Democrats Want To Fight Inflation With Obamacare Subsidies That Would Make Inflation Worse

The political class still hasn't come to grips with the idea that subsidies don't fight inflation.

Obamacare's headline promise was contained in the title of the legislation that spawned the program: It was the Affordable Care Act, and it promised to make health care, or at least health insurance, more affordable. 

What went mostly unacknowledged by the law's authors and backers was that Obamacare had little if any real mechanisms to bring down the price of health coverage. Instead, it had a system of federally funded subsidies, running about $60 billion annually, which would mask the true price of health insurance by offloading a share of premium costs to taxpayers. 

As it turned out, even this system of subsidies was deemed deficient by supporters of the law, including its namesake, President Barack Obama. This April, Obama commemorated the law's anniversary by warning that, in the absence of a subsidy funding boost provided by the American Rescue Plan (ARP), "health-care subsidies aren't where we want them to be, which means that some working families are still having trouble paying for their coverage." The implicit conclusion was hard to miss: The Affordable Care Act, on its own, had not made coverage more affordable. 

Instead, the subsidies had been topped up by the ARP, the roughly $2 trillion grab bag of Democratic policy priorities passed by President Biden and congressional Democrats in early 2021. For two years, the ARP raised income caps for the subsidies and increased their value, setting up a situation in which some households earning well into six figures were eligible for health insurance subsidies worth tens of thousands of dollars per year. 

In theory, the two-year subsidy boost was a temporary measure intended to address the emergency of the pandemic. In practice, it was obvious from the outset that Democrats hoped to use the temporary subsidy boost as a stepping stone to permanently expanding Obamacare's subsidies. Extending the subsidies, at a cost of $25-35 billion a year, was among the proposals that consistently featured in last year's Build Back Better spending bundles. But negotiations over Biden's spending bill stalled last year, leaving the expanded Obamacare subsidies set to run out. 

Now, of course, there is another emergency looming: the 2022 midterm election. 

Democrats are worried that the subsidy expansion included in the ARP will run out, and that people who receive such subsidies will be notified just before voters head to the polls. As a recent report from the left-leaning health care advocacy group Families USA warns, "Unless Congress acts, more than 14 million people who rely on marketplace plans will receive notices from their insurance companies announcing shocking premium increases a few weeks before open enrollment begins on November 1." The worry is that just a few days before the election, voters will be exposed to the sticker shock of individual market health insurance premiums that are merely offset by the initial set of subsidies from the original Affordable Care Act. 

As with last year's BBB negotiations, much is riding on the vote of Sen. Joe Manchin (D–W.Va.), and it remains unclear how he will vote, or if anything will pass. The White House isn't commenting on negotiations, but according to a recent report in Politico, "a White House spokesperson offered general support for the ACA subsidy — adding that reducing costs and fighting inflation are Biden's 'highest priority.'" Similarly, Democratic House Majority Leader Steny Hoyer said, "We may not be able to control some things with inflation. This is one thing we can control." 

What neither the White House nor the Democratic Majority Leader seem to grasp is that continuing to fund expand subsidies is, itself, inflationary. 

Somehow, in the midst of the highest inflation rates in four decades, Democrats, who helped stoke that inflation with a massive program of spending and subsidies, have not come to grips with the notion that you cannot spend and subsidize your way out of inflation. On the contrary, ill-advised programs of government spending and subsidies are a significant reason why inflation is as high as it is. 

So here is where we are left: More than a decade ago, Democrats passed a program to make health care affordable that, by their own admission, did not make health care affordable. They followed up with a temporary program of expanded subsidies to further hide the true cost of care, which they quickly began pushing to make permanent. And now they want to fight inflation that was exacerbated by government spending with new government spending. It is hard to avoid the conclusion that Democrats are proposing to try to solve problems they created by making them worse.