Democrats in the Senate have delayed the reopening of the federal government until a deal can be reached with President Trump and congressional Republicans about extending Obamacare health insurance subsidies that would otherwise expire. President Trump seems open to striking a deal. But the subsidies should be allowed to expire.
In my latest Project Syndicate column, I offer three reasons: First, the subsidies that are expiring were pandemic-era measures that enhanced the generosity of and expanded eligibility for the health insurance credits. The pandemic is over, and these pandemic-era expansions should end as well. Second, the subsidies will make health spending increase, not decrease. And third:
Extending the subsidies would cost $350 billion over the next decade — an expensive and imprudent expansion of the middle-class entitlement state. According to the Congressional Budget Office, around one-third of the extra spending from the extended subsidies would go to households earning at least four times the poverty threshold — that means families of four earning six-figure salaries.
I draw two broader lessons from this episode:
First, the health-care debate is too focused on expanding coverage and insufficiently focused on reducing health-care spending. This sidesteps the hard questions. Fifteen years ago, Democrats were confident that Obamacare’s subsidies were adequate to ensure broad coverage. What has changed?
More fundamentally, how much should middle-class US households have to pay for health insurance? What is a fair contribution? If the enhanced subsidies expire, the premium for a family of four earning $75,000 per year will rise to $5,865 — which is $3,368 more than if they are extended. To be sure, that family would feel the increase. But according to my calculations, average annual US health-care spending per household is around $37,000. From this perspective, that family may be getting a good deal.
The standoff over health-care coverage — which will likely end with some sort of extension of the enhanced subsidies – also illustrates the challenge of addressing America’s fiscal imbalance. In terms of budgetary policy, the conventional wisdom that the country’s two political parties are divided is nonsense. When it comes to taxing and spending, both the Democrats and the Republicans are willing to accept large structural budget deficits – that is, until some event forces them to pursue fiscally responsible policies.
Click here for the full column.