ObamaCare 2.0 is a big funding deal

Congressional Democratic leaders are assembling a multitrillion-dollar omnibus spending package, bringing together their main legislative priorities for the Biden administration’s first year in office. Though the health care reforms proposed have received much less news coverage than the Affordable Care Act of 2010, they would, in fact, cost taxpayers more.  

Following the enactment of the Affordable Care Act, then-Vice President Joe Biden crowed about the legislation’s historical significance. But although the ACA’s expansion of Medicaid eligibility increased its enrollment from 57 million in 2013 to 81 million in 2021, 12 states are still to expand the program. The result of ObamaCare’s reforms to insurance markets was that premiums more than doubled, rather than declining as promised. The long-term care entitlement established by the ACA never got off the ground and has been repealed altogether.

The Biden administration and Democratic-controlled 117th Congress have sought to make up for these shortcomings by opening the sluice gates of federal funds. Whereas the fiscal cost of the ACA was scored at $788 billion over its first 10 years, the health care provisions of the omnibus spending package currently being advanced by Democratic leaders alone would cost in excess of an additional $1,350 billion. The proposed legislation would extend several elements from the March 2021 American Rescue Plan (ARP) Act, but also expand health care entitlement spending well beyond them.

Section 9661 of the ARP Act greatly enlarged the ACA’s subsidies for individuals to purchase insurance from the individual market for two years — subsidizing households with incomes up to $340,000, while making taxpayers entirely responsible for the cost of private health care plans purchased by Americans with lower incomes. This will make health care plans on the individual market more attractive to Americans at middle-income levels, but it fails to fix the structural flaws in ObamaCare’s design and may serve to drive up the cost of plans being sold.  

A study by Maria Polyakova of Stanford University and Stephen Ryan of Washington University in St. Louis recently estimated that more than half of the value of ACA subsidies is captured by insurers. This expansion of subsidies likely goes too far in inviting the inflation of health insurance costs, and Congress would be well-advised to wait to learn more about its unintended consequences before extending the duration of the expansion.

The ARP Act’s Section 9814 had sought to entice holdout states to expand Medicaid by temporarily increasing their federal matching payments for the program. But this approach has proven to be inadequate, and Democratic Sens. Jon Ossoff and Raphael Warnock from Georgia have proposed a federal back-up option for states such as their own, which have chosen not to expand. The current split of responsibilities between state administration and federal funding in Medicaid has made the program chaotically structured and unaccountable, and so the idea of federalizing coverage has merit. But their proposal is not a serious attempt to deal with the complex provider payment issues associated with Medicaid expansion, and merely establishes an open-ended grant of power and resources for the secretary of Health and Human Services to figure things out.

Section 9817 of the ARP Act had increased federal assistance for states to provide services to low-income individuals who need help with basic activities of daily living such as bathing, walking or preparing food. Unmet long-term care needs are concentrated among Americans who are already eligible for Medicaid, and those individuals typically face substantial waiting lists to receive assistance in their homes. Congressional Democrats are considering an extension of the payment increase for such home- and community-based services. If the program’s means tests can be tightened in return, expanded funding could substantially improve the quality of life for many of the neediest Americans, without merely serving to crowd out private funding.

By contrast, the proposed expansion of the basic Medicare benefit package to cover dental, hearing and vision benefits is far less justified. This proposed benefit expansion was not part of the ARP Act and likely would cost over $80 billion per year when fully phased in. It is unnecessary, because beneficiaries already can choose Medicare Advantage plans covering them at no extra cost.  

Adding extra money to American health care is likely to be less politically risky than structural reform for congressional Democrats. But given that high costs are the main challenge facing American health care, throwing money at the problem is unlikely to be a lasting solution.

Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter @CPopeHC.