Dems’ new COVID relief bill mainly subsidizes health care for the rich

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Democrats’ holy grail is reducing income inequality. So it’s ironic that they are considering a bill to expand ObamaCare that will primarily benefit richer households and health-insurance companies. 

The massive coronavirus relief bill racing through Congress provides substantial new health-insurance subsidies to upper-
income households. A 60-year-old couple with two kids making $200,000 would receive a subsidy of $12,000. In some parts of the country where premiums are high, families with incomes exceeding half a million dollars will qualify for thousands of dollars in subsidies to buy an ObamaCare plan. In contrast, a family of four making $40,000 receives an added benefit of just $1,600. 

The Democrats’ main problem is that ObamaCare plans are not popular. Generally, only two groups of people buy them: lower-income people who receive giant subsidies that reduce the plans’ high premiums and deductibles; and those who, regardless of income, expect to need a lot of medical care. Rather than addressing the reasons for ObamaCare’s exorbitant premiums, Democrats propose to increase premium subsidies, at taxpayer expense. 

Despite $50 billion of federal spending each year on existing ObamaCare subsidies, there has been no increase in the number of people with private health insurance. While individual market enrollment has increased by about 2 million people, ObamaCare caused about that many to lose employer coverage. As Brookings Institution scholar Stuart Butler noted, ObamaCare is better named the Medicaid Expansion Act because that’s where the coverage expansion is. 

ObamaCare’s subsidies were geared for people with incomes too high to qualify for Medicaid. The subsidies limit the percentage of income that households pay for a benchmark plan. The subsidies decline as household income increases and are capped at four times the poverty line, or about $52,000 for a single household and about $106,000 for a family of four. For this year and next, the Democrats propose to make these subsidies more generous for everyone who is already eligible and to remove the cap so even rich people can qualify. The corresponding figure shows how the proposal benefits upper-income households far more than lower-income households.

The Congressional Budget Office estimates that the expanded subsidies will cut the average number of uninsured by one million at a cost of $34 billion over the two years. This is a hefty $34,000 in higher spending for every person who gains insurance for two years. Overall, 75 percent of the total spending represents taxpayers replacing what households used to pay with their own money. 

Under the Democrats’ plan, the added subsidies go directly from the Treasury to health-insurance companies, who are, unsurprisingly, big supporters of this policy. Sending tens of billions of taxpayer dollars directly to health insurers may prove awkward for some members of Congress like Bernie Sanders and Alexandria Ocasio-Cortez who have railed about excessive health-insurance profits. 

In addition to boosting health insurers’ stock prices and exacerbating income inequality, the Democrats’ proposal will benefit men more than women. Although ObamaCare hiked premiums for women in their 50s and early 60s more than any other group, the Democrats’ subsidy expansion helps men more since they tend to earn higher incomes. 

Along with perverse distributional effects, increasing ObamaCare’s subsidies is deeply fiscally irresponsible. Limiting what a household must spend on health-insurance premiums gives insurers the ability to hike premiums, with taxpayers picking up the tab. This is particularly a problem in areas with limited insurer competition. 

Meanwhile, many employers will decide that it would be foolish to continue sponsoring coverage. Businesses can boost wages with their employees receiving large subsidies to purchase exchange plans. If political pressure causes these temporary subsidies to be made permanent after people begin receiving the benefits, the effect, and the cost in higher deficits, will be pronounced. 

Once again, the Democrats appear ready to unilaterally pass a law that ratchets up our already unsustainable health-care spending, inflating health-care prices and health-insurance premiums. This time it would also worsen income inequality. Health insurers, who have already reaped large profits from ObamaCare, are fully on board. And taxpayers? Well, at some point the government may run out of other people’s money. 

Brian Blase was a special assistant to President Trump at the National Economic Council, 2017-19. He recently authored a study “Expanded ACA Subsidies: Exacerbating Health Inflation and Income Inequality” for the Galen Institute.

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