A $111 billion budget increase to support health insurance exchanges

Buried somewhere in the President’s proposed new budget is an additional $111 billion to subsidize the people enrolled in the health insurance exchanges beginning in 2014. Families with incomes up to four times the poverty level will be eligible for premium and cost sharing subsidies.

There are many explanations for the increase including this from the Treasury Department:

About two-thirds of the increase is due to effects of newly signed legislation that raises costs for one part of the health care law, but still saves the government money overall. The rest is due to technical changes in Treasury assumptions about such matters as the distribution of income in America.

“The estimates do not assume changes in what exchanges look like, the cost of insurance, or the number of Americans who will get their insurance in this new marketplace,” Treasury spokeswoman Sabrina Siddiqui said in a statement Friday.

Others simply think the original estimate was too low, including the Chief Actuary of Social Security. However, does the reason really matter? The fact is that an increase in a budget that already adds to the deficit is not encouraging.

My opinion is that the original estimate was too low for several reasons including (1) there will be more people enrolled in exchanges than estimated, (2) the cost of insurance within the exchanges will be higher than estimated, mainly because nothing has been done to manage costs in the private sector thus causing the amount of subsides required to comply with the law to be higher than predicted. A growing number of mandates for “free” coverage will not help the situation.