of the Year” — “If you like your plan, you can keep it.” When millions of Americans received cancellation notices in the fall of 2013, the Obama Administration allowed individuals to keep their prior coverage temporarily. This reprieve was ultimately extended until December 2017.

By allowing some individuals to keep their pre-Obamacare coverage, Obama’s plan-cancellation “fix” solved a political problem, minimizing the number of individuals thrown off their current coverage at one time. Extending the “fix” for several years also limited disruption, as natural “churning” in insurance markets will reduce the number of individuals with affected policies between now and December 2017.

Of course, President Obama’s administrative actions in 2013 violated the law. Even liberals have acknowledged that Obama abrogated his constitutional duties by publicly advertising that his Administration would not enforce the ACA’s statutory requirements. But Congress can and should seek to minimize disruption in a legal way, by explicitly including an enrollment freeze in its repeal legislation. With Obamacare’s coverage gains coming almost entirely from Medicaid expansion, freezing enrollment will allow for a smoother transition into the new system Republicans intend to create.

This post was originally published at National Review.

The Limousine Liberals Who Won’t Buy Obamacare Plans

Even by government standards, it’s an outlandish story of wealth and hypocrisy: A bureaucrat who made more than $1 million selling Obamacare insurance plans, but won’t buy one for himself? The sad thing is, it also happens to be true.

Meet Peter Lee, executive director of Covered California. In the past three years alone, Lee has made well over $1 million running California’s Obamacare exchange. He received massive raises in the past two years, going from a salary of $262,644 in 2014 to $420,000 beginning this July.

On top of that nearly $160,000 raise, Lee received two other whopping bonuses of $52,258 in 2014 and $65,000 in 2015—winning more in one lump sum than many families make in an entire year. But at a September briefing, I asked Lee point-blank what type of health coverage he holds. He said he was enrolled in California’s state employee plan.

Think about that: a bureaucrat whose salary comes from selling exchange plans—Covered California’s operating budget derives from surcharges on plans sold through the exchange—but yet won’t buy one of the plans he sells for himself. It’s enough to make a person ask how much Lee would have to make before he would actually break down and buy one of the plans he sells—a million dollars? Two million? Five million?

Liberal One-Percenters: Good for You, Not For Me

I’ll concede right now that Obamacare’s exchanges were designed primarily for those without employer coverage. Individuals whose employers do offer “affordable” coverage cannot receive subsidies on the exchanges, although they can enroll without a subsidy, if they so choose.

Most Americans choose employer coverage, because firms heavily subsidize them—to the tune of an average of $12,865 for family coverage. For the average worker making $60,000, or even $80,000, per year, turning down the employer subsidy to purchase an unsubsidized exchange plan represents a substantial pay cut, one many families could not afford.

But well-paid liberals like Lee—who over the last two years received raises more than 12 times the average employer’s subsidy for health coverage—have no real financial excuse not to join the exchanges—other than liberal elitism. As the owner of a new small business who likely won’t make six figures this year, I have little patience to hear supposed believers in Obamacare with far more means than I who won’t give up a few thousand dollars in employer subsidies to enroll on the exchanges themselves. After all, aren’t liberals the ones who believe in social solidarity and “paying your fair share”?

Well-Heeled Bureaucrats and Think Tankers’ Hypocrisy

For instance, Centers for Medicare and Medicaid Services (CMS) Acting Administrator Andy Slavitt literally cashed in to the tune of over $4.8 million in stock options on joining the Obama administration, more than enough to forego any employer subsidy for his health coverage. He recently responded to a questioner on Twitter asking him why he wasn’t on Medicare by stating that he was only 49 years of age—too young to qualify. Within minutes, I sent Slavitt a follow-up tweet: “If Obamacare is so great, are you on the Exchange—and if not, why not?” Slavitt has yet to reply.

