The Obama administration is now entering its second week of celebration over the 7.1 million Americans who signed up for insurance through Obamacare’s exchanges. The administration also claims an additional 8 million Medicaid enrollees and 3 million young people who can now stay on their parents’ policies. Those numbers have been widely debunked, of course — the number of newly insured Americans is probably much closer to 3 to 4 million total.
But beyond the debate over top-line numbers, there remains something troubling about the administration’s celebration of “success,” for the Affordable Care Act will dramatically expand Americans’ dependence on government.
Start with those 7.1 million signing up through exchanges. When critics point out that the policies available on the exchanges are often more expensive than many policies sold before Obamacare, ACA advocates point to subsidies that reduce what many enrollees actually pay. In fact, according to the Center for Medicare and Medicaid Services and outside organizations such as the Kaiser Family Foundation, somewhere in the range of 80 percent, and as many as 83 percent, of those enrolling received a subsidy to help pay for their insurance. That could amount to some 5 to 5.5 million people, depending on how many of those who selected plans actually pay premiums.
And it’s not as though those subsidies are going only to the poor, who otherwise could not afford insurance. Although more generous to those earning 250 percent of the poverty line ($58,875 for a family of four), some level of subsidy is available up to 400 percent of poverty ($94,200 for a family of four). In fact, taking into account various income disregards, some families with even higher incomes could receive a subsidy. The Congressional Budget Office estimates that as many as 700,000 people with incomes more than three times the poverty level will receive a subsidy next year.
Subsidies, of course, do not actually reduce the cost of those insurance plans, but simply shift part of that cost from the purchaser to taxpayers. Moreover, since the Rand Corporation estimates that it’s possible as few as 858,000 enrollees were previously uninsured, millions of Americans who were paying for their own insurance have now moved onto the government dole. While it would generally be unfair to blame people for taking advantage of what is being offered to them, especially when Obamacare may have forced them out of their previous policies involuntarily, it doesn’t change the reality on the ground. The number of Americans dependent on government transfers will increase.
Obamacare’s Medicaid expansion represents an even more obvious enlargement of the welfare state. Using CMS figures for enrollment through March 1 and extrapolating for enrollment last month, it is likely that only 3 to 4 million of the projected 8 million Medicaid enrollees are new signups. (The others are part of the normal churn within the Medicaid program.) Even so, this represents a 5.2 percent increase in the number of Americans on Medicaid. In some states, such as West Virginia, Vermont, and Massachusetts, more than one out of every five people will be receiving Medicaid.
The evidence suggests that at least some of those new Medicaid recipients had private insurance before, but either were dumped by their employers or chose to go on “free” insurance. The Robert Wood Johnson Foundation, long a supporter of Medicaid, has amply documented this “crowd-out effect,” concluding that in some cases, loss of private insurance could completely offset the increased gains from Medicaid expansion. And a study for the National Bureau of Economic Research, one of whose authors was Jonathan Gruber of MIT, an architect of Obamacare, found that from 1996 to 2002, for every 100 children who received coverage through Medicaid or SCHIP, 60 lost private insurance. This is bad news not just for taxpayers but for the recipients themselves, since they are trading down to an inferior insurance plan.
No one knows yet how many Obamacare Medicaid recipients dropped private coverage as a result of the ACA, but some data suggest that it could be quite high. For example, a study for the Veterans Administration found that as many as 82 percent of working adults who enroll in Medicaid under Obamacare will have had private insurance. They are simply moving from good insurance that they had to pay for to lousy insurance paid for by someone else.
Obamacare, then, is less a health-insurance program than a gigantic wealth transfer.
Even before Obamacare, the American welfare state was threatening to swallow up more and more of us. In 1965, just 22 percent of all federal spending was transfer payments. Today the figure has doubled to 44 percent. In 1965, transfer payments from the federal government were equivalent to less than 10 percent of wages and salaries. As recently as 2000, that percentage was just 21 percent. Today transfer payments are almost 35 percent of salaries and wages. If one counts government employees and contractors as well as recipients of government programs, more than half of Americans receive at least half of their income from the government.
Government dependency is not a good thing. Obviously, it’s bad for taxpayers and economic growth when the welfare state becomes ever more unaffordable. As Margaret Thatcher reputedly said, “Eventually you run out of other people’s money.” But it is also bad for those who are trapped in a system that makes it harder for them to achieve and become all they might be.
Obamacare will make this worse. And that’s nothing to celebrate.
— Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.