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3 "True Lies" About Obamacare From the Latest CBO Report

By Keith Speights – Feb 9, 2014 at 10:00AM

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Will Obamacare result in higher unemployment, insurer bailouts, and fewer uninsured Americans? Here are the facts -- and the fiction surrounding those facts.

Mark Twain famously said that there are three kinds of lies: "lies, damned lies, and statistics."A report from the Congressional Budget Office, or CBO, released this week provided plenty of statistics, many of which related to the Affordable Care Act, commonly known as Obamacare.

But could some inaccurate conclusions be drawn from the CBO report? It depends on how you read the data. Here are three "true lies" about Obamacare from the report -- statements that are technically correct yet fail to tell the full story.

Source: Wikimedia Commons.

1. Obamacare will increase unemployment.
According to the CBO, Obamacare will reduce incentives to work for many Americans, resulting in a lower labor force participation rate than would have otherwise occurred. Although total employment will rise over the next 10 years, the CBO says "that increase will be smaller than it would have been in the absence of" Obamacare.

Does this mean Obamacare will cause the unemployment rate to go up in the coming years? Actually, no. The CBO says that more people will simply choose to drop out of the work force because of the impact of the health-reform legislation. That increases the ranks of the unemployed -- but not the unemployment rate.

There are considerable differences of opinion as to whether this effect is good or bad. The White House said that the drop in labor force participation "reflects the fact that workers have a new set of options and are making the best choices that they can choose to make for themselves given those options." Others, however, point out the CBO's assertion that higher taxes are a key contributing factor in "discouraging work" at the same time that businesses will still be in demand for workers. 

2. Obamacare will result in an $8 billion payoff to insurance companies.
Insurance companies stand to receive a whopping $8 billion from the risk corridors contained in Obamacare, according to the CBO's latest projections. These risk corridors were designed to protect insurers against substantial losses in the first three years of implementation of the health reform law.

Does this mean that health insurers are being "bailed out"? Not when you look at the bigger picture. Yes, the CBO thinks that the federal government will pay insurance companies $8 billion over the next decade. However, insurers will also fork over $16 billion to the government. That doesn't sound like much of a bailout.

There is at least one aspect of the CBO's analysis that involves a great degree of uncertainty, though. Those rosy estimates are based on a review of Medicare Part D risk corridor payments rather than a review of actual Obamacare enrollment data.

How is that enrollment data looking so far? Humana (HUM 0.49%) just announced that it expects to receive between $250 million and $450 million from the government to offset underwriting losses from Obamacare -- a little less than half of which will come from risk corridors. These anticipated underwriting losses will come in large part from lower enrollment of younger (and presumably healthier) individuals.  

3. Obamacare won't make a dent in the number of Americans without health insurance.
The CBO predicts that around 31 million non-elderly individuals in the U.S. won't have health insurance 10 years from now. Back in 2009, President Obama referenced "the more than 30 million Americans who cannot get coverage" in defending Obamacare. So will health reform not even make a dent in reducing the number of uninsured citizens?

It's true that the CBO's figure sounds awfully similar to the number the president cited four years ago. However, there's more to the story.

Obamacare "will markedly increase the number of non-elderly people who have health insurance," according to the CBO, to the tune of 25 million Americans by 2016. On the other hand, as many as 7 million fewer individuals will have employment-based insurance starting in 2016. Obamacare certainly makes a dent in the number of uninsured, multiple dents, in fact -- both good and bad. 

Follow the money
At The Motley Fool, we're always looking for the investment angle in any story. Are there opportunities stemming from these "true lies"? I think so.

The CBO suggests that Obamacare's impact on suppressing labor force participation will take the heaviest toll on lower-wage workers. That could have fast food chains and other employers of lower-wage workers looking increasingly more to automation. Start-up companies such as Momentum Machines are already rolling out burger-making robots.

Unfortunately, Momentum Machines isn't a viable alternative for most investors yet. However, Google (GOOGL -1.02%) is. The search-engine giant has been gobbling up smaller robotics companies. Google is reportedly eyeing automation of supply-chain processes. It would be no surprise if the company's technology ultimately ends up helping employers perform tasks that lower-wage workers handled in the past.

With health insurers paying more to the federal government than they receive and a game of musical chairs with overall numbers of uninsured individuals, should investors stay away from insurers? Not necessarily. Twenty-five states have already expanded Medicaid as part of Obamacare. The CBO thinks more will follow, with 80% of the potentially eligible population residing in states that have expanded Medicaid by 2018.

This presents a significant opportunity for WellPoint (ELV 1.32%) in particular. The nation's second-largest health insurer claims the highest number of Medicaid members. And of the 14 states where WellPoint operates, most have already expanded Medicaid -- most notably California and New York.

Keep in mind, though, that there's no guarantee that the CBO's projections will prove to be accurate. Another quote often attributed to Mark Twain might be worth heeding: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." 

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google and WellPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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