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The Uninsured: It Will Get Worse Before It Gets Better

Monday, January 18, 2010

Why the uninsured will continue waiting for insurance long after Obamacare becomes law.

The healthcare legislation working its way through Congress is supposed to cut the rolls of the uninsured by 30 million, but not until 2019. What the president won't say if he signs the bill into law is that the number of uninsured will get worse before it gets better.

That’s a problem for millions of people, who won’t get what the Democrats have promised. But it’s also a problem for President Obama, who hopes to be reelected in 2012.

The Congressional Budget Office presents a comforting but misleading view of how the overhaul will affect the uninsured. According to CBO, 50 million people will be uninsured this year and every year until subsidies for new coverage kick in. Although enrollment in Medicaid and the low-income Children’s Health Insurance Program will decline, private insurance is expected to increase enough to keep the total count of uninsured constant.

To get the full benefit of subsidies available in January 2013, insurance enrollment would have to be held in the fall of 2012—in other words, during the weeks leading up to the presidential election.

But what if private insurance does not take up the slack? CBO could not have accounted fully for the loss of 5 million jobs last year, the sharpest drop in employment in 30 years. Fewer jobs mean more people without health insurance. A prolonged recession, which seems increasingly likely, will make it that much harder to solve the problems of the uninsured.

To make matters worse, the Democrats’ health legislation fails to dampen the incentives that drive up health costs and push people out of insurance. Waiting until a legislative victory was virtually assured, Office of Management and Budget Director Peter Orszag admitted that neither he nor anyone else knows what will really work to restrain health spending. But that means we will not see health costs shrink any time in the near future—particularly when the government is pumping close to a trillion dollars into the health sector over the next decade.

The Congressional Budget Office presents a comforting but misleading view of how reform will affect the uninsured.

With health cost inflation continuing to rise unabated at over 6 percent a year and an economy struggling to recover from a deep recession, the plight of the uninsured will substantially worsen before Washington begins to roll out the subsidies. Taking these factors into account, we estimate that the number of uninsured will reach 56 million before the new spending initiatives take effect in January 2014 under the Senate timetable.

It’s not surprising that the House is pushing to start the subsidies a year earlier. They realize the political risks of breaking their promises of universal coverage and lower health costs. Since the House Democrats can’t lower costs, they want to start the coverage expansion sooner. That increases spending in an already bloated bill by $200 billion.

The Democrats’ health legislation fails to dampen the incentives that drive up health costs and push people out of insurance.

Although it seems unlikely, let’s suppose that the House wins the argument and insurance subsidies become available at the beginning of 2013. There’s another political downside that House Democrats seem to have ignored. To get the full benefit of subsidies available in January 2013, insurance enrollment would have to be held in the fall of 2012—in other words, during the weeks leading up to the presidential election.

Even the best-designed program has inevitable start-up problems, and a major restructuring of health insurance is even more prone to the mistakes and confusion that make great headlines for Republicans. If you doubt that, look at the press coverage of the early enrollment experience for the Medicare Part D prescription drug benefit. Democrats took glee in accusing the Bush administration of creating an unworkable system—until, a few months later, it began to work.

With much more complicated legislation attempting to restructure one-sixth of the economy, the chance that everything will go off without a hitch is zero. Better to delay the insurance expansion than to risk losing the White House.
In light of the diminishing public support for national healthcare overhaul, the unflagging efforts by the Obama-Pelosi-Reid team to achieve a core Democratic goal even at great political risk deserve grudging admiration. Unfortunately for the uninsured, they will continue to wait for insurance long after Obamacare becomes law.

Joseph R. Antos is the Wilson H. Taylor Scholar in Healthcare and Retirement Policy at the American Enterprise Institute. Stephen T. Parente is a professor of finance at the University of Minnesota.

FURTHER READING: Antos earlier criticized “The Troublesome Direction in Healthcare Reform” and argued that true healthcare reform must “Increase Customer Choice.” Dustin Chambers explored “What Is Driving Rising Healthcare Costs?” while Scott Harrington reveals “The AARP Paradox.” Veronique de Rugy explains “The High Cost of No Price” in healthcare, and “Why Reform Will Cost Taxpayers Much, Much More.”

Image by Dianna Ingram/Bergman Group.

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