President Biden laid out a sweeping $1.8 trillion proposal before Congress last week that would make permanent a new round of insurance subsidies included in March’s stimulus package.
The White House’s proposal is the latest from Democrats that aims to expand government’s role in health care. In April, several Senate Democrats introduced legislation that would reduce Medicare’s eligibility age to 50 and thereby open the program up to millions of new beneficiaries. Sen. Bernie Sanders, Vermont Independent, is pushing to not just lower Medicare’s eligibility age but expand the program to cover dental, hearing, and vision care.
These expensive efforts simply mask the structural problems that are plaguing Obamacare and Medicare.
First, let’s consider the White House’s gambit. The president’s new “American Families Plan” would permanently extend the insurance subsidies provided in last month’s American Rescue Plan Act, which are set to expire at the end of 2022.
Under that stimulus package, the government picks up a bigger share of premiums than it used to for everyone making less than 400 percent of the poverty level — about $106,000 for a family of four. Those who make more than that amount qualify for subsidized coverage for the first time; their premiums are capped at 8.5 percent of income.
These subsidies will cost more than $34 billion over 10 years even though they’ll be paid out over just two, according to a report from the Congressional Budget Office. Despite that high price tag, the CBO found that just 1.3 million uninsured people would gain coverage through the exchanges in 2022. The Galen Institute’s Brian Blase estimates that three-quarters of the value of the new subsidies will go to those who already have health insurance.
This subsidy blitz is intended to obscure the skyrocketing cost of exchange coverage. The average benchmark premium on HealthCare.gov has grown more than 65 percent since 2014.
That’s largely a function of Obamacare’s web of mandates and regulations. For instance, it requires that every plan cover 10 “essential health benefits,” even if the beneficiary does not want or need them. The law also requires insurers to sell to all comers regardless of health status or history and caps premiums for the old at three times those for the young. Those measures may be popular. But they’re incredibly expensive.
Efforts to expand Medicare are on similarly shaky financial ground. The program’s hospital insurance fund will be out of money by 2024, according to a September CBO report. And that’s under the status quo, pre-expansion.
Given that worrisome financial outlook, slimming — not expanding — Medicare should be a priority for lawmakers. Lowering the eligibility to just 60 would cost up to $100 billion per year, according to Harvard Medical School professor Zirui Song. Adding dental, vision and hearing benefits would drive that number even higher.
Many of the older adults who would take advantage of Medicare expansion already have private insurance coverage. If there’s an exodus from private health plans to a bigger public plan, doctors and hospitals would experience a serious pay cut.
In 2019, hospitals received 87 cents in payment from the federal government for every dollar they spent caring for Medicare patients. Total underpayments were nearly $57 billion that year.
An influx of new patients paying Medicare rates would make things worse — and could push some hospitals into insolvency. Over the last decade, 120 rural hospitals have closed. More than one in five are at risk of closing, according to research from the Chartis Center for Rural Health.
Physicians, meanwhile, may decide to exit the profession if a newly expanded Medicare program asks them to take less pay for the same or more work. We can ill afford to lose doctors. As it stands, the United States is expected to face a shortfall of up to 139,000 physicians by 2033, according to the Association of American Medical Colleges.
A major infusion of federal cash won’t change the underlying reasons why exchange coverage is costly, or fix Medicare’s long-term financing problems. Democrats don’t seem to mind. Taxpayers won’t like the bill when it eventually comes due.
Sally C. Pipes is the 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 2020). Follow her on Twitter @sallypipes.