Biden’s inflationary health care agenda
Poll after poll shows that Americans’ top concern is high inflation. Inflation, which most harms low-income families and seniors on fixed incomes, is largely attributable to President Biden’s spending binge. Rising inflation is forcing Americans to cut back in all sorts of ways, from driving less due to high gas prices to replacing family-favorite meals with less preferred options.
Despite the death of the Build Back Better Act, Biden is aiming to resurrect failed big-spending proposals that would increase health care prices and prices throughout the entire economy.
First, Biden is proposing to permanently increase ObamaCare subsidies that limit what households pay for a benchmark ObamaCare plan. This structure contributes to health inflation by making enrollees insensitive to premium increases. Health insurers can raise prices, with taxpayers picking up the tab.
While competition among insurers can help curtail inflationary pressure from ObamaCare’s perverse subsidies, many areas of the country lack adequate competition. One-third of counties have only one or two insurers selling ObamaCare plans. In these counties, insurers have substantial pricing power, and studies show that increased premiums and inflated prices result.
Last year’s American Rescue Plan (ARP) Act worsened ObamaCare’s inflationary subsidy structure in two ways. First, it increased the taxpayer share of the premium. Second, it removed the income cap on subsidy eligibility.
ObamaCare limited its subsidies to people with income below 400 percent of the poverty line — $111,000 for a family of four in 2022. By eliminating that cap, ARP brought more people into ObamaCare’s inflationary subsidy structure. According to the Congressional Budget Office, three-quarters of the expanded subsidies’ cost – about $15 billion a year – went to people who already had coverage. This spending did not increase insurance coverage but did increase inflation.
The expanded subsidies expire at the end of the year. Some congressional Democrats are seeking to make them permanent. This would drive up premiums and prices for health care as well as for other goods and services. These higher costs would harm both taxpayers and most people with private coverage since they don’t qualify for such lavish subsidies. Policymakers should reform ObamaCare’s subsidy structure, rather than expand it.
A second Biden health policy is even more inflationary. The president is proposing to further increase federal payments to states for Medicaid — the program that finances health and long-term care expenses for mainly lower-income Americans. With this approach, Biden seeks to build on the primary Democratic health policy priority of the past decade, pumping up federal spending to induce states to expand Medicaid. One clear problem: Increased Washington funding has caused an explosion in improper federal Medicaid spending, which a new government report estimates at $100 billion annually.
In addition to driving massive improper and wasteful spending, the macro-effect of greater federal Medicaid spending is inflationary. ARP increased federal Medicaid spending by about 10 percent. States enjoyed record revenue collections over the past two years, even when they did not need additional funds. For example, California (a tax and spend state) has had a 20 percent boost in tax revenue during the pandemic.
States used the additional federal money, including about $30 billion in higher Medicaid payments in 2021 from ARP, to increase overall spending. As government spending goes up, more money is chasing the same amount of goods and services, so prices rise.
Washington must stop harmful existing policies toward states that are driving inflation, much less lavish even more money on states. This includes congressional Democrats’ new proposals, such as establishing a new Medicaid-like program in states that have not adopted ObamaCare’s expansion and creating a home and community-based program financed with increased federal money.
When Congress enacted ARP last year, the temporary increases in ObamaCare subsidies and the higher federal Medicaid spending were poor uses of taxpayer dollars that produced large waste and caused higher inflation. Policymakers must learn from that failure and not exacerbate already high inflation by making these bad temporary policies permanent. Instead, to reduce inflationary pressure in the economy, policymakers should let the temporarily enhanced ObamaCare subsidies expire and halt the flow of excessive federal Medicaid funds to states.
Brian Blase, who served as a special assistant to President Trump at the National Economic Council, is president of Paragon Health Institute.
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