An Alternative to Expanded ObamaCare Subsidies

An Alternative to Expanded ObamaCare Subsidies #Alternative #Expanded #ObamaCare #Subsidies Welcome to Lopoid

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The new Democratic reconciliation bill includes a three-year extension of enhanced ObamaCare subsidies—which is bad policy motivated by election politics. It’s part of the Inflation Reduction Act, hashed out by Senate Majority Leader

Chuck Schumer

and Sen. Joe Manchin (D., W.Va.). Mr. Manchin is ostensibly concerned about rising prices and the deficit. But this expanded-subsidies extension would raise inflation and increase the deficit. Democrats want it because the original expanded subsidies, established by the American Rescue Plan in 2021, expire after 2022. If nothing is done, enrollees will receive notice of large premium increases right before the midterm elections.

Fortunately, there is a responsible solution to Democrats’ political problem that keeps the worst effects of the expansion at bay: Permit existing enrollees to keep the enhanced subsidy, but prevent new enrollees from receiving it.

Progressives pitch the proposed subsidy extension as a way to ease price pressures and help Americans struggling to make ends meet, but in reality the measure is regressive and inflationary.

Originally, the Affordable Care Act limited the amount that households pay for a benchmark exchange plan, with subsidies covering the difference. The subsidy amount was lower for households with higher incomes and only those at or below 400% of the federal poverty line—about $110,000 for a family of four—could receive them. Last year the American Rescue Plan increased the subsidy amount and removed the income cap entirely.

While poor Americans do receive these expanded subsidies, the biggest benefits have gone to relatively wealthy families and health-insurance companies. For example, a family of four earning 800% of the poverty line may now qualify for an exchange subsidy of $10,000 or more—several times the subsidy increase that households at 200% of the poverty line received.

The expansion has also lined the pockets of insurance companies at taxpayers’ expense. The original ObamaCare subsidies gave enormous pricing power to insurers, which have seen their profits soar. The law limited how much of household income families would have to pay for premiums for exchange plans regardless of the total premium amount. Insurers could jack up prices, knowing that customers would be insensitive to cost changes because subsidies—meaning taxpayers—would make up the difference. The typical exchange enrollee pays only about 15% of premiums now, with taxpayers picking up the other 85% or so. All this is inflationary and the American Recovery Plan’s ObamaCare provisions made things even worse by increasing the subsidy size and expanding the pool of those who qualify.

That inflationary effect will likely get much worse if the reconciliation bill’s extension passes. Without an income cap, most people without employer coverage can qualify for the subsidized plans, and employers have an economic incentive to drop coverage. The tax benefit that companies receive from providing healthcare plans to employees is much smaller than that associated with ObamaCare. Employers can save money if they decline to offer coverage to workers and instead put those funds toward wages, knowing staff can obtain subsidized exchange plans.

The Congressional Budget Office estimated that the number of employers who would stop providing health insurance coverage would be limited under the American Recovery Plan’s two-year boost to ObamaCare subsidies. But if these subsidies are extended for three more years, many employers will reasonably assume that it’s going to be permanent and drop health-insurance plans. More Americans will get hooked on huge government insurance subsidies, and reforming the entitlement will become even more politically difficult. That means rising health-insurance and healthcare costs, further feeding inflation.

But all of this can be avoided if Democrats instead simply grandfather in existing enrollees and leave it at that. About half of all exchange enrollees have coverage for less than a year, largely because they get jobs and then leave the program for employer-provided insurance, which is typically accepted by more doctors and hospitals. This means there’s a lot of churn off the program and that adopting a grandfathering policy over an outright extension of the expanded subsidies could save at least $30 billion. That change would frustrate progressive organizations and insurers that wanted the extra cash, but that’s not a large political cost.

Entitlement programs are bankrupting the country. If Sen. Manchin is serious about his concerns over federal spending and inflation, he would back a grandfathering amendment. And Senate Republicans should support it. The reconciliation bill will still be packed with bad policy, but this change, at least, would make it better.

Mr. Blase, who served as a special assistant to President Trump at the National Economic Council, is president of Paragon Health Institute.

Jimmy Carter lost the 1980 general election by a landslide to Ronald Reagan, so it’s difficult to understand why Joe Biden continues to follow the Carter ‘malaise’ playbook today. Bettman via Getty Images/Shutterstock Composite: Mark Kelly

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