Fiscal hawks in the GOP are taking aim at health insurance companies, saying that they benefit the most from the Obamacare premium tax credits at the heart of the government shutdown.
Republicans and Democrats in Congress are in a state of gridlock over whether a bill to reopen the federal government should involve some plan to extend the enhanced premium tax credits for private Obamacare marketplace exchange health insurance plans.
The enhanced premium tax credits were initially built on those in the Patient Protection and Affordable Care Act of 2010. Democrats expanded subsidies to higher income brackets in 2021 as a pandemic relief measure.
However, the fact that the vast majority of the premium tax credits are paid directly to insurance companies, not enrollees, makes conservatives argue that the structure is not really a tax credit in the traditional sense.
Michael Cannon, director of health policy at the libertarian Cato Institute, told the Washington Examiner that “there’s really no tax relief” for enrollees regarding the so-called premium tax credit.
“Workers send the same amount of money to the IRS that they would if there were no supposed tax credit, and then the IRS just takes some of their income and sends it to an insurance company and calls that a tax break. But really, that’s just a government subsidy,” said Cannon.
The Congressional Budget Office estimated earlier this year that making the enhanced premium subsidies permanent would cost roughly $400 billion over the next ten years, but it would prevent 3.6 million more people from going uninsured.
Fiscal conservatives in the House Freedom Caucus are leaning into the rhetoric that extending the enhanced premium tax credits is effectively propping up bloated health insurance companies.
Rep. Chip Roy (R-TX) characterized the tax credits as “corporate subsidies driving up healthcare costs” and said Democratic “inflationary policies and crony capitalism are driving up costs.”
“What I’m not for is $400 billion in the pockets of insurance companies. I’m not for enriching the K Street healthcare lobby. I’m not for perpetuating a system that’s causing every family to spend $25,000 on insurance that doesn’t even give them the doctors they want,” Roy said Monday.
Freedom Caucus chairman Rep. Andy Harris (R-MD) echoed a similar point earlier this month, saying the enhanced premium tax credits “should be eliminated because they have “created tremendous distortions in the marketplace.”
“But since the insurance companies are making tens of billions of dollars on this, they want to continue this charade — the fraud and the waste in this program,” said Harris.
How the premium tax credits work
The Patient Protection and Affordable Care Act of 2010 created a refundable tax credit structure to ensure qualifying Americans purchasing insurance through the Obamacare marketplace could receive lower out-of-pocket premium expenses.
The enhanced premium tax credits function in the same way as the original Obamacare structure in that they can be taken as either a lump sum at the end of the tax year or in advance, based on the enrollee making an estimate at the time of enrollment of their anticipated income for the coming year.
Either way, the enrollee’s savings depend on income level, with lower-income enrollees dedicating less of their paychecks to premium prices.
Advanced premium tax credits are paid directly to the insurance company, in theory, to offset the price of the enrollee’s out-of-pocket premium expense each month as opposed to a rebate at the end of the year.
Cynthia Cox, Director of the ACA program at the policy organization KFF, told the Washington Examiner that the “vast majority” of marketplace enrollees take the advanced subsidy option because the average enrollee finds it challenging to afford the upfront premium price without a subsidy.
“Most enrollees would likely be unable to afford to pay full price for the premium and wait until the next year to get the tax credit at tax time. The upfront payment to the insurance company ensures that the premium tax credit is being used for the purchase of health insurance,” said Cox.
About 92% of the more than 24 million enrollees in Obamacare marketplace plans this year received advanced payments of enhanced premium tax credits, according to the Bipartisan Policy Center.
Maria Ghazal, head of the Healthcare Leadership Council, which represents various industry interests, told the Washington Examiner that an insurance company on the marketplace “doesn’t keep some kind of windfall” if its enrollees incorrectly estimate their income when they enroll in an Obamacare plan.
“This is all based on what the individual, what their income is. So they’ll resolve this later on. The IRS will resolve this,” said Ghazal.
Subsidies for industry, not tax credits
Healthcare policy and economic experts with a bent towards free markets argue that, because the tax credits.
Brittany Madni, Vice President of the Economic Policy Innovation Center, told the Washington Examiner that, despite the intention of lowering expenses for enrollees, the tax credits function like subsidies for other industries.
“The insurance companies are theoretically using them to offset premium rates, but it functions the same way every other subsidy does,” Madni said. “If an industry knows that it’s getting the subsidy on the front end, then there is no reason to not allow a rate increase because the federal government is going to pay for it.”
Brian Blase, founder of the right-leaning Paragon Health Institute, told reporters this week that nearly 90% of the revenue insurers make on Obamacare plans comes from the taxpayer rather than enrollees.
“We have an entirely overly subsidized market,” said Blase.
Because the tax credits’ income caps the proportion of the total premium cost the enrollee pays, Blase argues that the tax credits are inherently inflationary, as enrollees become insensitive to price.
Blase highlighted that total premium costs for benchmark plans increased by nearly 50% from 2013 to 2014, when the marketplace exchanges took effect.
From 2014 to 2026, Paragon estimates that total premium costs increased by roughly $5,500, with the benchmark plan costing an estimated $10,000 annually. More than 80% of that will be shouldered by the taxpayer, even with enhanced premium tax credits expiring at the end of the year.
Coverage versus care
Ghazal, representing providers and a handful of insurers, said the members of the Healthcare Leadership Council support renewing the enhanced premium tax credits because insurance coverage is important to overall health.
“Every member that we have believes very much that having coverage is extremely important, that you have better outcomes. You are able to detect things earlier, you’re able to have preventive care,” said Ghazal.
Cannon argues that the quality of Obamacare coverage is lower than that of employer-sponsored plans for a host of reasons. He cites evidence suggesting that Obamacare plans ration care more than employer-sponsored plans through higher cost-sharing rates, more restrictive prescription drug tiers, more preauthorization requirements, and step therapy.
“It’s some coverage, obviously, but it’s not high-quality coverage,” said Cannon.
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Blase suggests the lower quality of Obamacare plans is not reflected in increased enrollment rates over the past five years due to the subsidies concealing the true market value of the insurance coverage available on the marketplace.
“Insurers aren’t designing plans that patients actually value. If nobody’s paying for the plans or they’re paying so little, you could get people to enroll in this coverage, even if the plan has such little value to it,” said Blase.
