Democrats Boot Up Obamacare 3.0

R epublicans failed to repeal Obamacare — spectacularly, and twice — in the Trump years. But they were successful in remaking the law. Through their 2017 tax-cut bill, they ended the individual mandate. And through executive action, Trump expanded access to cheaper, less-regulated plans.

This created a system that, while hardly elegant, actually made some sense. Obamacare, as originally implemented, had provided lower-income Americans with Medicaid coverage or subsidized premiums on the exchanges — but those who made too much money to qualify for these benefits were forced to buy expensive coverage at full price. The end of the mandate, coupled with the expansion of cheaper plans, allowed these folks to get affordable coverage if they wanted. This did not cause the “death spiral” that many had feared earlier in Obamacare’s history. And if blue states didn’t like the new situation, they were free to pass their own regulations.

If that was Obamacare 2.0, we’re now booting up the spiffy new 3.0 release under unified Democratic control. Buried in the latest stimulus package are some provisions to expand the law through bribes: Higher-earning Americans will get new subsidies for exchange plans, lower-earning Americans will get bigger subsidies than they used to, and red states will get extra money if they finally decide to expand Medicaid coverage. Meanwhile, the Biden administration is considering rolling back Trump’s expansion of lower-cost plans.

Once repeal failed, Republicans tried to fix Obamacare by letting people opt out if the law didn’t work for them. Democrats would prefer to keep dumping in taxpayer dollars until everyone can afford it.

A two-year boost to Obamacare subsidies is not a big part of the stimulus package — maybe $35 billion out of $2 trillion — but it will represent a major expansion of the law if it’s made permanent. Obamacare subsidies used to be limited to those making less than 400 percent of the poverty level, about $50,000 for an individual. Now higher-earning Americans will get a subsidy that caps the price of a “benchmark” plan in their area at 8.5 percent of their income.

Obamacare prices vary by age (though regulations cap how much they’re allowed to vary), and for younger middle-class Americans, benchmark plans are often already cheaper than that. Older Americans, however, will see their Obamacare premiums drop drastically. In the most extreme case — a 64-year-old, one year out from Medicare eligibility, making 401 percent of the poverty level — the average annual price of a benchmark plan will drop from about $12,700 to $4,400, according to the Kaiser Family Foundation.

Subsidies for lower-income Americans are rising too, as the following chart from KFF shows. Those between the poverty level and 150 percent of it will get their plans for free — as will those who receive unemployment benefits at any point this year — and those with higher incomes will see their premiums fall.

These higher subsidies are going to cost taxpayers money, and they’re going to draw more people to the highly regulated plans on the exchanges. Democrats no doubt hope to extend the boosts when they expire, banking on the idea that the benefit spigot is harder to shut off than it is to turn on. Republicans, meanwhile, should hope that it’s easier to let some extra subsidies expire than it was to repeal Obamacare, especially when these benefits were part of a package ostensibly dedicated to short-term COVID relief.

There’s another aspect of Obamacare getting pumped up, too. As I detailed last month, the law strongly encouraged states to expand Medicaid to cover those earning up to 138 percent of the poverty level. The federal government paid 100 percent of the cost at first, a rate that gradually fell until it landed at 90 percent in 2020 — meaning that every $1 in state spending still brings along $9 from the feds. States can even recoup their one dollar in various ways: by moving folks from state-funded care to the Medicaid expansion, for example, or levying a special tax on health-care providers to claw the money back. Slowly, even a lot of red states have been throwing in the towel and expanding, often through ballot initiatives. The alternative is to forgo lots of federal money while continuing to pay taxes to support other states’ expansions.

The stimulus package contains an extra sweetener. If a state expands now, the federal government picks up “only” 90 percent of the tab, as opposed to the 100 percent reimbursement that the early expanders got for their first several years. So new expanders will get some more money — a lot of it, amounting to more than full reimbursement for two years. (Somewhat oddly, the bonus comes in the form of additional money for states’ core, non-expansion Medicaid programs.) We can only guess how many states will jump at the offer — after all, we’re talking about twelve red states that have managed to hold out this long, and so far they show no signs of budging. But states that pass will be giving up a two-year windfall.

And while Democrats are making the Obamacare exchanges and Medicaid expansion more attractive, the Biden administration is weighing the fate of those less-regulated plans, including “short-term, limited-duration” insurance. Under Trump’s regulations, these plans can last a full year and be renewed for a total of three years, making them a decent substitute for Obamacare coverage in many situations. Such plans have a major constituency — maybe a few million people are on them — and Trump’s regulation would take some serious effort to undo.

Democrats often denigrate these plans as “junk” insurance, because they can offer less-comprehensive coverage and are not required to cover preexisting conditions. However, they’re much cheaper than regulated plans, they offer much better coverage than the Left gives them credit for, and blue states can ban them if they want. As Brian Blase found in a recent study, Trump’s rule “not only expanded consumer choice of coverage and reduced the number of uninsured but also had no adverse impact on the individual market.” It may even have improved the Obamacare exchanges through competition. There’s simply no good reason people should be prohibited from buying such a product in a free country. Yet Biden’s Health and Human Services secretary really hates these plans.

If Democrats are going to bribe Americans to take the Left’s preferred type of health insurance, can’t they at least leave the option of less-regulated plans on the table?