Obamacare: America's Last Entitlement

Thirty-one and a half months after the Affordable Care Act was signed into law by President Obama, we finally have our answer. The President’s re-election, and the Democrats’ gains in the Senate, mean that Obamacare is here to stay. The conservative movement to repeal the law has been defeated. But we know something else: that America’s unsustainable fiscal situation means that Obamacare is destined to be the last major entitlement enacted by the United States. Indeed, Obamacare’s victory sets off a stiff competition for taxpayer dollars between Obamacare, Medicaid, and Medicare. It’s a battle that the elderly, in particular, are likely to lose.

According to the Congressional Budget Office, there is only one category of federal spending that is increasing as a share of the economy: health care. Today, government spending on health care is dominated by two programs: Medicare, for the elderly, and Medicaid, for the poor. In 2012, federal and state governments will spend $1 trillion on these two programs, a figure that will nearly double over the next eight years.

Today, new spending on Obamacare-related programs—primarily the expansion of Medicaid and the new subsidized insurance exchanges—is negligible. By 2017, the federal government will be spending an addition $206 billion a year on Obamacare programs, on top of the $1.1 trillion it spends elsewhere. And these figures don’t count the hundreds of billions of dollars that state and local governments spend on health care, Medicaid in particular.

It’s likely that Obamacare’s subsidized insurance exchanges grow at a faster rate than the CBO currently projects. For one thing, tens of millions of employed individuals are likely to lose employer-sponsored coverage, and instead seek coverage on the exchanges. For another, state governments are likely to maximize the number of residents that they place on the federally-subsidized exchanges, so as to minimize the number of residents that are in partly-state-funded Medicaid.

The government expects that there will be approximately 62 million Americans on Medicare by 2020. The CBO assumes that 25 million Americans will enroll in the exchanges that year. But the CBO assumes minimal employer dumping, and no state-based arbitrage between Medicaid and the exchanges. If, say, 20 million workers are dumped into the exchanges, and 5 million Medicaid enrollees are transferred to them, exchanges could have 50 million enrollees in 2020.

If that were to happen, America would be faced with a titanic battle between two large, subsidized constituencies: those on the Obamacare exchanges, and those on Medicare. While elderly voters are famously active at the ballot box, it’s those on the exchanges who would have much more money at stake. After all, the average retiree is on Medicare for about 14 years; a low-income high-school graduate could stay on Obamacare for 47 years.

Politicians will fear younger voters more than older ones

Who will win that fight? If history is any guide, the Obamacare beneficiaries will win, because they will have more money at stake, and comparable numbers to seniors’ at election time. Obamacare will destroy the old individual insurance market, leaving the uninsured with no recourse other than the subsidized exchanges. Simple Medicare reforms, such as raising the retirement age, will be used to fund the growing number of people on the exchanges.

If Obamacare’s exchanges do end up conquering Medicare, there will be no shortage of ironies. The Obamacare exchanges use a means-tested premium-support system that is to the right of the one proposed by Mitt Romney, Paul Ryan, and Ron Wyden for Medicare. Obamacare’s premium-support payments grow at a specified rate, one that may not keep up with health-care inflation: the precise criticism that Democrats leveled against Paul Ryan’s old Medicare plan. And similarly, it might be Obamacare—the bane of Republicans’ existence—that ends up replacing Medicare with a system much like the one favored by…these very same Republicans.

Or, we could just keep spending infinite amounts of money on both programs until we go bust.

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