Both Slavitt and Health and Human Services Secretary Sylvia Burwell (net worth: $4.6 million) have plenty of financial resources to forego an employer subsidy and purchase exchange coverage. Even at a total premium of $15,000 for his family, one year’s insurance costs would total less than 0.3 percent of the stock gains Slavitt cashed in on when joining the administration—to say nothing of the millions he likely will make when he “cashes in” on his government experience in just a few months.

Did Slavitt just not see my tweet asking him about his health coverage? Did he not reply because the person in charge of selling exchange policies doesn’t think they’re good enough to buy for himself? Or does he believe that someone who made millions a few short years ago is too “poor” to give up a few thousand dollars in employer subsidies for his health care?

The ranks of well-paid liberals clamming up when asked about their health benefits extends beyond government into the think-tank ranks. In September, the Urban Institute published a paper claiming that exchange coverage was actually cheaper than the average employer plan. I e-mailed the papers’ authors, asking them a simple question: Had they taken steps to enroll in exchange coverage themselves, and encouraged the Urban Institute to send all its employees to the exchanges?

I have yet to receive a reply from the three researchers. But after doing some digging, I found the Urban Institute’s Form 990 filing with the Internal Revenue Service. The form reveals that one of the study’s authors, John Holahan, received a total of $313,932 in compensation in 2014—$267,051 in salary, and $46,881 in other compensation and benefits.

Does Holahan therefore believe that giving up his subsidized benefits and relying “only” upon his $267,051 salary presents too great a sacrifice for him to bear financially? If he and his colleagues truly believe exchange plans are more efficient than employer coverage—as opposed to just coming up with a talking point to rebut Obamacare’s massive premium increases—then shouldn’t they enroll themselves?

I Make $400,000, So Quit Whining about Your Cost Hike 

Then there’s Larry Levitt, a senior vice president at the Kaiser Family Foundation. Last week Levitt tweeted that exchange premium increases don’t apply to many people—a talking point that Drew Altman, Kaiser’s CEO, has also made in blog posts. I replied asking whether Levitt himself, or other people using this talking point, actually have exchange coverage, to which Levitt gave no response.

Care to guess how much these scholars claiming exchange premium increases are overrated make themselves? According to Kaiser’s IRS filing, Levitt received $333,048 in salary and $48,563 in benefits in 2014. His boss, Altman, pulled down a whopping $642,927 in salary, $149,509 in retirement plan contributions, and a $13,545 expense account—nearly $806,000 in total compensation.

The contradictions from the Kaiser researchers are ironic on two levels. One could certainly argue that an executive making nearly $400,000, let alone more than $800,000, doesn’t need comprehensive health insurance, except to protect from severe emergencies, like getting hit by the proverbial bus. However, both appear loath to give up their employer-provided health coverage, and equally quick to minimize the impact of Obamacare’s premium increases nationwide. As I noted on Twitter, that’s easy for people who refuse to join the exchanges to say.

Last, but certainly not least, on the hit parade is Massachusetts Institute of Technology professor Jonathan “Stupidity of the American Voter” Gruber. Last week, Gruber said Obamacare “was working as designed” and that people who lost their coverage thanks to the law “never had real insurance to begin with.”

Unfortunately, MIT’s tax filings don’t include his salary. However, given that Gruber’s infamous undisclosed contract with the Obama administration totaled nearly $400,000, and that he literally made millions from other contracts, it’s fair to say Gruber could afford to purchase his own health insurance outside his employer—if he wanted to. So I e-mailed and asked him whether he gave up his employer coverage to purchase the “real insurance” Obamacare provides. Wouldn’t you know, I have yet to receive a reply.

It’s bad enough that the individuals above apparently refuse to give up their platinum-plated health plans to join the exchanges, even though it would cost them at most a few percentage points of their total compensation to do so. They also wish to cast stones from their ivory towers at those of us who are facing higher premiums, rising deductibles, fewer (if any) choices of insurers, and smaller doctor networks thanks to the law they claim to support.

