Enhanced premium subsidies for Obamacare expire at the end of 2025. These were originally the result of Congressional folly in 2021 as part of the American Rescue Plan Act of 2021. The mainstream news media is worried about the possibility that huge taxpayer subsidies may disappear. For instance, National Public Radio said, ACA shoppers face sticker shock as Congress dithers on health care. CBS News reports, Millions of Americans could see health plan costs double as ACA credits vanish. The Associated Press claims, Senate rejects extension of health care subsidies as costs are set to rise for millions of Americans. Straight Arrow News, on MSN says Health care deal slipping away as ACA subsidies near expiration.
Since the passage of enhanced subsidies in 2021 Obamacare enrollment has doubled, from around 12 million people to 24 million. As economists often say, demand curves are downward sloping. That is a fancy way of saying people buy more goods at lower prices than higher prices. Another way of looking at it is that 12 million Americans think ACA plans are a bad deal unless heavily subsidized.
Who are the new enrollees and where did they come from? Are the marginal 12 million people early retirees? Did they choose to drop employer coverage? Or were they uninsured prior to the enhanced subsidies? Some estimates claim that only about half were previously uninsured. The rest likely had employer coverage or Medicaid.
What difference does it make? For instance, does an ACA plan increase access to care? Probably not. Deductibles are so high enrollees are largely paying out of pocket. Does it increase preventive care? Maybe by a small amount, but only those services that are mandated. Does it result in a sense of satisfaction/security knowing you are covered if something major happens? That is all I got out of the $2,500 in premiums I paid in 2022 and the $7,500 I paid in 2023 when I no longer qualified for a subsidy. These are important questions considering extending the subsidies will cost $350 billion over 10 years.
Health insurance is a way to underwrite the risk of illness. In health care there is an 80/20 rule. About 20% of enrollees account for 80% of medical expenditures. That also means that 80% of enrollees with low medical needs account for only about 20% of costs. In that regard, health insurance redistributes funds from healthy members to those who need more care. However, Obamacare does this to a greater degree than health plans that came before the ACA. Obamacare plans have largely turned into costly high-risk pools that only benefit those with high medical bills. Under the Affordable Care Act, nearly 90% of enrollees do not reach their deductibles. Deductibles in Obamacare also tend to be high. About 56% of enrollees choose Silver Plans, with average deductibles of around $5,000. An additional 30% of members enroll in Bronze Plans with average deductibles of nearly $7,000. That means despite paying high premiums, Obamacare is meeting none of the health care needs for 80% to 90% of enrollees. Yet, those who fall within the sickest 10% can get care without limits, including multimillion dollar drug therapies. By contrast, what most Americans actually want is the ability to see a doctor when they are sick. I suspect most would welcome the ability to pay lower premiums rated for risk in return for a lower deductible and reasonable limits on annual and lifetime benefits.
Republican proposals that seek to subsidize medical care directly are much closer to what most consumers want: access to a doctor. An old Republican proposal is looking better and better. A refundable tax credit could (should) allow consumers to bypass Obamacare plans and buy something with limited benefits and lower deductibles. Huge subsidies to offset high premiums for inferior quality insurance is arguably the least efficient way to subsidize the sickest 5% to 10% of Obamacare enrollees. Any extension of enhanced premium subsidies should allow Americans to buy plans more aligned with their needs.
Your second-to-last sentemce is certainly correct — the ACA subsidy regime is wildly inefficient.
My alternative would be to let sick persons under age 65 join Medicare. (people under 65 who are disabled can already join Medicare, after a waiting period.)
The cost of doing this could be met with a very small increase in the Medicare payroll tax. I feel that we need to give up on the expectation that private insurance can solve everything in health care, if only we tweak the subsidies enough.
We also need to get back the caps on claims. You are correct in noting the ill effects of multimillion dollar drug claims. It has been a while since I studied this issue, but my instinct is that if drug prices were limited to $20,000 a year, the majority of life-saving drugs would still be invented and produced. I am wildly skeptical of the costs that are cited by drug companies to justify high prices.