‘Inflation Reduction Act’ health care handout would worsen inflation


One of the biggest but underreported planks in Democrats’ so-called “Inflation Reduction Act” will dramatically worsen inflation. That’s the reality of the bill’s three-year extension of expanded ObamaCare subsidies for health-insurance premiums.

I’ve dived through the data, and this estimated $30-billion-a-year spending spree will drive up premiums for a constantly growing number of people while adding huge sums to the federal debt — another proven driver of inflation. What’s more, much of this inflation will come from giving taxpayer handouts to Americans nowhere near the poverty line.

The ObamaCare subsidies that the Inflation Reduction Act will extend were just expanded in March of last year, in the White House’s American Rescue Plan. That legislation significantly raised the income cap on ObamaCare subsidies, which had been set at 400% of the federal poverty line, or about $111,000 for a family of four in every state except Alaska and Hawaii. It also increased the benefits that all recipients could receive.

There was no justification for these moves at the time — ObamaCare’s initial subsidies were already generous and, in budgetary terms, unaffordable. Yet rather than let these expanded subsidies expire Dec. 31, as the American Rescue Plan ostensibly intended, the Inflation Reduction Act will keep this foolish experiment going.

Sen. Kyrsten Sinema (D-AZ) walks to a vote at the U.S. Capitol
Sen. Kyrsten Sinema voted to support the Democrats’ economic bill. Sen. Kyrsten Sinema voted to support the Democrats’ economic bill.
Drew Angerer/Getty Images

A big part of the inflationary pressure comes from the wealthy beneficiaries of expanded subsidies, who don’t need and shouldn’t receive taxpayer support. Using publicly available data, I found that a family of four (two adults in their 50s and two teenagers) can still get ObamaCare subsidies even if they make up to 20 times the federal poverty level, depending on where they live.

In West Virginia, home to primary IRA backer Sen. Joe Manchin, a Charleston family making $200,000 a year would get nearly $30,000 in annual subsidies. They’d have to make roughly $552,000 before taxpayer support faded completely.

It’s a similar story in Arizona, home of Sen. Kyrsten Sinema, whose vote was crucial to the bill’s passage in the upper chamber. The same family living in Prescott would receive more than $21,000, and the cash wouldn’t stop flowing until it clears an annual income of nearly $450,000.

If these expanded subsidies disappeared as originally planned, fewer than 1% of Americans would lose eligibility for their subsidies. That’s exactly what should happen because the wealthy aren’t who ObamaCare was intended to help. Yet by keeping the subsidies flowing, the resulting inflation will ensure that virtually every American gets hurt.

By their nature, subsidies drive up prices because they eliminate incentives to keep costs down. Sure enough, the Congressional Budget Office says ObamaCare premiums are already rising faster than anticipated, with a further 8% premium increase planned for 2023. In West Virginia alone, premiums have risen 20% since 2020.

Sen. Joe Manchin
Sen. Joe Manchin talks to reporters during amendment votes on the ‘Inflation Reduct Act’ on August 7.
Drew Angerer/Getty Images

The result is, and will continue to be, a vicious cycle. The ongoing price hikes essentially encourage employers to drop their health-insurance coverage for millions of workers, as the CBO has already predicted will happen. This will push additional people onto the ObamaCare exchanges. Insurers will have little reason to control costs with the government footing the bill for coverage, so we’ll see even higher premiums, which in turn will lead to costlier subsidies.

This is a recipe for an inflationary spiral the likes of which health care has never seen.

Finally, the inevitable rise in deficit spending will also make inflation worse. If expanded permanently, over the next 10 years the ObamaCare subsidy extension would add $250 billion to the federal deficit. Economists have long connected deficits to inflation, so more red ink for America means more red ink for Americans’ budgets. Nor will this federal spending replace other spending, since families will divert the money they would have spent on health insurance to other items, further driving up prices on everyday goods.

The Inflation Reduction Act’s extension of the expanded subsidies will last through 2025, but that’s clearly wishful thinking. If allowed to continue, they will likely become permanent, not least because of political pressure. When that happens, the painful inflationary pressure it puts on Americans will endure as well.

There was no good reason to expand ObamaCare subsidies to begin with, and there’s no good reason to extend them now. The sooner they expire, the better. Anything else will worsen inflation in the name of fighting it.

Hayden Dublois is the data and analytics director for the Foundation for Government Accountability.


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