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A Project of The Annenberg Public Policy Center

Barrasso’s Subsidy Speculation

Sen. John Barrasso engaged in wild speculation in claiming that lower-income subsidies will cost $900 billion a year under the federal health care law. He assumes that all employer-based insurance in the United States will disappear.

In an op-ed for Roll Call, the Wyoming Republican and orthopedic surgeon said that "incentives in the health care law will encourage businesses to drop insurance coverage," adding that those employees will join state-based exchanges, increasing the cost of subsidies:

Barrasso, Roll Call, July 21: The employees who are “dumped” will be forced to get their insurance through heavily subsidized insurance “exchanges” run by Washington.

The annual cost of subsidizing these ballooning numbers of insurance policies — about $900 billion — is nine times what the White House has claimed. In short, taxpayers will get stuck with a bill of nearly a trillion dollars every year.

What Barrasso doesn't mention is that his $900 billion figure assumes that every single employee with work-based coverage in the country will be "dumped."

When we asked the senator's communication director, Emily Lawrimore, where Barrasso got his figure, she cited a Washington Post op-ed by Republican Sen. Ron Johnson of Wisconsin and Douglas Holtz-Eakin, a former director of the Congressional Budget Office and adviser to Sen. John McCain's 2008 presidential campaign. They speculated about what would happen if hordes of employers dropped their insurance plans:

Johnson and Holtz-Eakin, June 16: If half of the 180 million workers who enjoy employer-provided care wind up in the exchanges, the annual cost of Obamacare would increase by $400 billion by 2021. If the other half eventually follows suit, and all American employees wind up in the exchanges — which we believe is a goal of Obamacare — then the annual cost of the exchanges would increase by more than $800 billion.

That's a lot of "ifs" — and of course, contrary to President Obama's stated intent. The Congressional Budget Office, meanwhile, has said that the subisidies would cost $92 billion by 2019 and that there would be a net decline in employer-provided insurance of 1 million persons, with some employees gaining coverage and others losing an offer of coverage. The chief actuary of the Centers for Medicare and Medicaid Services had the same estimate for employer coverage. The Lewin Group, a subsidiary of UnitedHealth Group that operates independently of that company, has said the decline in work-based coverage would be 2.8 million net.

The CBO acknowledges that "[s]ome commentators have expressed surprise" at its employer-based insurance estimates, but, it says, there are "substantial financial advantages" for employees and "new incentives" for employers to continue with work-based insurance policies.

Barrasso, Johnson and Holtz-Eakin question that, but it's a big leap to assuming that 180 million would lose employer plans, and that the federal government would pay to subsidize all those exchange plans for low- and moderate-income individuals. In fact, Holtz-Eakin previously has estimated that 35 million who have employer plans and who would qualify for subsidies would end up on the exchanges. That number, too, is beyond what CBO has projected, and it would add $1 trillion to the CBO's estimated cost of subsidies over five years, according to Holtz-Eakin. But even that assumption, which Johnson and Holtz-Eakin call "safe" in their op-ed, is nowhere close to the increased cost Barrasso claims as if it were fact.

Lawrimore, Barrasso's communications director, told us there were more and more examples of the health care law encouraging businesses to drop coverage. She pointed us to a July 21 article in The Hill, but that story said that a provision in the law "designed to prevent businesses from dropping coverage for their workers could inadvertently leave families without access to subsidized health insurance." The article said it wasn't clear how officials would apply the provision to family coverage; the provision says that individuals who have an offer of "affordable" insurance from their employer can't get subsidized coverage through the exchanges. One conservative group estimated that changing this aspect of the law would cost $50 billion per year.

There are certainly plenty of questions and unknowns about how the implementation of the health care law will play out, and whether estimates from the CBO and other groups will turn out to be correct. We can't predict the future in that regard. But we do think the public deserves to know when a claim is speculation, rather than fact — especially when it diverges so far from projections by neutral experts.

One last note: Barrasso's op-ed concerned his introduction of a bill that would give individual Americans the ability to get a "waiver" from the federal health care law. For the record, the Obama administration has been granting waivers to employer health plans to allow them to opt-out of the annual benefit limit provision of the law until 2014. The law says that annual coverage limits for health plans can't be less than $750,000 for most of this year. The cap will be raised until there is no annual limit in 2014. That year, the exchanges, subsidies and expansion of Medicaid kick in.

— Lori Robertson