As Congress enters its final scheduled week of business of the year, it has failed to pass legislation on health care. Last Thursday, the Senate rejected a Democratic bill to expand Obamacare as well as a Republican alternative that would have given money directly to individuals to put in health savings accounts.
Currently, Democrats believe they have the upper hand in the health care fight. If Congress does not act, generous Obamacare subsidies that were passed under Joe Biden to mask the true cost of the government-designed health insurance scheme will expire. Thus, many Americans who rely on Obamacare will have to absorb more of the cost of their plans. Democrats believe that if they keep pushing, Republicans will be spooked enough about being blamed for the higher cost during a midterm election year to agree to an extension of the subsidies.
While Republicans may talk themselves into a one-year extension with the hope that it would take the issue off the table for Democrats, they would be making a huge mistake. If Republicans agree to extend the subsidies now, they will never be allowed to expire, because the logic will never change. A one-year extension that would have the subsidies expire in 2026 would still mean Democrats could make the midterms a referendum on whether Republicans will extend them at the end of the year. A two-year extension would mean they would expire at the start of a presidential election cycle. So practically speaking, renewing them this year would be the same as accepting that the extra subsidies will be a permanent fixture of our system, which will impose $350 billion of costs on taxpayers over the next decade. That is tantamount to a major expansion of Obamacare. Additionally, some Republicans are even making the morally abominable offer to extend the subsidies without explicit protections against taxpayer money going to fund abortions.
The political case for extending the subsidies is overstated. An overwhelming majority of Americans are covered by either Medicare, Medicaid, or employer-based health insurance. None of those plans will be affected one way or another by the subsidies. Nor would subsidies that were part of the Obamacare program prior to 2021 expire. While Democrats will no doubt use the expiration of the subsidies to make a case on affordability, that issue is going to be decided on a whole host of issues (food, housing, etc.) that Republicans have the opportunity to advance legislation on. The incremental difference to their electoral prospects nearly a year from now based on whether they begrudgingly extend the subsidies or allow them to expire is not worth rubber-stamping an expansion of Obamacare and demoralizing Republican voters who still oppose throwing more taxpayer money at broken government programs.
Additionally, Republicans could use this as an opportunity to explain why Obamacare is a costly failure and why there are better alternatives. Obamacare forces a relatively small number of young and healthy people to pay ever-escalating premiums for more comprehensive insurance than they need to offset the cost of covering older and sicker enrollees. A much better approach would be for the government to use existing funds to directly subsidize the costs of individuals with medical conditions that would make them uninsurable in a pure free market. Then, those higher-risk individuals could be removed from the regular insurance pool, allowing for the market to offer significantly cheaper insurance for everybody else. In a free market, individuals would have the choice to purchase much cheaper insurance that, while less comprehensive, would still protect them against financial ruin in the event of an unexpected medical event. Insurers could be more innovative — for instance, offering incentives for enrollees to lose weight, exercise, or quit smoking, just as safe drivers get lower car insurance rates.
If they don’t have to pay as much for premiums, individuals could put money into tax-free savings accounts that could be used for more routine expenses. Republicans could also remove restrictions on HSAs so that people could open them up to cover out-of-pocket costs regardless of whether they have health insurance, and so that they could use them to pay for insurance premiums. The latter move would give those who are self-employed the same tax advantage that is currently available for those who get their insurance through a traditional employer.
After Obamacare passed and was implemented, it became overwhelmingly unpopular as its raft of regulations drove up the cost of insurance, putting coverage out of reach for those who earned a bit too much to qualify for subsidized insurance. During elections from 2010 through 2016, Republicans gained ground due to their ability to blame Democrats for the expensive and flawed health care system. But time and again, they have failed to unite around an alternative, and bad Democratic ideas have remained by default. It’s time to break this cycle. Republicans should let the subsidies expire, explain that Obamacare is broken, and offer real ideas to fix it.