Recently, I said it was time to let the temporary ObamaCare subsidies expire, but the Biden administration is trying to make them permanent. (Making ObamaCare Temporary Subsidies Permanent) In typical fashion, Democrats always want to make temporary subsidies permanent.
Now, Brian Blasé, writing in Forbes, gives us an update with the latest information on these subsidies. According to a May 25, 2022 report from the Congressional Budget Office (CBO), the expanded subsidies will cost a whopping $30 billion in 2022, an amount 50% above the amount CBO projected one year earlier. ObamaCare’s total subsidy cost will be about $90 billion in 2022 – $60 billion for the original and $30 billion for the expanded component. Blasé offers 14 reasons why these expanded subsidies should be allowed to expire:
- The expanded subsidies were intended to be temporary Covid relief, not a permanent expansion of government. The American Rescue Plan (ARP) contained a host of temporary provisions – including enhance child tax credits, large payments to states, and expanded ObamaCare subsidies – which created excess demand and fueled inflation. Allowing them to expire at the end of the year would simply revert them back to the levels they were from 2014 to 2020.
- Extending the expanded subsidies would crowd out private financing and be inflationary. The extra $30 billion spent in 2022 was entirely new deficit spending. CBO has calculated that nearly 75% of the spending for these subsidies was on behalf of individuals who already had health insurance. Giving these people “free money” only contributed to inflation by increasing aggregate demand without an increase in aggregate supply. Congress should be looking for ways to reduce inflation rather than pouring fuel on the fire.
- Extending the expanded subsidies would lead to higher health care prices and higher premiums.ObamaCare’s original subsidies were only available to people below the age of 65 who were not enrolled in Medicaid and had income between the poverty line and four times the poverty line. The subsidies limit the amount households pay for a benchmark exchange plan premium to a percentage of their income. The rest is paid by the government – actually by future taxpayers since the new spending is entirely deficit-financed. This encourages insurers to raise their prices since most of the cost of the increases are paid by the government. The result is higher premiums and higher healthcare prices.
- Extending the expanded subsidies would lead to large loss of employer coverage. ObamaCare subsidies are not available to households with an offer of affordable employer coverage. As subsidies increase, employers are incentivized to arrange compensation that takes advantage of the subsidies. Employers can pay employees higher wages instead of health benefits, with employees using a subsidy to purchase an exchange plan. This is often called the “family glitch fix.” The result will be taxpayers paying more of the share of insuring employees, rather than employers.
- The budgetary cost will grow as employer drop coverage. According to CBO, the average budgetary cost of the tax exclusion for an individual with employer provided coverage is $2000. The average amount of the exchange subsidy is much higher. As more people replace private employer coverage with heavily subsidized exchange plans, the budgetary cost will grow.
- Extending the expanded subsidies would be a very inefficient way to spend taxpayer dollars. Despite the large amount of ARP’s new subsidy spending, CBO originally projected that the number of newly insured individuals would increase by only 800,000 in 2021 and 1.3 million in 2022. This calculates to increased federal spending on subsidies by about $17,000 per person. The reason: nearly 75% of the new spending is for people who already have coverage and therefore replaces private spending with government spending. (This is another attempt by progressives to take us to socialized medicine – complete government control of healthcare.)
- Government healthcare commitments are already unsustainable, and extending the expanded subsidies just worsens the already grim U.S. fiscal picture. The May 25, 2022, CBO report projects average federal deficits of $1.6 trillion over the next decade. This is largely due to healthcare spending already on Medicare, Medicaid, and ObamaCare. The current unsustainable path includes the expiration of the expanded subsidies. If these subsidies are extended, things will only be worse.
- Extending the expanded subsidies provides unfair benefit for wealthy households. The largest financial benefit of the expanded ObamaCare subsidies accrues to households with income above 400% of the Federal Poverty Level. The benefit is also larger for older households and households in higher premium areas since the subsidy structure limits premiums to a certain amount based on household income, regardless of the age of the household members or the actual premium. (See the graphic below.)
- Only about 1,000 West Virginians with income above 400% of the poverty line are enrolled in the exchanges. The media has tried to ratchet up pressure on West Virginia Senator Joe Manchin due to his opposition to the Build Back Better Act, which would have extended the expanded subsidies through 2025. But few West Virginia enrollees have income above 400% of the FPL.
- The loss of the expanded subsidies is much more limited than the media projects. Only 47% of individual market enrollees have continuous coverage for more than one year, and only 30% have continuous coverage for more than two years. Thus, the loss of the expanded subsidy will be less impactful for people who currently receive them than is currently being portrayed.
- The expanded subsidies mostly benefit insurers, while consumers place a low value on the coverage.Since the subsidies are sent directly from the U.S. Treasury to the healthcare insurance companies, they benefit the most. People only receive these subsidies if they purchase federally-approved products on an insurance exchange. A recent economics study found consumers value the subsidies at less than half of their cost. The same study found the big winners are health insurers, confirming earlier studies that show that health insurer profits soared after ObamaCare took effect. But don’t expect to hear the White House complaining!
- Extending the expanded subsidies would reduce work and economic output. There is an incentive built into the system that discourages full-time work. Because the subsidies are conditioned on having a job without affordable employer coverage, they incentivize workers to choose jobs where they are not offered coverage. (If the employer offers coverage, the employee likely pays a percentage of the cost.) CBO projected the original ObamaCare subsidies would reduce work by about 2 million full-time workers and reduce GDP by about 0.7%. The expanded subsidies make this situation even worse.
- Extending the expanded subsidies discriminates against women. Don’t expect to hear this on the evening news! Blasé says the expanded subsidies benefit men more than women because the U.S. median income was about $10,000 higher for men than women ($56,264 v. $46,332) in 2020. Since men tend to make more than women do and the expanded subsidies provide greater benefit as incomes increase, they almost certainly benefit men more than women overall.
- Extending the expanded subsidies papers over ObamaCare’s problems and reduces Congress’s appetite for actual reform. Enrollment in the exchanges has always been less than expectations (roughly 60% below.) Rather than lower premiums $2500 per year, as Obama promised, they doubled in just the first four years for coverage with high deductibles accepted by few doctors and hospitals. Premiums are so high that subsidies must also be very high to enable people to afford the premiums. ObamaCare is badly in need of restructuring in order to reduce premiums and improve healthcare. Blasé says, “Papering over ObamaCare’s problems with additional taxpayer dollars is exactly the wrong approach and reduces Congress’s appetite for actual reforms.”