Budget Cuts Should Start With Health Insurance Subsidies

 Last night, House Republicans passed a critical budget proposal for the upcoming fiscal year that calls for $2 trillion in spending cuts over 10 years to get America’s fiscal house in order and address our $35 trillion national debt. Congress should start by addressing one of the economy's biggest pain points: how we pay for health insurance.

Legislation spelling out the specific cuts to reach the $2 trillion total likely won't emerge for several weeks or months. But the GOP should start with low-hanging fruit like the billions of dollars in extra subsidies for health insurance premiums that Republicans are looking at ending. Congress expanded the subsidies during the COVID-19 pandemic, and they are scheduled to expire at the end of this year.

Democrats are apoplectic about this possibility. But the expiration of these enhanced subsidies represents an opportunity to expand access to more affordable, less wasteful forms of health coverage.

When then-President Barack Obama signed the Affordable Care Act in 2010 mandating that virtually all Americans buy health insurance, the legislation included subsidies in the form of tax credits to help people afford the premiums.

Congress effectively repealed the individual mandate that required Americans to purchase health insurance by removing penalties on those who did not get health care, as of 2019. But at the same time, congressional Democrats expanded the tax credits offered and made more people eligible for them. In 2022, they extended these enhanced subsidies for three more years.

The Congressional Budget Office estimates that making the enhanced subsidies permanent, as Democrats want to do, would increase the federal budget deficit by $335 billion over the next decade.

Enhanced subsidies have insulated people from feeling the true cost of health care coverage. For people who buy insurance on government exchanges – public marketplaces where individuals can obtain health insurance policies – the subsidies have capped the cost of premiums at 8.5% of an individual’s income, which means some families with six-digit incomes are eligible for government help.

Insurers have made out like bandits. The subsidies are paid directly to insurance companies. That encourages insurance companies to keep raising prices – and rope in as many customers as possible.

That creates an environment with incentives for fraud. A web of brokers and middlemen – who can make money by exploiting information gaps, misstating applicants' incomes and even signing people up for coverage without their knowledge – has materialized.

Between January and August of 2024, for instance, the Centers for Medicare and Medicaid Services received more than 180,000 complaints that consumers were enrolled in plans without their consent. Insurance brokers and other middlemen have come under criticism for switching people’s plans without their consent to gain commissions.

Before the enhanced subsidies took effect, individuals earning just above the federal poverty line – $26,500 for a family of four in 2021 – would have paid roughly 2% of their income in annual premiums for a benchmark silver plan on the exchange. Now they can pay nothing. Back then, those making over 400% of the poverty level paid full price. Now those at these upper middle-class income levels – $124,800 for a family of four – have their exchange premiums capped at 8.5% of income. In certain cases, households with incomes of up to $600,000 qualify for government aid.

If the subsidies expire on time, the exchanges will return to the pre-pandemic Obamacare status quo. Why is that anathema to Democrats?

They say it's because at least 7 million people would lose exchange coverage, according to the CBO. But roughly half of those people would qualify for coverage through their employers instead, the agency estimates.

Of course, coverage will be unaffordable for some without the enhanced subsidies. But that’s because between 2013 and 2017, the average monthly individual market premium more than doubled from $232 to $476 because the creation of Obamacare – which required insurers to cover 10 essential health care benefits, among other costly regulations – fueled price increases. So Republicans should take additional steps to make insurance affordable again.

Before the election, Vice President JD Vance floated the idea of a possible solution: allowing states to separate patients into different insurance risk pools. Under this approach, people with preexisting conditions would be placed in high-risk pools that receive premium subsidies. But the vast majority of the population, which has a more conventional risk profile, could remain in a separate pool – and enjoy lower premiums as a result.

In 2017, Minnesota separated its risk pools. Over the next four years, state marketplace premiums plummeted 20%.

Expanding access to short-term health insurance plans – which usually have lower premiums and more comprehensive care, since they’re exempt from Obamacare's mandates – could offer another relief valve. Trump could extend the duration of these plans as he did during his first term (the Biden administration scrapped the extensions).

Democrats' alarmism over subsidies is misplaced. When they end, low-income Americans will still have access to subsidized coverage. And with the right policies, the rest of the country could have access to even more affordable insurance options.

Sally C. Pipes is president, CEO and the Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. 

https://www.usnews.com/opinion/articles/2025-02-26/house-passes-budget-bill-trump