Two weeks ago, Congress let another deadline pass by, failing to act on the year-end expiration of tax subsidies that help millions of Americans afford health insurance. This legislative failure has already begun to hurt Americans, with 1.4 million fewer people enrolling in health insurance plans on the federal marketplace. And despite months of legislative attention, Congress is no closer to a real solution to reduce health care costs for the American people.
Most Democrats are still demanding a three-year extension of the pandemic-era subsidies, with no way to pay for it. But while their plan did advance in the House, it stands no chance in the Senate. Meanwhile, most Republicans are still clueless on health care, unable to offer any real solutions to reduce costs. Even the Senate’s “pragmatic dealmakers” have failed to make progress, with deliberations stuck in the mud.
It’s time for a compromise like the one that PPI proposed in September. Our plan would strike a sensible middle ground, preserving many benefits for low-income Americans but saving money by targeting subsidies to those who need them most. The subsidies would also be permanent, paid for by cracking down on unfair practices that insurance companies and large hospitals use to overcharge the federal government.
Congress Shouldn’t Repeat the Mistakes that Got Us Here
To understand why a compromise is needed, it’s worth recalling how these enhanced subsidies came to be. In 2021, Democrats temporarily expanded the Affordable Care Act’s (ACA) health insurance subsidies as part of their pandemic relief bill. The enhanced tax credits were designed for a health emergency, and were therefore unusually generous. But once the pandemic had subsided and the tax credits were set to expire in 2022, many Democrats argued that they should be made permanent.
To some extent, these Democrats had a point — the enhanced subsidies provided real financial relief and helped push America’s uninsured rate to a record low. They also eliminated the ACA’s “benefit cliff,” which caused enrollees to lose all of their benefits if their income rose above an arbitrary threshold. But moderate Democrats realized that the pandemic-era subsidies were deeply flawed. The benefit formula was skewed toward higher-income enrollees, with some families making over $300,000 per year being eligible for taxpayer support. And a permanent extension would have cost roughly $300 billion over ten years, adding fuel to our ballooning national debt.
At the time, my colleagues at the Progressive Policy Institute called for a permanent compromise. But instead, Congress chose the worst possible approach, extending the full pandemic-era subsidies for three years. Rather than solving the problem, lawmakers guaranteed that it would return in 2025.
A Better Way Forward
While Congress failed to meet its 2025 deadline for action, a bipartisan group of Senators is still hoping to find a solution (and make it retroactive). The details of this plan are still unfinished, but negotiators will surely be tempted to propose a temporary, deficit-financed version of the subsidies — nothing more than a repacked version of the ideas that have failed to gain traction for months. Instead of rehashing failed ideas, negotiators should get behind a sustainable and permanent solution to make health care more affordable.
If Senators are willing to take the second approach, they should turn to PPI’s proposal, which would enact a more affordable version of the subsidies and pay to make them permanent. Our plan would preserve free health insurance for Americans in poverty and would provide more generous support than the original ACA for people earning up to 350% of the federal poverty level. It would also eliminate the ACA’s benefit cliff, meaning middle-income Americans wouldn’t immediately lose all of their tax credits if they receive a modest raise. Crucially, the plan would cost just half as much as the pandemic-era subsidies, generating the greatest savings by scaling back subsidies for upper-income enrollees that don’t need them.
This proposal would be fully paid for through savings in the health-care system. It cuts costs by adopting site-neutral payments in Medicare, ensuring that the program pays the same rate for a procedure regardless of whether it is performed in a doctor’s office or a hospital. It would also crack down on upcoding in Medicare Advantage, the practice in which private insurers make their patients appear sicker than they really are in order to secure higher government reimbursements.
Not only are these proposals smart policy, but they would also undercut the strongest argument against the subsidies — that subsidies, on their own, do not drive down the underlying costs of health care. By cracking down on large hospital systems and insurance companies that siphon money from our medical system, these reforms could do more to reduce costs than any law since the Affordable Care Act.
The stakes are too high for politicians to waste time on unrealistic proposals or temporary fixes. It’s time for Congress to get behind a credible solution to reduce health-care costs and provide long-term security for the millions of Americans who purchase health insurance through the ACA’s marketplace.
