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It’s past time to end COVID health insurance subsidies

Three years on, a lingering and substantial cost of the COVID pandemic is reflected in recent health insurance enrollment data.

No, I don’t mean the cost to patients. I’m talking about the cost to taxpayers. And no, I’m not referring to government spending on COVID vaccines and treatments. Rather, I’m talking about the much larger cost of the “temporary” increases in federal health insurance subsidies.

When COVID emerged in early 2020, the panicked response of most government officials, both at home and abroad, was to impose restrictions and lockdowns. Essentially, governments reacted to COVID by slamming the brakes on the economy — and then keeping them on long past the point of any possible public health benefit.

That turned a disease pandemic into an economic and social pandemic, characterized by needleless job losses, business bankruptcies and school closings. Congress then decided to spend money we didn’t have to ameliorate an economic crisis that didn’t exist before government officials created one. Congress enacted four separate bills in March and April 2020 that collectively authorized $2.4 trillion in new federal spending on so-called COVID relief.

While a fraction did go to COVID vaccines and treatments, the vast majority of the new spending was to compensate for a government-created recession. Hundreds of billions of tax dollars went to unemployment benefits, economic stimulus payments, “loans” to small businesses, and bailouts of entire industries — notably airlines and hospitals (which had been ordered to stop providing nonemergency care).

Three years later those provisions are gone, but two other costly ones are still in place.

The first is further federal funding of state Medicaid programs — on the condition that states do not remove anyone from their Medicaid rolls for the duration of the federal COVID emergency declaration. The second is more subsidies for health insurance bought on the Obamacare exchanges, including extending those subsidies to the affluent.

The data shows that in each of the two years before COVID (2018 and 2019), about 65 million Americans were on Medicaid. But by the end of 2021, that figure had soared to nearly 80 million. Much of that increase likely reflects the requirement that states continue covering people who would no longer qualify under normal income rules.

For example, someone might qualify for Medicaid due to a job loss, but then cease to be eligible once reemployed. Such income changes happen all the time, and state Medicaid agencies handle them by routinely “redetermining” eligibility.

But to get the extra federal COVID funding, states were prohibited from carrying out eligibility redterminations for the past three years. Thus, it is likely that 5 million to 15 million people on the Medicaid rolls are no longer eligible for the program.

In December, Congress did belatedly enact provisions to phase down the extra Medicaid funding by the end of this year and permit states to resume eligibility redeterminations starting in April.

Even less justified were the added subsidies for Obamacare coverage. Not only were the subsidies increased, but the income cap on them (previously $120,000 for a family of four) was removed so that even the wealthy could get subsidies. In August, Congress further extended those provisions — through 2025!

Yet Obamacare already provided generous subsidies. Increasing them only marginally changed what low-income enrollees pay for coverage and extending them to the affluent simply makes it easier for insurers to keep raising premiums.

While the data shows that enrollment in individual market coverage (both subsidized and unsubsidized) has increased from 14 million before COVID to 16 million in 2021, enrollment was even higher (17 million) back in 2015 and 2016.

In short, those two bump-ups in federal health insurance subsidies were largely unnecessary to start with and are still costing taxpayers tens of billions of dollars. With the COVID pandemic now past, Congress should simply end these extra subsidies without further delay.

Edmund F. Haislmaier is a senior research fellow in health policy studies at The Heritage Foundation.