12.31.2010 0

Repealing ObamaCare a Good Start to Entitlement Reform

  • On: 01/05/2011 09:24:14
  • In: Health Care
  • By Robert Romano

    One of the first orders of business the House of Representatives under Speaker John Boehner’s reign will be to repeal the ObamaCare legislation. The bill included a massive expansion of the Medicaid program with 23.8 million potential new enrollees as well as taxpayer-subsidized coverage of up to 400 percent of the poverty level for those aged 25-65, or another 63.6 million covered at some level. That means there are about 91.5 million people eligible for ObamaCare.

    If the average cost for new Medicaid enrollees is $4,950 federally — that’s about what it is today — Medicaid costs could rise approximately $117.8 billion a year. And if the average cost for the subsidized insurance exchanges is about $1,500 per person, the costs there will be about $95.4 billion annually. That’s $213.2 billion in new spending each year once the program is fully implemented, or a $2.13 trillion ten-year price tag.

    Some studies have quibbled that some of the higher cost estimates of ObamaCare assume universal participation, such as Kaiser Family Foundation, which assumes a standard participation rate in Medicaid of only 57 percent, even with the individual mandate to carry health insurance. However, considering the individual mandate, and the fact that 96 percent of seniors participate in the Medicare program, a near universal participation rate is not as far-fetched as these studies contend.

    Medicaid already has about 60 million enrollees at an annual cost federally of $297 billion (about $4,950 per person). Then, the other big entitlements, Social Security and Medicare, cost $730 billion and $491 billion respectively, each year. The costs will jump this decade as the Baby Boomers retire, with the ten-year price tags totaling $19.9 trillion through 2020.

    That means if ObamaCare were implemented in full in 2011 — it won’t be until 2014, but just for the sake of argument — the costs of entitlements would rise to $22 trillion for the next ten years, or about $2.2 trillion on average every year.

    Problem: Social Security and Medicare payroll taxes will only take in $11.354 trillion through 2020. There is no payroll tax for Medicaid, nor any for subsidized insurance coverage for up to 400 percent of the poverty level. The benefits will just come out of the general fund.

    Which means that the expansion of Medicaid and insurance subsidies will most certainly eat into the funds that otherwise would have been dedicated to senior citizen entitlements. Even the $26.4 billion annual revenue projected by CBO through 2020 from excise taxes on higher-premium insurance plans won’t cover the $213.2 billion yearly cost.

    In other words, ObamaCare represents a new unfunded liability in the budget. To pay for it, the money will have to be borrowed, meaning there will be less money for other programs. That is the primary reason why ObamaCare must be repealed.

    But even if it is, while that would be a good start, there would still be an $8.59 trillion ten-year shortfall in entitlements through 2020. Even factoring out the unfunded liability of Medicaid, Social Security and Medicare will spend approximately $4.9 trillion more than the programs are expected to take in via payroll taxes, or $490 billion every year, according to the Office of Management and Budget.

    That, by definition, is unsustainable.

    Americans for Limited Government (ALG) has proposed one way to approach reducing the annual $1.4 trillion annual deficit: Reduce spending across the board to 2007 levels of $2.7 trillion. That would result in about $800 billion in instant savings. “Then,” said ALG President Bill Wilson, “if lawmakers wished to keep entitlement and defense spending where they currently are, they would have to find about another $200 billion of cuts or so to make from the discretionary budget.”

    While that would go a long way to balancing the budget in 2011, it would still do nothing to rein in the structural deficits the entitlement programs pose. Which means House Speaker John Boehner and the rest of Congress have a big problem to deal with. Even under the rosy scenario outlined by the Social Security and Medicare trustees, the “trust funds” will run out in 2037 and 2029, respectively. Then, exploding benefits would have to come solely out of annual revenue.

    America cannot afford to wait that long to deal with these imbalances. In addition to repealing ObamaCare, 2011 is the year Boehner should put real entitlement reforms on the table. It is impossible to discuss reducing the $14 trillion national debt when the nation plans to borrow another $10.6 trillion by 2020 to pay for entitlements. Not to mention interest owed on the debt, which by the way will total $5.777 trillion the next ten years.

    The goal should be to find a way to guarantee benefits for today’s seniors and to phase the programs out for those under the age of 50. Like ObamaCare, Social Security and Medicare have made promises that cannot be kept in the long run. But getting rid of ObamaCare is not even half of the problem that must be addressed to bring the nation’s fiscal house into order.

    Robert Romano is the Senior Editor of Americans for Limited Government.

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