The Covid relief bill racing through Congress is a huge giveaway to wealthy households and health insurers, will inflate health costs and premiums, exacerbates income inequality, and sets the stage for a significant loss of employer-sponsored coverage, according to the findings in an important new paper by Galen Senior Fellow Brian Blase.
In “Expanded ACA Subsidies: Exacerbating Health Inflation and Income Inequality,” Blase explains that the health insurance subsidies in the $1.9 trillion American Rescue Plan Act are wasteful, misguided, and could do long-term harm to the stability of employer-based health insurance where the majority of Americans get coverage.
Because of the distortions introduced by the bill, a 60-year-old couple with two kids making $212,000 would receive a benefit of $11,209, he explains. In contrast, a family-of-four making $39,750 regardless of the age of the couple receives a benefit of just $1,646 from the proposal.
In some parts of the country, households with more than $500,000 would now qualify for Obamacare premium tax credits (PTCs). For example, a 64-year-old couple in Kay County, Oklahoma earning $500,000 per year, which faces a benchmark premium of $49,897 a year, would qualify for a PTC of $5,946, Blase explains.
The list goes on:
Discrimination: The proposed PTC expansion will benefit men more than women. Since average income for men is $10,000 higher for men than women, and because this proposal provides greater benefits as incomes increase, it almost certainly benefits men more than women overall. That is particularly egregious because the ACA increased premiums and cost-sharing most significantly for older women, yet the Democrats’ proposal delivers the greatest benefits to older, upper-income men.
Few new insured: CBO estimates that the two-year cost of the PTC will be about $34 billion but will increase the number of insured by only 800,000 in 2021 and 1.3 million in 2022. Therefore, on an annualized basis, this proposal boosts federal spending on the PTCs by about $17,000 for every person who is newly insured. According to the Congressional Budget Office, about 75 percent of the new spending is on people who already have health insurance.
A hit to job-based health insurance: Millions of workers ultimately could lose their employer-based insurance. Under the Democrats’ subsidy expansion proposal, American businesses, particularly firms with fewer than 50 workers and those with lower-income and older workforces, would have large financial incentives to stop offering group health coverage. Start-up firms would have disincentives to offer group insurance.
This is a back door to government-run health insurance. Such a huge subsidy expansion would lead to millions, and potentially tens of millions, of people shifting from ESI to the much more heavily subsidized exchange plans, Blase explains.
By limiting the PTC expansion to two years, the decline in ESI may be small. But a government subsidy program once begun is almost impossible to stop, and the long-term impact of the subsidy distortions could cause a large decline in employers offering health insurance.
Health care inflation: Expanded PTCs will increase health care inflation, pushing up health care prices and premiums. Total health care spending will ratchet up, which is why the health care industry and health insurance companies enthusiastically support this proposal.
Health insurance companies are the overwhelming beneficiary of the Democratic proposal to expand ACA subsidies, exacerbating health cost inflation. And expanding the number of people receiving PTCs means that more American consumers are insensitive to premium increases, with taxpayers picking up the cost.