Ever since it passed in 2010, Joe Manchin has been playing a game on Obamacare. He has talked to West Virginians theoretically about needing to fix its problems in a bipartisan matter, but in practice, he has merely sided with his fellow Democrats to protect and expand the program. Right now, with Democrats desperate to pass something before the campaign season, Manchin is voicing support for a deal with Senate majority leader Chuck Schumer in which, on a party-line basis and during a time of historic inflation, Democrats would throw more money at Obamacare’s flawed infrastructure. In theory, it would be paid for by employing the sort of budget gimmicks he once decried and ushering in a new era of government price-fixing of prescription drugs.
Back in 2010, when he was a governor gearing up to run for Senate, Manchin claimed that he would not have voted for Obamacare as it originally passed. As senator in 2014, he said at a town-hall meeting in West Virginia, “I will vote tomorrow to repeal [the ACA], but I want to fix the problems in it.” He consistently argued that he supported aspects of the law, such as forcing insurers to cover those with pre-existing conditions, but that it was overreach. Even in opposing Republican efforts to repeal the law in 2017, he said he wanted to work with both parties to fix its problems.
One of the central flaws of Obamacare’s design is that it offsets the costs of covering older and sicker individuals by driving up insurance premiums for younger and healthier individuals, who are forced to purchase more insurance than they want — or to go uninsured. The skyrocketing premiums are especially noticeable to those who earn just too much to qualify for government subsidies.
When President Biden came into office, Democrats used Covid as an excuse to inject $1.9 trillion in deficit spending into an already-recovering economy to spend on a laundry list of liberal priorities. There is now a broad consensus that this helped fuel the inflationary crisis we now find ourselves in, which Manchin claims is one of his primary concerns. As part of that legislation, which Manchin voted for, Democrats threw $54 billion into patching over Obamacare. Rather than fixing its underlying flaws, Manchin simply voted to make the subsidies more generous, shielding more people from the exorbitant prices that were a natural consequence of Obamacare’s regulatory regime.
As with most so-called “fixes” that don’t address underlying problems, that didn’t end the matter. Those enhanced subsidies are going to expire at the end of the year. Given that the signup period for insurance starts on November 1, barring action, Democrats could face another wave of headlines about Obamacare “sticker shock” going into what is already a disastrous midterm-campaign environment for them. Manchin has now indicated a willingness to vote in favor of another two-year extension. Such a move, it should be said, would be inflationary, because it would be indistinguishable from giving people money.
The fiscal cost of the plan (which is expected to be in the ballpark of the previous $54 billion expansion) is supposed to be financed by a plan to have Medicare fix drug prices, which, on paper, the Congressional Budget Office has said would reduce deficits by $288 billion over a decade. But the fiscal math is less compelling if we judge Manchin by his prior standards.
Last year, Manchin blasted fellow Democrats for engaging in “shell games” and employing “budget gimmicks” to disguise the true cost of Build Back Better. What he was specifically criticizing was how they would authorize a few years of funding for various programs without considering the cost of those expenditures being made permanently. But that is exactly the sort of budget math Manchin would be endorsing in this new health-care-focused bill. The Obamacare subsidies would be extended for two years on paper and go into effect immediately, but the bulk of the advertised savings from the Medicare changes would occur later in the decade. In fact, roughly 90 percent of the $288 billion in Medicare savings wouldn’t come until fiscal year 2027 or later, according to the CBO. In another element of gimmickry, $122 billion of the overall savings comes from repealing a Trump-era rule on prescription-drug rebates. But that rule has been repeatedly delayed and has never even been implemented — nor are there plans to do so.
Putting aside the budgetary shenanigans, the Medicare plan is inadvisable on its merits. In the past, budget analysts have been skeptical of the supposed savings coming from government-led price negotiations, because the secretary of Health and Human Services wasn’t seen to have any more leverage over drugmakers than private plans. In some sense, owing to political pressure, government negotiators were seen to have less leverage. It would be hard, for instance, for the secretary of HHS to walk away from negotiations and announce that Medicare beneficiaries simply would not have access to a given drug.
The latest Democratic plan would seek to address this problem in a number of ways. In a draconian provision, drugmakers that do not agree to the price dictated by the HHS secretary on a certain number of drugs would face a “noncompliance” tax penalty of up to 95 percent of their profits on the drug. This helps the CBO numbers significantly by giving the secretary substantial leverage, but it also makes the policy much less like open negotiation and much more like simple government price-fixing. The bill would also impose penalties on drugmakers that increase their prices faster than the rate of inflation, which is significant because this would apply not just to Medicare but also to the private market.
Government price fixing is a recipe for stifling medical innovation, and as American Action Forum noted in an analysis of an earlier version of this proposal, the inflation cap would create an incentive for pharmaceutical companies to charge a much higher initial price when they launch new drugs.
If Manchin ever wanted to get serious about fixing the problems with Obamacare, as he previously claimed he did, the answer would be to work on ways to remove regulations so that individuals could find affordable options more tailored to their individual health-care needs. Instead, he is supporting patching over its underlying problems by throwing more money at the program when inflation is at a 40-year high. In the process, by offering this deal, he is relying on the sort of budget gimmickry he previously denounced and embracing innovation-killing federal price controls.