As the federal shutdown entered its fourth week it became clear that both sides have dug in their heels and refuse to budge on priorities. The sticking point seems to be whether Republicans will extend Obamacare enhanced subsidies that expire at the end of this year.
The American Rescue Plan in 2021 made middle-class Americans eligible for Obamacare subsidies, including families that earned more than $120,000 a year or about $10,000 a month. Around 12 million Americans took advantage of this huge taxpayer giveaway. Prior to the enhanced subsidies, only low-income people (below 400% of the federal poverty level) and sick people found Obamacare to be worth buying. Democrats are desperately trying to hold on to the illusion that Obamacare is a success, even if it means subsidizing 80% of the premiums for solidly middle-class Americans. I took advantage of the subsidies in 2022, but discovered I no longer qualified in 2023 after the year was already up. A change in retirement planning caused the Internal Revenue Service to claw back my entire subsidy (nearly $5,000) when I filed my 2023 taxes. The goal of reformers should be to reform the Affordable Care Act (ACA), not subsidize it. Republicans should work to allow plans that Americans want to buy and are willing to pay for.
Why not extend enhanced subsidies for Obamacare? Mostly because it is a waste of taxpayers’ money. ACA plans are a bad deal for most enrollees. One estimate is that 90% of enrollees never meet their deductibles. There is nothing inherently wrong with that unless premiums are sky high and deductible are too. When your heath plan requires you to pay $8,000 in premiums and another $8,000 out of pocket before benefits kick in you know you were gouged. Moreover, more than one-third of enrollees never file a single claim during the year. That suggests taxpayers are subsidizing coverage for people who do not even need nor use it. However, that is a discussion for another day.
The Wall Street Journal reports another reason Democrats are so reluctant to give up enhanced subsidies. Wealthy (heavily indebted) Blue Cities took advantage of Obamacare to offload much of their retiree health benefits onto federal taxpayers.
Mayor Rahm Emanuel of Chicago was scrambling to close a $369 million deficit in 2013. The inception of ObamaCare offered an enticing target for cost shaving: retiree health coverage.
The city expected to spend $194 million that year subsidizing health insurance for its retirees, many of whom were too young to qualify for Medicare. Such costs were projected to increase to $540 million by 2023 at the same time as pension payments were ballooning. While courts in Illinois and other states have held that public employee pensions are legally protected, governments have more latitude to make changes to medical benefits.
So Mr. Emanuel dumped his city’s retirees onto the nascent ObamaCare exchanges, where federal subsidies can reduce premium payments. Voilà, Chicago’s $2.1 billion unfunded retiree healthcare liability vanished. Now U.S. taxpayers pick up the tab for Chicago’s retirees in their 50s and early 60s.
Other cities are looking to follow suit, especially those that offer extensive retiree benefits to retirees’ net yet eligible for Medicare.
Other municipalities may move retirees to ObamaCare to avoid layoffs and tax hikes. ObamaCare could soon became a safety valve for underwater cities.
The reality is that extending the sweetened subsidies will encourage more states and cities to follow the lead of Chicago, shifting the healthcare costs of their young retirees to national taxpayers. It’s a backdoor bailout.
Post Pandemic enhanced subsidies are especially lucrative for early retirees with municipal pensions. Medical benefits that could cost the city $10,000 a year (double for a married couple) are virtually free under Obamacare. Benefits that would otherwise cost the city, say, $20,000 are dumped on the federal government. Unions may object to the higher cost sharing but will likely be willing to trade Obamacare for fewer layoffs and fewer cuts in other benefits. If Republicans in Congress fold and extend the enhanced subsidies, expect more cities to make the decision to let the federal government cover the cost of their retiree health benefits.
Read more at WSJ: The ObamaCare Blue-City Bailout
I have no love for municipal unions et al, but you may have stretched a point here.
A person who retires early in a Dem city will likely have an above average income overall. The ACA will not make their health insurance free. I am not sure that the city can stop all premiums.
Also, the fact that most ACA recipients do not file a claim each year does not invalidate the insurance. Heck, most people go their entire life without filing a fire insurance claim, but their fire insurance is still valuable.