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John C. Goodman / Jul. 10, 2014

ObamaCare Is Costing A Lot More Than You Think

Everybody knows that the new health reform program is expensive. But just how expensive is it? Start with the direct costs. The Congressional Budget Office estimates that spending for all the different parts of ObamaCare (health insurance subsidies, Medicaid expansion, administrative costs, etc.) will come to about $2 trillion over the next ten years. That works out to about $2,000 for every household in America, every year. You won't get a bill for your share of all this, however. Most of the money is collected in hidden ways, such as taxes, health insurance plans, drugs, medical devices and even tanning salons. The cost to you will show up in higher prices, lower wages and (for the elderly) less access to medical care.

Everybody knows that the new health reform program is expensive. But just how expensive is it?

Start with the direct costs. The Congressional Budget Office estimates that spending for all the different parts of ObamaCare (health insurance subsidies, Medicaid expansion, administrative costs, etc.) will come to about $2 trillion over the next ten years. That works out to about $2,000 for every household in America, every year.

You won’t get a bill for your share of all this, however. Most of the money is collected in hidden ways, such as taxes, health insurance plans, drugs, medical devices and even tanning salons. The cost to you will show up in higher prices, lower wages and (for the elderly) less access to medical care.

That $2,000, however, is just the beginning. Turns out there are indirect costs as a result of the harm done to the economy. For reasons I’ll explain below, ObamaCare will cause people to work less and produce less. In fact, University of Chicago economist Casey Mulligan estimates ObamaCare lowers the return from working by 10%. As Harvard economics professor Greg Mankiw explains, that implies a long term loss to the economy on the order of 5% of GDP – or more than $800 billion a year at current prices.

The indirect cost to the economy, then, equals more than $8,000 per household per year – or four times the size of the direct budget outlays.

Adding the two together, the total cost of ObamaCare comes to more than $10,000 per household per year!

What are we getting in return for this humongous cost? Well, if we assume that the $200 billion we are spending every year insuring the uninsured is really worth the money we are spending, then the benefit of ObamaCare is worth one-fifth of the overall cost to the economy to implement it.

But the actual benefit is probably much less than that. One reason why so many people are uninsured is that they don’t think health insurance is worth what it costs. ObamaCare regulations compound that problem by piling on such silly mandates as free contraceptives and free mammograms for healthy women (but women with symptoms have to pay the full cost out of pocket!).

If we make the not unreasonable assumption that people becoming newly insured value their insurance at about half of what it costs,then we are left with a startling conclusion: the cost of ObamaCare is ten times the size of the benefits it creates.

Why is ObamaCare so costly to the economy? As is now well known, ObamaCare is anti-job from the get-go. It imposes a health minimum wage (in addition to the money minimum wage) that can reach almost $6.00 an hour for family coverage. It encourages companies to stay small, because below 50 employees, the employer mandate doesn’t apply. It encourages employers to reduce the amount of hours employees can work because below 30 hours a week, the employer mandate doesn’t apply.

But even more insidious than all that is the fact that the ObamaCare subsides are phased out very quickly as income rises. When you earn an extra dollar, you not only pay income and payroll taxes on that dollar, your take home pay also goes down because the health insurance subsidy you get goes down. Economists call this extra loss of take-home pay for each dollar earned an implicit marginal tax rate. (The explicit rates are the income and payroll tax rates.)

And under ObamaCare, the effect is quite large. According to Mulligan, ObamaCare imposes the third largest increase in marginal tax rates in the past 70 years.

Now, at this point readers may reasonably ask: Is there a way to insure the uninsured without incurring huge costs to the economy? The answer is “yes” and I will address it in a future column.

Originally published at Forbes.

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