The Congressional Budget Office estimates that between 5 million and 20 million Americans will lose their employer-provided coverage. Former CBO Director Douglas Holtz-Eakin puts this figure at a whopping 35 million. The Iraq War cost $1 trillion and produced a quagmire abroad. Obamacare will cost $1 trillion and will create a quagmire at home. Americans need an exit strategy.

How Obamacare Is Like the Iraq War

America needs an exit strategy from Obama's health care law.

Shikha Dalmia | April 2, 2013

Not even the most ardent defenders of Obamacare—aka the Patient Protection and Affordable Care Act—claim anymore that the law will lower health coverage costs for Americans. How, then, will it achieve universal coverage, its central goal?

The short answer is, it won't.

Last week, major insurers warned of double-digit premium hikes for small businesses and individuals when Obamacare goes into effect next year. Likewise, the nonpartisan Society of Actuaries this week estimated that costs to insurers that provide coverage to individuals will rise 32 percent on average within the first three years of the law, with premium increases sure to follow.

Similar analyses last year had already forced MIT's Jonathan Gruber to admit that his projections that the law would lower premiums for young and old alike were wrong — even though his projections were instrumental in securing Obamacare's passage. Gruber's revised estimates now show that even the least affected states, such as Colorado, will experience premium hikes of nearly 20 percent by 2016.

Clearly, the word "affordable" should be scratched from the law for the sake of truth in advertising. But what about the "protection" part—namely, universal coverage?

That too is a lie.

Before Obamacare, every percentage-point increase in premiums would price a few hundred thousand people out of the market. Obamacare's supporters, however, claim that the law's complicated scheme of mandates and subsidies will prevent this from happening. But that's unlikely, notes Greg Scandlen, founder of Consumers for Health Care Choices. For starters, the Supreme Court dealt a big blow to Obamacare's key mechanism for covering the uninsured by making its Medicaid expansion optional for states—and many states are opting out. An even bigger problem, Scandlen notes, is that Obamacare has created perverse incentives that will encourage employers to drop coverage in droves—and employees to forgo it in droves.

The law's play-or-pay mandate requires employers with more than 50 full-time employees to offer a lavish panoply of benefits or else pay a penalty. Many small businesses will simply choose to stay small to avoid the mandate, which means less hiring and more uninsured.

As for large companies, McKinsey & Company, a private consulting group, estimated that nearly 30 percent will pay rather than play—that is, pay modest fines instead of paying several times as much to give robust coverage to employees. The Congressional Budget Office estimates this might cause between 5 million and 20 million Americans to lose their employer-provided coverage. Former CBO Director Douglas Holtz-Eakin puts this figure at a whopping 35 million.

It doesn't take a rocket scientist to understand their calculation here: The penalty will cost a company $2,000 per employee, while a family insurance plan costs $12,000 to $16,000. This means that the company can pay the penalty, give employees generous raises to buy their own coverage, and still come out ahead.

But will employees buy coverage or just pocket the extra wages?

Obamacare's supporters bet they will buy insurance because Obamacare will subsidize the purchase and because they will otherwise have to pay penalties under the law's individual mandate.

But Scandlen notes that the penalties are meaningless. Not only are they small, they are easily avoided. The only way Uncle Sam can extract them is by subtracting them from taxpayers' income tax refunds. Simply avoid excessive tax withholding and the feds have no way of collecting.

As for the subsidies, Scandlen maintains that their allure, too, is overrated. They will be relatively modest for middle-income families, and to qualify, purchasers will be required to obtain very expensive "Cadillac" coverage.

People will also have the option of waiting to buy insurance until they get sick. Thanks to Obamacare's "guaranteed issue" provision, insurance companies can't turn anyone away, even those calling from the intensive care unit. This will only deepen the problem of the "adverse selection death spiral" as healthy people stay out of the insurance market while sick people jump in. This, in turn, will trigger even more premium hikes.

The Iraq War cost $1 trillion and produced a quagmire abroad. Obamacare will cost $1 trillion and will create a quagmire at home. Americans need an exit strategy.