A record number of Americans have signed up for health coverage through Obamacare's exchanges, according to the latest numbers from the Biden administration.
This enrollment uptick is the predictable result of the more generous premium subsidies the federal government ratified in March as part of the American Rescue Plan Act. The administration is effectively paying Americans to purchase health coverage that remains subpar and — at least without subsidies — unaffordable for large swaths of the country.
As of December 15, 13.6 million patients have enrolled in Obamacare marketplace coverage — a 17% jump compared with the same date in 2020. The more telling figure, however, is that 92% of those patients received subsidies in the form of premium tax credits.
The American Rescue Plan not only increased the value of Obamacare subsidies but made all Americans eligible regardless of income. Previously, those who made more than 400% percent of poverty, or $106,000 for a family of four, did not qualify for subsidies. Now, households with these six-figure incomes pay no more than 8.5% of income for coverage.
Democrats are eager to extend these generous subsidies as part of their Build Back Better Act.
That a near-universal discount has made exchange plans more popular is hardly surprising. What's more remarkable is that subsidies are required for even relatively wealthy Americans to afford coverage — and that Democrats don't see this situation as a problem to be fixed.
Consider a family of four headed by two 60-year-olds earning $200,000 a year. According to the Kaiser Family Foundation's insurance calculator, in 2022 the household would have to pay $28,383 a year for a silver exchange plan — one that covers 70% of a person's healthcare expenses, on average. Under the new subsidy rules, the household would qualify for $11,594 in financial assistance.
Those figures represent the national average. Were that same family living in Manhattan, their annual premiums would exceed $40,000 a year before subsidies. Their total financial assistance would soar to $23,336 a year.
When a $200,000 annual income still puts coverage out of reach, something has gone deeply wrong with the health insurance market. In this case, nearly all of the blame lies with Obamacare — specifically its insurance regulations.
Health plans not only must cover a long list of "essential health benefits," but also cannot charge older people more than three times what they charge younger ones, even though the old tend to have higher health costs than the young. Obamacare also requires insurers to sell coverage to all comers, regardless of health status or history.
Taken together, these regulations have made it far more difficult for insurers to keep costs down. The law also banned the kinds of bare-bones policies that once served as an affordable option for patients with more limited healthcare needs.
As a result, premiums and deductibles have skyrocketed. And a sizeable share of Americans have found themselves unable to afford health insurance.
This helps explain why, between 2017 and 2020, the share of Americans without coverage grew from 7.9% to 8.6%.
It also points to a sensible solution — roll back the regulations that created this dismal situation. Doing so would lead to an insurance system that actually encourages the kind of choice, innovation and competition that benefits consumers.
Democrats have taken a different tack, of course, preferring to subsidize the current system, instead of addressing its structural flaws.
But by making consumers less sensitive to the price of both coverage and care, this generous subsidy scheme is driving up costs across the health sector. Why would insurers bother to compete on price if the government will pick up the tab after a certain cut-off?
They'll also have less incentive to drive a hard bargain with hospitals and doctors. Why undergo tense negotiations if they can just stick the federal government with the bill, in the form of higher subsidies?
That may work for insurers and healthcare providers. But it's less than ideal for ordinary taxpayers.
Seen in this light, the recent increase in exchange enrollment is not something to celebrate.
Sally C. Pipes is president, CEO, and the 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 Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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