ObamaCare redistribution not the only drain from young to older Americans
posted at 12:41 pm on November 21, 2013 by Ed Morrissey
Let’s start this with a clear understanding of the redistributive nature of ObamaCare. Thomas Edsall admitted this yesterday in his New York Times essay, but got the nature of the redistribution wrong. James Oliphant does better at National Journal today:
Before the ACA, the risk in the individual market was indexed, with insurers able to price policies on the basis of personal circumstance.
Obamacare consolidates risk, grouping those most likely to cost the house money with those who have little chance of receiving a payout. The lines of demarcation between young and old blur, thanks to a compression of what insurers call “age rating”—which used to allow companies to charge older Americans not yet eligible for Medicare on the order of five times more than younger ones—and the widespread use of what is known as “community rating,” which forces insurers to assesses risk in terms of a pool, rather than an individual. “Ideally, you want to be the sickest person in the pool, so everyone is subsidizing you,” says Austin Frakt, a health care economist in Boston. …
And there is the more classic means of redistribution: the federal tax revenue used to fund the Medicaid expansion called for by the ACA. That will help fund coverage for an estimated 13 million Americans nationwide, which supporters argue will produce both societal and economic benefits. At present, that’s the largest straight commitment of federal tax dollars, but conservative critics worry that if other ACA funding mechanisms fall short, the government could end up bearing more of the load.
“The whole financing structure for the law is a house of cards,” says Charles Blahous, a fellow at the Mercatus Center at George Mason University and a public trustee of Social Security and Medicare. “Unlike a website, it’s not so easily fixed.”
The underpinnings of Obamacare could crumble in a number of ways: if young people fail to sign up for insurance in the droves needed to make the numbers work (and, given the meager penalty for failing to do so, that remains a definite possibility); or if the so-called Cadillac tax on high-dollar health plans scheduled for 2018 never happens (labor unions, among other interests, hate it); or if Congress, at the behest of the industry, follows through on its threat to eliminate the tax on medical devices; or if the long-promised savings in Medicare fail to come to fruition; or if, down the road, a cash-strapped federal government abandons its Medicaid commitments to states.
Thanks to the enforcement of “community rating” and the requirement to purchase ridiculously comprehensive coverage, the younger and healthier members of the risk pool will be subsidizing lower rates for older and sicker members. Insurance companies had rational measures to assess risk in a much more precise manner until ObamaCare, but community rating tosses that out the window. This is why the White House is panicked about millions of younger and healthier Americans refusing to pay those ridiculous premiums for services they’ll never access, thanks to equally ridiculous deductibles.
But, some might say, many of those will get taxpayer-provided subsidies for those premiums. That’s true, but they won’t get subsidies on the deductibles, which means that they’ll still have to spend thousands each year before the insurers will pay the first dollar in benefits, which for healthy adults means never getting benefits. Besides, as Yahoo Finance’a Rick Newman explains today, the tax system already redistributes funds from the younger generation to older Americans — as much as $9,000 per household:
New data published by the Congressional Budget Office show elderly households receive far more in government benefits than they pay in taxes, while all other households pay more in taxes than they get back. The data are from 2006, the most recent year the necessary numbers were available. The general findings aren’t surprising, since people stop working and paying payroll taxes when they retire, and Social Security and Medicare are chiefly meant to benefit the elderly in the first place.
But the benefit gap between elderly and non-elderly households may seem lopsided to some. The popularity of programs such as Medicare and Social Security shows the U.S. has met the goal, originating in the 1930s, of building a robust safety net for seniors and others unable to fully support themselves. But demographics have changed dramatically since those big entitlements went into effect, with fewer young people now financing the benefits received by many more older people. Many feel the imbalance amounts to generational theft, as a disproportionate and growing share of national wealth goes to supporting the lifestyles of the elderly rather than cultivating future generations. …
Spending per household includes entitlement programs plus most other categories of federal spending, such as education, transportation and national defense. It doesn’t include state and local spending, however, which would even out the numbers somewhat, since that money tends to go toward education and local services not necessarily geared toward the elderly.
Those two negative numbers in red show that, on average, all households other than the elderly pay more in taxes than they get in federal benefits. There are exceptions, since low-income households get more than they pay and vice versa, but that puts an even heavier burden on working, middle-class families that don’t qualify for many federal benefits.
ObamaCare just accelerates this trend, especially for those who may not qualify for subsidies on the exchanges. Those without children see an average of $9100 in wealth transfer from their wages to older Americans, and subsidies cut off at $48,000 income for single adults in the exchanges.
It’s just another form of generational theft. Meanwhile, we’re also seeing a growing trend of regional wealth transfers, all going to one small point — Washington DC. The Washington Post’s Jim Tankersley noted the rapid growth in the capital economy while the rest of the country stagnated, thanks to the flood of federal spending over the last decade and the growing regulatory control from Washington. It’s basically a watered-down version of The Hunger Games, only less entertaining.
In my column today at The Fiscal Times, I argue that this would be tolerable if it actually produced wise and beneficent policy. Instead, we’re getting nothing but incompetence and dishonesty from this wealth transfer:
The Beltway is still a long way from being the Capitol of The Hunger Games, but that doesn’t make the economic drift from the mainstream of the nation and Washington’s aggregation of resources and power any less disturbing. If it resulted in wise and beneficent policy, it might at least be understandable or tolerable. However, as the unfolding disaster of the Affordable Care Act demonstrates, the trend instead feeds a poisonous combination of elitism and incompetence while protecting politicians from the consequences of failure.
The nadir of that incompetence emerged in surprising testimony on Tuesday from a key figure in the Health and Human Services project for the ACA’s web portal. CMS Deputy Chief Information Officer Henry Chao, under questioning from Rep. Cory Gardner (R-CO) in a House Energy and Commerce Committee hearing, stated that 30 percent to 40 percent of the ACA’s computer infrastructure had yet to be built. …
Commercial web portals have been around for almost twenty years. CMS actually has a similar system in place for its Medicare Advantage program, although one that doesn’t need to interface with IRS systems. And yet, after more than three years and hundreds of millions of dollars, HHS and the White House rolled out a system that is only 60-70 percent finished, with so many security holes that experts would need as much as another year to plug them all.
We may not be living in The Hunger Games, but we are seeing a demonstration of the inevitable result of elitism and central planning. We aren’t sacrificing our children for the amusement of the powerful, but we are sacrificing our resources to the incompetence of the self-appointed nannies that can’t even figure out the basic economics of risk pools or the mechanics of payment systems. It’s time to pull the plug on DC’s cash spigot and return to local control and private-sector solutions.