Taxpayers in the United States will face a steep bill if the Trump administration signs legislation to extend legal status to so-called “Dreamers,” the illegal aliens who arrived as children and are now protected under the Obama-holdover unlawful executive order known as DACA.
The cost of a legislation to legalize childhood arrivals is likely to be far higher than earlier attempts because of Obamacare’s health insurance subsidies. The Affordable Care Act subsidizes the costs of health insurance for millions of Americans and would likely foot the bill for many of those whose residency in the U.S. would be legalized by the DREAM Act.
The numbers are striking. The DREAM Act of 2017, the most likely vehicle for extending DACA protections and making them permanent, would raise federal outlays by $115 billion dollars, according to a Breitbart News analysis. Nearly all of that would be paid for by additional deficit spending.
That may come as a surprise to lawmakers. The last time the DREAM Act was seriously considered, the Congressional Budget Office said that the bill would reduce budget deficits by about $1.4 billion over the following decade. But that bill prohibited those it legalized from receiving subsidies toward health insurance until they became permanent legal residents after ten years, while the current version of the bill does not.
The DREAM Act of 2017, sponsored by Democrat Senator Dick Durbin and Republican Senator Lindsay Graham, would extend legal residency and a path to citizenship for at least 3.3 million people, according to the Migration Policy Institute. These include 1.8 million illegal aliens who would be immediately eligible, plus 1.5 billion who would become eligible in the near future by doing things such as enrolling in school.
Unlike the Senate DREAM bill from 2010 and Obama’s DACA executive order, the current DREAM Act does not exclude those who benefit from the new immigration status from receiving health insurance subsidies under the Affordable Care Act. Absent a specific exclusion, by granting so-called Dreamers status as “lawfully present” in the United States, the new DREAM Act would make millions both subject to the individual mandate to buy health insurance and potential beneficiaries of the subsidies available to pay for insurance.
This is a very expensive proposition. The individual mandate will be a powerful incentive for the newly legalized immigrants to obtain health insurance, and many will do so through the subsidized Obamacare marketplaces. The experience of California suggests that something like 79 percent of those getting the new legal status will turn to the subsidized individual market for insurance, with only 21 percent receiving health insurance from an employer.
Obamacare includes a health insurance premium tax credit available to households with income from one to four times the official federal poverty level. This means that the tax credit subsidies are available to individuals earning between $12,060 and $48,240. A family of four is eligible obtain tax credits if its income is below $98,000. It’s likely that this means substantially all those legalized by the DREAM Act are eligible for subsidies. According to U.S. Berkeley’s Labor Center, 68 percent of DACA program enrollees in California were low-income and eligible for California’s state-run medical insurance subsidies.
The median annual income of current DACA aliens is $32,000, according to an August 2017 survey by Tom Wong of UC San Diego (undertaken for the liberal think tank Center for American Progress and other immigration advocacy groups). The median age is estimated to be around 25- years-old. Around a quarter of DACA aliens have a child born in the U.S.
According to the Kaiser Family Foundation, a single person living in San Jose, California with an income of $32,000 would be eligible to receive a premium tax credit of $1,048 in 2017. The numbers vary by geography because health insurance costs vary widely by geography. A single person in Brooklyn with $32,000 of income would be eligible for an annual tax credit of around $2,666. But San Jose is likely more representative due to the high concentration of DACA aliens in California. Using the San Jose figure, current DACA aliens alone would likely be immediately eligible for around $838.4 million in Obamacare subsidies this year.
Of course, not all the DACA aliens turned Dreamers would wind up on in the Obamacare marketplace. Some would receive employer provided health insurance. According to a study by the UC Berkeley Labor Center, 21 percent of those granted DACA status obtained private health insurance, most likely through their employers. Subtracting those would produce $663.3 million of Obamacare subsidies.
Because DACA aliens have children and some are married, that figure does not fully account for the cost of their DREAM Act Obamacare subsidies. Add in one child for every four DACA enrolled aliens and the cost rises to $1.16 billion in tax credits. Even if we add a spouse to each DACA parent earning the same $32,000 of income (a very generous assumption), the immediate cost of Obamacare subsidies to DACA aliens is still around $1.16 billion. If you assume that all those spouses were already Obamacare eligible (that is, are legal residents), the net increase is around $835.6 million. (Again, that’s a very generous assumption; a disproportionate share of spouses of DACA aliens are likely not legal residents who could sponsor their spouse’s legal residency).
Over time DACA workers will see their pay rise, more will get married, and they will have more children. For purposes of forecasting the cost of amnesty, assume a fairly representative DACA household would be in San Jose, have $64,000 of income that rises a healthy three percent each year, and include two adults and two children. Nearly 80 percent will seek health insurance through the Obamacare marketplace, and Obamacare subsidies for these households would be around $7,073 per household in the first year.
Each year, household income will likely rise but not as quickly as the cost of health insurance and therefore the cost of subsidies. According to the estimates of the Congressional Budget Office, the cost of subsidies will rise an average of around seven percent each year over the cost of the next ten years, producing a cumulative rise of 84 percent. So after 10 years, the representative household would earn $83,500 and be eligible to receive an Obamacare subsidy of $8,230. Even if the cost of health insurance subsidies remained level, after 10 years, this same family of four would receive $4,477 of subsidies after ten years. To be conservative, let’s put the average cost of annual subsidies at the average of the two figures: $6,354. Multiplied across 800,000 DACA households less the 21 percent expected to receive employer-based health care, the annual federal budgetary cost is around $4 billion or $40 billion over 10 years.
The Dream Act of 2017, however, extends legal residency to far more aliens than the current DACA program. If we include 79 percent of the 1.8 million immediately eligible, the cost would rise to $91.5 billion over a decade. Including that share of the larger 3.3 million figure would push the 10 year cost of Obamacare subsidies to the DREAM households to around $167 billion.
Of course, some of that would be offset by taxes paid by the legalized workers. When the CBO looked at the 2010 Dream Act, it estimated that 1.1 million authorized residents would increase federal revenues $2.3 billion in the 2011 through 2020 period. Let’s generously double that for the increased number of workers we’re estimating and say they would add $5 billion. The CBO said refundable tax credits (not including Obamacare) would increase by $961 million, which we can double to $1.8 billion. Social Security and Medicare outlays would rise by a combined total of around $100 million over the period, the CBO forecast. Summing it all up, the new Dream Act would result in a net increase of federal revenue of around $400 million over the decade.
This means we’re looking at a budgetary cost of around $165 billion over 10 years, almost all of which would be added to federal debt. Subtract roughly $50 billion for non-immigrant spouses who would have been covered by Obamacare anyway. That leaves us with $115 billion of federal debt over a decade from the DREAM Act.
This analysis probably underestimates the budgetary cost of combining the DREAM Act with Obamacare. Under the likely scenario that DREAMer incomes are lower than those of DACA aliens, for instance, the costs would go higher. If the assumption of three percent income growth is overly generous, the costs will go higher. If DREAMer households have more than two children on average, the costs would go higher. If the cost of health insurance rises more quickly than assumed, the costs will be higher. And, most importantly, if far more aliens obtain legal status than the 3.1 million used in this analysis, costs would go higher.
They might call it the DREAM Act, but in terms of the federal budget, it is a nightmare.