Tuesday, April 5, 2016

The Federal Government's $146 Billion Obamacare Boo-Boo

Bad things can happen when a government forecast proves to be way off.

Sean Williams
@TMFUltraLong
The Motley Fool
April 3, 2016

There are mistakes, and then there are big mistakes. What the Congressional Budget Office's latest report on federal subsidies revealed was a mistake of monstrous proportions on the part of the federal government.

Here's what a forecasting error looks like
The Congressional Budget Office, or CBO, has been making projections on the future of Obamacare, and healthcare in general, for years. Initially, the CBO had projected that up to 21 million people would sign up for private health insurance using Obamacare's transparent marketplace exchanges by 2016. However, that estimate has been substantially reduced to just 12 million. According to the Department of Health and Human Services, Obamacare enrollment totaled "about 12.7 million" as of the end of third enrollment period (Jan. 31, 2016). Ultimately, the CBO foresees private health enrollment via Obamacare topping out at between 18 million and 19 million people between 2018 and 2026.

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Is Obamacare sustainable? It's anyone's guess at this point
What does the future of Obamacare hold now that its total cost is expected to be 11% higher between 2016 and 2025 than initially expected? That's really anyone's guess, as major changes could be on the horizon.

Obamacare's demise could be the 2016 presidential elections. With the exception of Hillary Clinton, the Democratic Party front-runner who has said she would build upon the progress of Obamacare, the remaining four candidates (Bernie Sanders from the Democratic Party and Republicans Donald Trump, Ted Cruz, and John Kasich) have all suggested that Obamacare would be repealed under their watch. It's unclear how disruptive a full repeal would be for consumers or insurers.

We also have insurers that are struggling to make ends meet, at least in terms of Obamacare plans. UnitedHealth Group (NYSE:UNH), the nation's largest insurer that also happens to be operating in about half of all Obamacare exchanges, warned its investors recently that it could lose nearly $1 billion from its Obamacare plans in 2015 and 2016 combined. UnitedHealth has been crystal clear that it should have waited longer to enter the exchanges, and it's also cautioned that it may completely leave Obamacare's marketplace exchanges by 2017. Peer Humana has also threatened to do the same after individual market losses. The nation's largest insurer being unable to turn a profit and figure things out puts into question the program's long-term sustainability.

We're also seeing premium costs accelerating at a rapid pace. After a period of tame premium cost inflation, the Kaiser Family Foundation estimated the average premium increase of 50 major cities in 49 states at 10.1% in 2016. The transparency of Obamacare's marketplace exchanges was supposed to keep a lid on premium inflation, but crushing losses have caused some insurers, including more than half of Obamacare's healthcare cooperatives, to close up shop. Premium cost inflation like we're seeing in 2016 could make the Affordable Care Act quite unaffordable in short order.

Despite pushing uninsured rates to their lowest levels on record, Obamacare's long-term outlook is starting to look as shaky as ever.

Read more at: http://www.fool.com/investing/general/2016/04/03/the-federal-governments-146-billion-obamacare-boo.aspx


White House Flikr photo 2016


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