So to all those well-heeled Obamacare supporters who can afford to enroll in Obamacare themselves, but simply won’t, I’ll make one final point: Disagree with me if you like, but I’m working my damnedest to stop Obamacare’s bailouts—even though I know that if I “win” on the policy, I could lose my health coverage. It’s called standing on principle. It’s a novel concept. You might want to try it sometime.

This post was originally published at The Federalist.

An Obamacare “Fix” That Isn’t

Astute political observers might have noticed disconsonant views coming from Republicans on Capitol Hill recently. Even as many rightly criticized Obamacare for the massive premium increases many Americans face—and noted that the law’s framework makes Obamacare inherently unfixable—other unnamed Republican sources may be already laying the groundwork for efforts to repair the law after next week’s election. Such efforts would not only undermine the party’s pre-election messaging, they could well prove ineffective at best in solving the law’s twin problems of too many regulations and too much spending.

Two weeks ago, President Obama attempted to sell his unpopular law in Miami, encouraging people to sign up for exchange coverage in 2017 despite higher premiums for coverage of questionable quality. In response, House Speaker Paul Ryan issued a statement taking issue with the structure of the law itself:

After listening to the president’s speech, I’m not sure what health care law he’s talking about. He wondered out loud why there’s been such a fuss. It’s no secret: It’s because of Obamacare. That’s why we’ve seen record premium hikes. That’s why millions of people—including millennials—have lost their plans, or been forced to buy plans they don’t like. That’s why we’ve seen waste, fraud, and abuse. And at this point, one thing is clear: This law can’t be fixed. [Emphasis mine.]

Last week, however, a different story emerged, in a story highlighting proposed changes to the law that Congress could consider in 2017. The article in The Hill quoted unnamed congressional sources as saying that Republicans have in fact offered to help Democrats “fix” Obamacare:

A Democratic health adviser spoke to congressional Republicans recently about changing the age rating ratio, with a subsidy for older people, and said the reaction was “favorable.”

To translate the article’s policy-speak into English: Obamacare requires that insurers charge older individuals no more than three times what younger enrollees pay. In most cases, however, older individuals incur costs about five to six times what the youngest enrollees incur in medical bills. The three-to-one age rating therefore charges younger people more, so that older individuals pay slightly lower premiums.

Younger and healthier individuals aren’t enrolling in Obamacare, because they don’t see it as a good value—which, under the age rating restrictions, it isn’t. As a result, Obamacare’s exchanges face a pool of enrollees sicker than the average employer plan—one of the main reasons why insurers are losing money, and not offering exchange coverage. The unnamed Democratic staffer mooted changes that would loosen the age rating ratio—providing slightly lower premiums for younger enrollees, in the hope they will sign up in greater numbers—in exchange for richer subsidies for the older individuals who would pay more under the change.

It remains unclear whether these discussions have advanced to any degree of seriousness, or whether Speaker Ryan would in fact bring Obamacare “fixes” to the House floor after publicly stating that the law can’t be fixed. But what is clear is what new subsidies would entail—adding more spending to the nearly $2 trillion the law will already spend in the coming decade, at a time when our nation faces a staggering $19.8 trillion in federal debt. New subsidies would also likely entail new tax increases that will impede economic growth, or additional reductions in Medicare to pay for more spending on Obamacare, at a time when Medicare itself faces funding shortfalls—an inconvenient truth neither presidential candidate has bothered to consider.

Just as important, it’s also unclear whether changing the age rating regulations alone would bring premiums down enough to encourage young people to enroll. Over and above age rating, Obamacare included massive new regulations on health insurance policies, most of which raised premiums dramatically: A new list of “essential health benefits” that all plans must cover; requirements for coverage of preventive services without cost-sharing; requirements that plans cover a greater percentage of expected medical expenses. Even if more favorable age rating lowers premiums by one-third, it won’t take insurance rates much below where they were before the 25 percent premium increase facing plans this January. How will taking premiums back to they are now—when young people haven’t enrolled in Obamacare for the past three years—fix the problem?

