This week, the House of Representatives is set to vote on legislation designed to “stabilize” Obamacare. Democrats claim the plan, which extends exchange subsidies to a broader share of the population, will help more Americans afford health insurance in the midst of the pandemic and accompanying economic crisis.
But the legislation would do nothing to address the root causes of Obamacare’s unaffordability. Worse still, it would fund these new subsidies by taking money from drug companies through a combination of price controls and taxes.
The world desperately needs effective vaccines and treatments for Covid-19. And Democrats want to raid the coffers of the companies investing in that research, in order to line the pockets of insurance companies? That makes no sense.
The House Democrats’ plan would allow people who make more than 400% of the federal poverty level—$104,800 for a family of four—eligible for subsidized coverage through the exchanges. It would also increase the size of the subsidy for all people who qualify for subsidized coverage.
In addition to expanding subsidies, the measure would encourage states to enroll more people in Medicaid.
It’s easy to see why Democrats want to make exchange coverage more affordable. Since 2014, average benchmark premiums have risen 70%.
This increase has been fueled by the law’s many mandates. For example, Obamacare requires that every plan cover 10 “essential health benefits“—including pediatric dental care and substance abuse treatment—even if beneficiaries don’t want or need them. Insurers incur costs, of course, when they pay for each of those mandated benefits. They pass those costs onto consumers in the form of higher premiums.
Obamacare’s guaranteed issue and community rating requirements have also contributed to higher premiums. The former prohibits insurers from turning away enrollees, while the latter prevents them from charging older enrollees more than three times as much as younger ones. By forcing insurers to accept all enrollees and preventing them from charging more to cover those who cost more, Obamacare basically guaranteed premiums would increase.
Like many Democratic healthcare plans before it, the new stabilization proposal treats the symptoms, not the disease. Rather than rescinding some of these costly mandates, Democrats funnel even more money to insurers to cover the ballooning cost of their plans.
That money would come from the Democrats’ favorite bogeymen—drug companies. The Lower Drug Costs Now Act, which passed the House in December and would fund this new effort, would allow the federal government to “negotiate” the prices of up to 250 popular, brand-name drugs.
These “negotiated” prices could not exceed 120% of the prices of those drugs in six developed countries: Australia, Canada, France, Germany, Japan, and the United Kingdom. The bill would let the U.S. government levy a tax of up to 95% on companies that refuse to accept those terms.
In other words, these “negotiations” are a thinly veiled cover for government price controls.
The Lower Cost Drugs Now Act would reduce drug companies’ revenues by $1 trillion over the next decade, according to the Congressional Budget Office. Since drug companies devote around 20% of their revenue to research and development, that means they’ll spend $200 billion less investigating new drugs over the next 10 years. That will result in the development of 100 fewer drugs over that period, according to the White House Council of Economic Advisers.
That would be problematic in the best of circumstances. As we continue the fight against Covid-19, it could cost people their lives. Over the past few months, American scientists have worked tirelessly to develop a vaccine that will defeat the coronavirus and help the country return to normal. These researchers need all the funding they can get as they continue their fight. Democrats’ plan would take that funding away.
Democrats claim their Obamacare stabilization plan will help Americans stay healthy during the pandemic. But by derailing drug development, the bill would make things much worse. If lawmakers want to improve public health, they’ll abandon this misguided proposal.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All, Encounter Books, January 2020. Follow her on Twitter @sallypipes.