At the end of the year, the generous subsidies for health insurance purchased through Obamacare’s exchanges that were enacted as part of the American Rescue Plan Act last March are set to expire. People may start receiving notices that their premiums are increasing in October, just a few weeks before this fall’s midterm elections.
That has House Democrats in swing districts worried about their chances on Election Day. In a recent letter, more than two dozen of them begged party leadership to permanently extend the subsidies and avert a return to a status quo in which “high-quality coverage . . . will now be out of reach.”
Letting the extra help run out may be a political crisis for Democrats. But it wouldn’t be the healthcare catastrophe they’re making it out to be. The subsidy expansion was a waste of taxpayer dollars — and did nothing to solve the structural issues that have made unsubsidized Obamacare coverage unaffordable for years.
Democrats cheered when the American Rescue Plan Act temporarily eliminated income restrictions for Obamacare subsidies. For the first time, people earning more than 400% of the federal poverty level — about $111,000 for a family of four — could receive government help paying for coverage on the exchanges.
The COVID-19 relief package also made those subsidies more generous. It reduced the share of income that people of all incomes had to shell out for health insurance and capped premiums for those who make more than four times the poverty level at 8.5% of income.
At the time, the Congressional Budget Office estimated that the more generous subsidies would cost $34.2 billion between 2021 and 2030, even though they were only in effect for two years.
But that’s likely an underestimate, according to former Trump administration economic adviser Brian Blase. Citing a May CBO report, he says that the expanded subsidies cost $30 billion in 2022, 50% more than the agency predicted last year.
All that spending has been enormously inefficient. CBO originally estimated that expanding the subsidies would result in just 1.3 million fewer uninsured Americans in 2022. That comes out to roughly $23,000 per newly insured enrollee. For comparison, the national average yearly premium for a benchmark plan is roughly one-fourth as much.
And as Blase has pointed out, wealthy families who were previously ineligible for government help are benefiting most from the extra subsidies. In some parts of the country, couples making $500,000 are currently eligible for more than $7,000 in Obamacare tax credits.
The enhanced subsidies were meant to be temporary, pandemic-related measures lasting only until the end of 2022. But that hasn’t stopped Democrats from hand-wringing about their expiration. They’re afraid exchange enrollees will blame them for steeper insurance bills.
But it makes little sense for taxpayers to subsidize coverage for people making six figures.
Further down the income scale, lower subsidies may sting a bit more. For example, the premium for an individual making 200% of the federal poverty line — about $26,000 for an individual — will increase by about $100 per month, according to research from the American Action Forum.
Facing these increases, some patients may opt for lower-tier exchange plans with cheaper premiums and higher deductibles. But that’s hardly a crisis. In fact, it nudges insurance closer to its intended purpose – protecting against catastrophic risk.
Further, skyrocketing Obamacare premiums are nothing new. Consider that the average monthly individual market premium rose from $242 in 2013 — the year before Obamacare’s exchanges opened for business — to $589 in 2019.
Democrats didn’t seem too concerned about premiums creeping higher each year before the American Rescue Plan Act’s subsidies were at risk of expiring. They’ve done nothing to address the systemic problems fueling the steady rise in premiums. Instead, they’ve been content to throw ever-greater sums of taxpayer money at Obamacare.
The expiration of the enhanced subsidies will simply usher in a return to the status quo — one where Obamacare premiums continue to increase while Democrats look the other way.