Daniel Mitchell at Cato makes the trite but shockingly simple observation that it is only necessary to stop increasing expenses to balance the budget without raising taxes. Without spending increases the natural growth in GDP would proportionally increase tax revenues and overtake the fixed expenses. Then government would move into the black.
a spending freeze (similar to what we got in 2012 and 2013) would almost balance the budget in 2016 and would definitely produce a budget surplus in 2017. I also highlight what would happen if politicians merely limited spending so it grew at the rate of inflation, about 2.3 percent per year. Under that scenario, the budget would be balanced in 2019 (actually a $20 billion surplus, but that’s an asterisk by Washington standards).
Of course you knew this already because every householder understands that keeping spending constant while salary increases eventually means you can start paying off your debt. So if the solution’s so simple why does Washington have such a problem with money? The problems is with rates of change. The rate at which Washington increases spending is greater than the rate at which revenues increase.
They’ve just gotta have more — and more — each year. But Washington really doesn’t like to talk about changes in rates. Sarah Kliff happily reports that “January [is] the first month that the Obama administration has beaten an enrollment target” but adds “however, the Obama administration still falls short of projected, cumulative enrollment by 1 million people, largely due to the anemic sign-ups in October and November”. And of course, the enrollment target for January itself was lower than December’s.
The good news is that they can report more enrollees. The bad news is they’re further behind in what really matters — money.
Obamacare is a wonderful case study of how to rob Peter to pay Paul. The seed money for the president’s flagship health subsidies came from reducing Medicare payments to the elderly. “Obamacare financed its assault on existing insurance arrangements in part by $156 billion over 10 years in direct cuts to Medicare Advantage plans — cuts to be exacerbated by indirect spillovers from changes in the Medicare Advantage funding formula.”
The plan was to recoup that money by soaking the “young invincibles”, a plan that is failing so badly that insurance companies have now spent $40 million in advertising to pull in Pajama Boy and his buddies. “The insurer spending was widely expected. The industry has a lot to lose if people – particularly young and healthy ones, who don’t cost a lot to insure – do not sign up for health insurance in droves this year.”
Without the young they’ll be no option but to let the elderly twist in the wind. “The options: raise premiums, reduce the optional benefits, pull out of certain counties, increase cost-sharing, or limit physician and hospital networks. This is a menu of potential to harm seniors’ finances and health care choices.”
The situation is exactly like the classic Ponzi scheme. They borrowed from the elderly to pay out their “subsidies” but the only way to make good the hit on the old is to overcharge the young. Which leaves the problem of how to serve the young. It’s a system that can only sustain itself by finding more and more new sources of money to keep paying off the old markers. At some point the system has to break even. The problem is it’s not.
When some of the largest insurance firms in the country are unable to absorb the payment cuts and have to cut significant numbers of physicians from their networks, there is little hope for smaller plans and, more importantly, the seniors who rely on them.
More disruption will come next year unless the administration exercises its discretion to block further Medicare Advantage cuts.
The rate at which Obamacare is burning money is exceeding the rate at which it is finding new sources of funding. Even the money used to launch the exchanges themselves needs paying back. Investors.com writes: “A little-noticed problem is fast emerging in states that decided to set up their own ObamaCare exchanges. Many of them face financial crises once the federal grant money runs out.”
After taking nearly $4 billion in federal grants to set up and run their exchanges this year, 14 states and the District of Columbia are supposed to be self-sufficient by next year.
At least that’s what the ObamaCare statute says (which these days doesn’t mean much). But from the looks of it, many are heading into a fiscal brick wall.
California, for example, is supposed to be a big ObamaCare success story. But it faces a $78 million shortfall next year and a $34 million deficit in 2016. So the state is setting aside $184 million of its federal grant money to offset those projected deficits.
Executive Director Peter Lee told the state finance commission that Covered California still faces a “long-term sustainability” problem.
Minnesota’s MNSure, meanwhile, is looking at deficits equal to 11% of revenues next year and 13% in 2016.
Everybody knows that sooner or later, someone will be around to collect. Nobody realizes this more than Obama himself. And this helps explain why he’s constantly changing the text of Obamacare itself. Many pixels have been spilled to denounce the wanton way in which the president has changed and continues to change the deadlines that Nancy Pelosi, presumably with his help, wrote into the state. For example Megan McArdle has gone so far as to say “Obamacare Is Whatever Obama Says It Is”.