The answer’s simple: It won’t. “Favorable” reactions from unnamed staffers aside, more spending and more taxes won’t fix an inherently unfixable law—even if accompanied by some regulatory changes that might do some good. As the old saying goes, if you’re in a hole, stop digging. When it comes to Obamacare, that means staff on both sides of the aisle shouldn’t waste time with “solutions” that involve throwing more of someone else’s money at the problem. Future generations already face a nearly $20 trillion—and counting—hole of debt; if we won’t solve that problem, let’s at least agree not to make it any bigger.

Obamacare’s Exchanges Have Become Medicaid-Like Ghettoes

The October surprise that Washington knew about all along finally arrived yesterday, as the Obama administration announced that premiums would increase by nearly 25 percent nationally for Obamacare’s individual insurance. With the exchanges already struggling to maintain their long-term viability, the premium increases place the administration in a political vise, as it tries to encourage people to buy a product whose price is rising even as it presents a poor value for most potential enrollees.

In the 40-page report the Department of Health and Human Services (HHS) released, breaking down premium and plan information for 2017, one interesting number stands out. Among states using Healthcare.gov, the federally run exchange, the median income of enrollees in 2016 topped out at 165 percent of the federal poverty level (FPL). In other words, half of enrollees made less $40,095 for a family of four. And 81 percent earned less than $60,750 for a family of four, or less than 250 percent of the FPL.

The new data from the report further confirm that the only people buying exchange plans are those receiving massive subsidies — both the richest premium subsidies, which phase out significantly above 250 percent FPL, and cost-sharing subsidies, which phase out entirely for enrollees above the 250 percent FPL threshold. If the House of Representatives’ suit challenging the constitutionality of spending on the cost-sharing subsidies succeeds, and those funds stop flowing to insurers, Obamacare may then face an existential crisis.

Even as it stands now, however, the exchanges are little more than Medicaid-like ghettoes, attracting a largely low-income population most worried about their monthly costs. To moderate premium spikes, insurers have done what Medicaid managed-care plans do: Narrow networks. Consultants at McKinsey note that three-quarters of exchange plans in 2017 will have no out-of-network coverage, except in emergency cases. And those provider networks themselves are incredibly narrow: one-third fewer specialists than the average employer plan, and hospital networks continuing to shrink.

In short, exchange coverage looks nothing like the employer plans that more affluent Americans have come to know and like. Case in point: At a briefing last month, I asked Peter Lee, the executive director of Covered California, what health insurance he purchased for himself. He responded that he was not covered on the exchange that he himself runs but instead obtained coverage through California’s state-employee plan. Which raises obvious questions: If Covered California’s offerings aren’t good enough to compel Lee to give up his state-employee plan, how good are they? Or, to put it another way, if exchange plans aren’t good enough for someone making a salary of $420,000 a year, why are they good enough for low-income enrollees?

Therein lies Obamacare’s problem — both a political dilemma and a policy one. Insurers who specialize in Medicaid managed-care plans using narrow networks have managed to eke out small profits amid other insurers’ massive exchange losses. As a result, other carriers have narrowed their product offerings, making Obamacare plans look more and more alike: narrow networks, tightly managed care — yet ever-rising premiums.

While restrictive HMOs with few provider choices may not dissuade heavily subsidized enrollees from signing up for exchange coverage, it likely will discourage more affluent customers. The exchanges need to increase their enrollment base. The combination of high premiums, tight provider networks, and deductibles so high as to render coverage “all but useless” will not help the exchanges attract the wealthier, and healthier, enrollees needed to create a stable risk pool. By reacting so sharply to its current customer base, insurers on exchanges could well alienate the base of potential customers they need to maintain their long-term viability. In that sense, Obamacare’s race to the bottom could become the exchanges’ undoing.

This post was originally published at National Review.