Thursday, February 07, 2013

Amazingly bad cost estimates

The CBO has just released a much more pessimistic assessment of how much Obamacare is going to cost and how much it is going to benefit people.
On several important measures of the law’s success, CBO’s numbers are pessimistic compared with earlier estimates: Fewer uninsured people will get coverage, insurance options will be more limited, and more employers will stop covering their workers. Perhaps most noteworthy, the report suggests that the new health insurance marketplaces set to launch later this year are unlikely to be completely ready in time.
The CBO is already forecasting the program will cost 29% more than they forecast last year.
The Congressional Budget Office on Tuesday quietly raised the 10-year cost of ObamaCare's insurance subsidies offered via the health law's exchanges by $233 billion, according to a Congressional Budget Office review of its latest spending forecast.
The CBO's new baseline estimate shows that ObamaCare subsidies offered through the insurance exchanges — which are supposed to be up and running by next January — will total more than $1 trillion through 2022, up from $814 billion over those same years in its budget forecast made a year ago. That's an increase of nearly 29%.

The CBO upped the 10-year subsidy cost by $32 billion since just last August.

In part, this jump is because more people will get insurance via the exchanges than it had forecast. Where the CBO had seen 22 million enrolled in an exchange in 2022, it now figures 25 million will be.

That explains only part of the cost hike. The rest is largely the result of the CBO's sharp increase in what it expects the average subsidy will be.
And, as Erika Johnson points out, the costs are more than monetary when we start to figure out how many man hours businesses will need to spend to figure this whole thing out.
It’s highly useful to remember that the many costs of ObamaCare are not merely monetary ones; every hour that an individual or business spends complying with the many twists and turns of the new health care regulations is an hour spent not doing something else. This is a major opportunity cost that’s going to take a huge chunk out of American productivity; if the White House sincerely thinks that even more regulations and compliance costs are going to do anything to spur us along after four years of a whimpering economy, they’ve got another thing coming (although they so far seem perfectly content to sweep the jobs-and-economy issue under the rug and just keep laboring under this “new normal”).
It sounds like predictions of the cost of Obamacare are going to follow the model of original estimates of Medicare's costs.
In 1965, as Congress considered legislation to establish a national Medicare program, the House Ways and Means Committee estimated that the hospital insurance portion of the program, Part A, would cost about $9 billion annually by 1990.v Actual Part A spending in 1990 was $67 billion. The actuary who provided the original cost estimates acknowledged in 1994 that, even after conservatively discounting for the unexpectedly high inflation rates of the early ‘70s and other factors, “the actual [Part A] experience was 165% higher than the estimate.”

Medicare (entire program). In 1967, the House Ways and Means Committee predicted that the new Medicare program, launched the previous year, would cost about $12 billion in 1990. Actual Medicare spending in 1990 was $110 billion—off by nearly a factor of 10.

Medicaid DSH program. In 1987, Congress estimated that Medicaid’s disproportionate share hospital (DSH) payments—which states use to provide relief to hospitals that serve especially large numbers of Medicaid and uninsured patients—would cost less than $1 billion in 1992. The actual cost that year was a staggering $17 billion. Among other things, federal lawmakers had failed to detect loopholes in the legislation that enabled states to draw significantly more money from the federal treasury than they would otherwise have been entitled to claim under the program’s traditional 50-50 funding scheme.
Isn't that just an amazing bit of bad luck that Congress is just so very bad at estimating costs of a program because they can't figure in all the unintended consequences of what their supposedly super-duper well-designed program will involve? Just darn bad luck.