Sarah Kliff at the Washington posts thinks the changes are no big deal, but Rich Tucker at Heritage thinks they go straight to the rule of law. Be that as it may it is probably fair to observe that the rapid changes represent a way for the president to stay one jump ahead of the markers he has to pay off. He is in a fatal kind of race one in which his promises are mounting at a rate faster than he can keep them. So to keep the consequences from overtaking him, he’s postponing one mandate after the other. Lightening ship. Anything to keep ahead.
The president is in a situation similar to that of Indiana Jones who is pursued by a gigantic accelerating boulder. He took the money from the elderly without really knowing how he was going to square the account. In fact he’s been creating new expenses and commitments at a dazzling pace. Risk corridors for the insurance companies, reinsurance payments, retroactive coverage to people who can’t even be found in the porous Obamacare system …
The only way he can keep ahead of the thundering mass of granite behind him is to issue exemption after exemption after exemption in the hopes of surviving one more instant. What we are witnessing now is the transformation of a financial crisis into a political and finally a constitutional crisis.
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Being caught on a Ponzi treadmill is no fun. Pretty soon you start throwing even your close associates to the wolves. Anything to live for one more second. Perhaps that is why even Democratic candidates are engaged in the remarkable spectacle of distancing themselves from a program their president supported. They don’t want to be flattened by the rock.
it is fascinating to watch a Political Action Committee associated with Nancy “we’re going to run on Obamacare” Pelosi slamming the White House for “the disastrous healthcare website” and boasting — without any time qualification, it should be said — that its man “voted to let you keep your existing health plan.”
Obama is one step ahead for now. The problem is the rock is getting faster. Its the rate that matters.
What exactly it means to be run over by the rock was spelled out by Kaiser Health News. Before Obamacare “Half of American families spent 3.1 percent or less of their income on health care before the law took effect—with those who have job-based coverage generally spending less than those who buy their own insurance, studies by Linda Blumberg at the Urban Institute show.”
A quarter of all households spent 8.2 percent or more on health care, which includes premiums and out-of pocket costs, such as copayments for doctor visits, hospital care or prescription drugs. Those are the ones most likely to struggle to pay bills – and who risk falling into medical debt.
But while Obamacare may mean cheaper insurance for certain target groups it will be devastating to the middle class. “The lure used to get uninsured Americans to sign up for health law coverage was the promise of generous premium subsidies. But the promise comes with a catch for almost 3 million people earning between three and four times the federal poverty rate: They may have to pay up to 9.5 percent of their income toward that premium before the subsidy kicks in.”
So it’s an increase from 3.1 to 8.2 up to the new 9.5 percent. And that’s just the premium. Add the copayments and other out of pockets to that and you’re looking at serious money.
And those who make between three to four times the poverty level — less than 16 percent of all consumers eligible for federal subsidies – must pay the highest percentage of their income, or up to 9.5 towards the premiums before getting federal help. Not everyone will pay that much because premiums vary around the country and some people will be able to purchase a plan for less than 9.5 percent of their income.
The millions who qualify for Medicaid, the state-federal program for the poor, generally pay little or nothing for their health care.
Most people with job-based coverage – the majority of insured Americans — are not eligible for subsidies and therefore not affected by the 9.5 percent requirement….
The law’s drafters set the 9.5 percent benchmark during final negotiations over the health law, mainly to meet a directive from the White House and congressional leadership that the law cost less than $1 trillion over 10 years and contain provisions to pay for that, which included new taxes and fees on drug makers, insurers and high-income Americans. The primary goal was to get the bill passed, not figure out what struggling middle-class families thought they could afford. An earlier version would have required some families to pay even more.
The guys who will really get whacked are those who lose job-based insurance. This is why it was so imperative to delay Obamacare’s implementation for small and medium businesses. One of Obamacare’s eventual goals is get people off job-based coverage (thereby liberating them from job-lock). But once that happens the 9.5 percentage hit will hit the newly liberated like a ton of bricks — unless they become beggars, in which case they qualify for subsidies.
Once it gets that far the Democratic Party is flattened. So it’s a race to November 2014. If Obama can make it that far then he’s got the rubes in the bag.
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