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People head to the polls on Tuesday to select the next occupant of the White House. Among the first big decisions the winner will have to make is whether to extend generous subsidies for health insurance purchased through the exchanges. Those subsidies are set to expire at the end of next year.
Vice President Kamala Harris has pledged to make those subsidies permanent. Former President Donald Trump’s campaign says he’d let them expire.
Good on Trump. The subsidies are a scam. They hand billions of dollars to insurance companies and invite fraud at taxpayer expense.
The subsidies enable people earning between 100% and 150% of the federal poverty level, $31,200 and $46,800 for a family of four, to enroll in premium-free exchange coverage. As their incomes rise above 150% of the poverty level, people have to devote a small but steadily increasing share of their income toward premiums. At 400% of the poverty level, $124,800 for a family of four, and above, premiums are capped at 8.5% of income.
So generous are these enhanced premium tax credits that “nearly half of exchange participants have fully subsidized plans,” according to research from the Paragon Health Institute.
Those savings pad the pockets of insurance companies. “Free” money insulates patients from feeling the true cost of coverage. Insurers can raise prices with relative impunity. Taxpayers foot the bill.
The structure of the subsidies also encourages fraud. Obamacare enrollees have an incentive to underreport their income so they’ll qualify for free exchange coverage.
That’s a serious problem in nearly half of states, according to Paragon. Between 4 million and 5 million patients are fraudulently enrolled in free plans. Their coverage could cost taxpayers $20 billion in 2024 alone.
Democrats complain that retiring the enhanced subsidies would bump 7 million or 8 million people off their health plans. But half of these people would end up getting insurance from employers, according to the Congressional Budget Office. In that case, why are taxpayers on the hook for their care?
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Extending the enhanced subsidies is not something the federal budget can afford. Our national debt already surpasses $35.8 trillion. The CBO estimates that making the expanded subsidies permanent, as Harris has promised to do, would cost taxpayers $335 billion from 2025 to 2034.
Republicans rightly want to sunset the enhanced tax credits. They’re effectively arguing for a return to Obamacare’s original subsidy scheme. Shouldn’t Democrats be on board with that?
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in healthcare 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 X @sallypipes.
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