November 9, 2013

HuffPo and AP: Obama Admin Considering ‘Administrative Fix’ For ‘Sticker Shock’; Not Curious About Potentially Steep Cost

Sam Stein, who poses as a journalist while toiling at the Huffington Post (he lost any legitimate claim to the title when he wouldn’t back away when caught red-handed pretending to know something he couldn’t possibly know about John McCain’s vetting or lack thereof of Sarah Palin in September 2008), wrote on Thursday (HT Hot Air) that “The Obama administration is considering a fix to the president’s health care law that would expand the universe of individuals who receive tax subsidies to help buy insurance.”

Of course, Stein didn’t look into how much this “fix,” better described as a “huge spending increase,” might cost, and “somehow” forgot that any such “fix” substantially increasing tax subsidies would destroy President Obama’s unqualified 2009 pledge that “I will not sign a plan that adds one dime to our deficits — either now or in the future. I will not sign it if it adds one dime to the deficit, now or in the future, period.” Neither did the Associated Press’s Ricardo Alonso-Zaldivar in a Friday evening writeup. Philip Klein at the Washington Examiner did remember Obama’s pledge. He also engaged in genuine journalism by looking at what kind of cost might be involved in the “fix” (bolds are mine):

A ‘fix’ to boost Obamacare subsidies would explode cost

ObamaAndCalculator… It’s hard to imagine what such a fix would be, as anything that would adjust the formula for calculating subsidies would require an act of Congress.

But given that the administration has found various ways to re-write the law (such as delaying the enforcement of the employer mandate and weakening income verification measures), it’s worth examining further, especially because Stein is well-sourced within the Obama White House. (That’s because he might as well be an Obama administration flak. — Ed.)

Stein writes that, “According to the administration source, the White House is ‘looking at an administrative fix for the population of people in the individual market who may have an increase in premiums, but don’t get subsidies.’”

Right now, subsidies for individuals to purchase insurance through an exchange top off at 400 percent of the federal poverty level, which is the equivalent of an individual earning about $46,000.

… past cost estimates from the Congressional Budget Office show us just how expensive changes to the subsidy formula might be.

In June 2009, the CBO evaluated a draft proposal from the Senate Health Education Labor and Pensions Committee that offered subsidies as high as 500 percent of the federal poverty level.

In the period from 2014 through 2019 alone, CBO estimated that the exchange subsidies would cost $1.2 trillion.

At the time — Obama signed the final legislation the following March, with the less generous subsidies — CBO estimated they would cost $458 billion over the same six-year period.

Sure, in theory, any “fix” to subsidies could be more targeted and might not raise costs quite this much. But still, this provides an idea of how costly it can be to play around with subsidies, especially if they are adjusted enough to substantially mitigate the problem of “sticker shock.”

So the “fix” might cost as much as $750 billion ($1.2 trillion minus $458 billion, rounded) over just six years. Obviously, the actual number would greatly depend on how many middle and upper middle-income earners get thrown into the exchanges as a result of individual, small employer group, and large employer-sponsored plan terminations during that time.

Readers should recall that one of the reasons Obamacare’s implementation was pushed into 2014 — besides the need to be able to lie about it during the 2012 reelection campaign without getting called out by reality — was that Congress couldn’t make the law theoretically deficit neutral over 10 years unless it only collected taxes during the first three or four years before putting the exchanges into place for the final six or seven.

Even then, as Robert Rector at the Heritage Foundation told me in a phone coversation shortly after the law passed, they couldn’t make the numbers work without creating what I have been calling “subsidy cliffs.” These are the points at which affected persons or families cross their respective four times the poverty level thresholds.

Those cliffs are horribly steep. Research I did with the generic version of the Kaiser Family Foundation’s Obamacare calculator in late Septmber (the calculator has since been customized at the state and county level) identified the following four cliffs for a 60 year-old person, or for a couple where both spouses are 60:

- One adult, no children — a $3,916 subsidy at $45,960 in income disappears at $45,961.
- One adult, one child — a $4,214 subsidy at $62,040 in income disappears at $62,041.
- One adult, two children — a $4,214 subsidy at $78,120 in income disappears at $78,121.
- Two adults, no children — a $10,488 subsidy at $62,040 in income disappears at $62,041.
- Two adults, two children — a $11,266 subsidy at $94,200 in income disappears at $92,401.

Though virtually everyone who is 50 or older faces subsidy cutoffs at the income breaks identified above (and some who are younger, as seen in the story of the Brooklyn couple who made news earlier this week when they announced that they are considering divorce), the worst “sticker shock” stories are coming from couples who are 50 and older.

It doesn’t take a lot of insight to realize that Obamacare has some powerful disincentives to work and discouragement of marriage hard-wired into its structure.

It also isn’t difficult to see that “solving” the “subsidy cliff” problem and making them phase out and end at much higher income levels instead of having them disappear at their current levels would be horribly expensive.

Friday evening, the AP’s Alonso-Zaldivar wrote that “a president can’t just pick up the phone and order the Treasury to cut checks for people suffering from insurance premium sticker shock. Spending would have to be authorized by law.” I don’t quite understand, given this administration’s “We Can’t Wait” attitude, how he can be so sure of that.

It’s also legitimate to ask if Obamacare’s drafters and Obama himself knew the scope of the uproar the “subsidy cliffs” would create, and blew it all off in the name of passing a supposedly deficit-neutral bill, one which CBS Evening News anchor Katie Couric then described as having “a certified price tag.”

(Graphic is a portion of a larger one originally created by Ed Driscoll at PJ Media).

Cross-posted at


1 Comment

  1. [...] reflexive response of a liberal in trouble – spend more money [...]

    Pingback by BizzyBlog — November 10, 2013 @ 10:24 pm

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