Thursday, May 25, 2017

How To Read An ObamaCare Prediction

Congress’s fiscal scorekeepers are often wrong but never more modest.

By Review & Outlook
The Wall Street Journal
May 25, 2017

The political world waited with rapt attention Wednesday for the oracles at the Congressional Budget Office to release their cost-and-coverage predictions for the revised House health reform bill, which arrived late in the afternoon. But while Washington stood by, two reports emerged from the real world that are far more consequential.

First, the Health and Human Services Department released new research showing that average premiums in the individual market have increased 105% since 2013 in the 39 states where the ObamaCare exchanges are federally run. That translates into about $3,000 more a year for the average family. There are limitations to the data, such as separating ObamaCare artifacts from underlying medical cost movements, but the trend doesn’t reflect well on whoever called it the Affordable Care Act.

Also on Wednesday, Blue CrossBlue Shield of Kansas City withdrew its ObamaCare plans for 2018 in Kansas and Missouri. The insurer cited ObamaCare losses of $100 million, which it called “unsustainable for our company.” The decision will leave 77 of Missouri’s 114 counties, including St. Louis, with a single insurer, and some 31,000 Missourians in another 25 counties with no coverage options. By the way, HHS says premiums have increased by 145% on average in Missouri over four years.

This is real news in real markets that affects people’s lives. So, naturally, the speculative CBO report became the day’s major story.

That news wasn’t all bad for Republicans, not that you could tell from the media accounts. CBO confirmed that the American Health Care Act is a major fiscal dividend, cutting taxes by $992 billion, spending by $1.1 trillion and the deficit by $119 billion over 10 years. Compared to a CBO estimate of an earlier House bill, the number of people with insurance will be “slightly higher” and premiums will be “slightly lower.”

Nonetheless CBO says 14 million fewer people on net would be insured in 2018 relative to the ObamaCare status quo, rising to 23 million in 2026. The political left has defined this as “losing coverage.” But 14 million would roll off Medicaid as the program shifted to block grants, which is a mere 17% drop in enrollment after the ObamaCare expansion. The safety net would work better if it prioritized the poor and disabled with a somewhat lower number of able-bodied, working-age adults.

The balance of beneficiaries “losing coverage” would not enroll in insurance, CBO says, “because the penalty for not having insurance would be eliminated.” In other words, without the threat of government to buy insurance or else pay a penalty, some people will conclude that ObamaCare coverage isn’t worth the price even with subsidies. CBO adds that “a few million” people would use the new tax credits to buy insurance that the CBO doesn’t consider adequate.

The problem with this educated guess about enrollment is that CBO’s models put too much confidence in the effectiveness of central planning. The nearby table shows CBO’s projections about ObamaCare enrollment, which were consistently too high and discredited by reality year after year. CBO is also generally wrong in the opposite direction about market-based reforms, such as the 2003 Medicare drug benefit whose costs the CBO badly overestimated.

Unlike CBO, most economic forecasters publish their assumptions and a range of possible outcomes for different variables. This transparency reveals the uncertainty built into any predictive model, rather than homing in on one number like 23 million, as if it is omniscient. The complication for CBO is that the more it defines its uncertainty, the less authority the political class will invest in its estimates.

This particular credibility gap is exposed in CBO’s treatment of the House compromise on waivers, which would allow states to apply to opt out of certain ObamaCare regulations like benefit mandates. How many Governors would choose to do so, over what time period, in what political context, and how aggressively would they deregulate markets? “Who knows?” is the only honest answer.

CBO allows that there can be no “single definitive interpretation” of how states would respond to new incentives—before claiming that precisely “one-third of the population would be in states that would choose to make moderate changes to market regulations” and precisely “one-sixth of the population” lives where Governors would “substantially alter” those regulations. This isn’t a quantitative economic judgment but a raw political assumption.

Headlines aside, the CBO report matters because it is the fiscal template for Senate negotiations and what policies can be included under the budget “reconciliation” procedure that requires 51 votes. But Senators shouldn’t allow the budget scorekeeper’s opinions about the future to dictate policy or political decisions. Incentives and private competition can produce better outcomes than CBO’s model foresees.

In any case, the real world is throwing off plenty of evidence of the urgent need to repeal and replace ObamaCare, like the Missouri crisis and national rate shock. CBO never saw any of that coming.

Article Link To The Wall Street Journal: