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More Taxpayer Bailouts Will Only Paper Over Obamacare’s Many Failures

by The Daily Signal | Updated on 3.27.18

Robert Moffit / March 08, 2018

Robert E. Moffit, a seasoned veteran of more than three decades in Washington policymaking, is a senior fellow in domestic policy studies at The Heritage Foundation.


It appears that Congress, backed by powerful special interests in the health care industry, is getting ready to bail out, once again, Obamacare’s failing health insurance program.

Here’s the back story.

Last year, President Donald Trump canceled the cost-sharing reduction subsidies for people buying coverage in the Obamacare exchanges. These taxpayer subsidies offset the out-of-pocket costs of these enrollees.

Trump’s horrified critics predicted that these spending cuts would mean millions would no longer be able to afford health insurance coverage.

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In fact, Trump’s critics were quite wrong. The disruption in insurer participation and coverage was minimal, and the vast majority of low-income people getting exchange coverage were not going to be affected by the change.

The Congressional Budget Office projected about 1 million fewer insured in 2018. The reason: Insurers would simply increase the premiums required to cover the costs, and the taxpayers, funding the already generous premium subsidies for exchange enrollees, would in fact end up spending even more.

Thus, the vaunted Trump spending “cut” turned out to be a massive Trump spending increase. Indeed, the Congressional Budget Office projected a 10-year increase of $365 billion in premium-subsidy spending, adding an estimated $194 billion to the deficit.

Last year’s cost-reduction subsidy drama contains a vital health policy lesson: Things are not only not what they seem, they are often the exact opposite of what they seem.

This year, American taxpayers are already in trouble for a second time. The Trump administration is supporting a restoration of the cost-sharing subsidies, plus $11.5 billion in its annual budget to revive an Obamacare program to subsidize insurers that experienced excessive financial losses.

Also, according to recent press reports, the Congressional Budget Office is expected to report that a restoration of the Obamacare cost-sharing subsidies will reduce premiums by 15 percent to 20 percent and “save” the taxpayers $32 billion over three years.

The projected savings, of course, are based on the new Congressional Budget Office baseline established by the Trump administration’s 2017 cancellation of the subsidies. In other words, the higher levels of taxpayer spending (effected by that cancellation) simply mean that any “savings” for 2018 and beyond are merely reductions in the 2017 increases in taxpayers’ spending.

The bottom line: Taxpayers still end up paying more over the next several years for a failing health insurance scheme.

Most likely, any pretense that the proposed insurance subsidies are “temporary” will, sooner or later, disappear as they morph into a routine spending program to bail out big insurers facing their latest Obamacare “crisis.”

Bailouts, at taxpayer expense, are bipartisan, of course. House and Senate members are sponsoring legislation to fund insurers in the health exchanges with a new infusion of fresh tax dollars.

Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash., are co-sponsoring legislation to restore the cost-sharing subsidies for 2018 and 2019, while Sens. Susan Collins, R-Maine, and Bill Nelson, D-Fla., are co-sponsoring a bill to provide $4.5 billion to fund reinsurance pools within the states to cover the anticipated costs of high-risk exchange enrollees.

Not to be outdone, Rep. Ryan Costello, R-Pa., is proposing to spend $30 billion (over three years) to fund reinsurance to cover the insurers’ cost of Obamacare’s most expensive claims.

Theoretically, a progressively richer injection of tax dollars into the coffers of the health insurance companies will encourage the insurers to stay in the Obamacare exchanges, and these so-called “markets” will stabilize.

Meanwhile, the exchange enrollees’ premiums will also stabilize. Perhaps taxpayers might—just might—buy another bailout of health insurers in the exchanges on the solid, iron-clad promise of a future reduction in premiums.

Based on four years of bitter experience, however, that scenario is unlikely. Beginning in 2014, the Obamacare insurance exchanges have enjoyed a steady stream of cash in the form of premium subsidies, cost-sharing subsidies, risk-corridor payments, and reinsurance subsidies—all courtesy of the federal taxpayer.

Look at the record. Over the period 2013 to 2017, premiums increased by 105 percent. Meanwhile, insurer participation and competition continued to decline all during this unhappy period, from 395 insurers in 2013 to 181 in 2018. Exchange enrollment has also routinely failed to meet official expectations.

As recent Heritage Foundation research shows, a major contributing factor behind these premium increases is the excessive federal regulatory regime that drives health insurance costs skyward. Papering over these cost increases with additional taxpayer subsidies doesn’t control costs—it simply rewards failure.

If Obamacare were a policy success, the mood on Capitol Hill would be very different. Bailouts would not be on the table. Congress would consider liberating the Obamacare exchanges from the taxpayers’ training wheels, and allowing the insurers to battle it out head to head in robust competition, cheering them on as they cut costs and reduce premiums, improve quality and performance, pioneer new payment and benefit options, and attract millions and millions of middle-class Americans eager to enroll in that new and exciting health policy innovation, an Obamacare plan.

Today, the very idea sounds silly. Instead, we are witnessing the evolution of a classic government failure, and Congress is getting ready to reward that failure with another round of corporate bailouts.

There is a better way. Congress should go back to the drawing board, allow the states to take control of their own health insurance markets, and at least give their constituents a fighting chance to secure the better, more affordable coverage that they want.

That could result in some policy successes, worthy of imitation in different states, rather than a continuation of a nationalized policy failure. In Washington, of course, that’s a radical idea.

The Daily Signal

Written by The Daily Signal

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