Trump Should Let the Costly Obamacare Subsidies Expire

Next year will be an important one for American health. Donald Trump’s incoming administration has pledged a new focus on chronic diseases in hopes of better understanding and preventing what makes us sick. Next year, we’ll also see the expiration of the expanded government subsidies that boosted Affordable Care Act insurance-exchange enrollments. Democrats are pushing to extend these subsidies, but Trump and the GOP should resist the pressure. Allowing those costly subsidies to end does not conflict with the new administration’s goal of improving health, and it will save hundreds of billions of taxpayer dollars.

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Health policy has long focused on expanding insurance coverage at enormous cost to taxpayers. Policymakers assumed that coverage would increase access to care, which would improve health outcomes. Yet, as we document in our new Paragon Health Institute study, little evidence suggests that expanded government health insurance programs improve most people’s health.

U.S. life expectancy peaked in 2014, then stagnated, while mortality rates from major medical causes of death continued to rise, even as the newly implemented ACA expanded insurance coverage.

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Studies consistently show that government insurance expansions increase the amount of health care used—but with much less improvement to overall health than is commonly believed. While insurance serves crucial functions, such as improving people’s sense of well-being and financial security, the best evidence from randomized, controlled experiments finds that it has no significant effect on physical health outcomes. Perhaps the best known of these studies, the 2008 Oregon Health Insurance Experiment, used a lottery to place thousands of low-income adults into Medicaid coverage or no coverage. It found that Medicaid coverage boosts health care use across settings, improves financial security, and reduces depression but has no detectable effects on physical health outcomes such as high blood pressure, cholesterol levels, diabetes control, or mortality. When the researchers later focused on the subset of individuals with pre-existing chronic diseases—those who should benefit the most from medical care—Medicaid coverage had no effect on indicators of physical health, including measures of obesity or blood markers of inflammation, and no significant effect on the management of several chronic physical health conditions, including diabetes and asthma.

Why is insurance so ineffective at improving health? Government coverage expansions, such as the ACA’s Medicaid expansion and premium subsidies for exchange plans, often just substitute government-funded plans for private coverage or replace previously uncompensated care with care covered by insurance. According to some estimates, the uninsured receive about 80 percent as much medical care as they would if they were insured. In addition, government insurance programs such as Medicaid—the main source of expanded ACA coverage—provide limited access to services, and government plans often mandate low-benefit care such as routine physicals.

In addition, the health care that insurance facilitates contributes only 10 percent to 20 percent in determining health outcomes. Some services may actually reduce health by exposing patients to medical errors, overdiagnoses, and misdiagnoses. Behaviors such as smoking, drug and alcohol use, diet, and physical activity play a much larger role in determining health.

Despite this evidence, the Biden administration and congressional Democrats significantly increased ACA subsidies in 2021. Fully subsidized plans are now available for people with incomes between 100 percent and 150 percent of the federal poverty level. Upper income caps were removed, making subsidized premiums available for Americans with incomes above 400 percent of the poverty level ($124,800 for a family of four). Free and heavily subsidized insurance attracted millions of additional exchange enrollees, including about 5 million who, in the absence of adequate controls and at a cost of roughly $20 billion, misstated their income to qualify for free coverage.

The Congressional Budget Office predicts that allowing these expanded ACA subsidies to expire in 2025 will add to the number of uninsured people by 3.8 million annually, on average, over the next decade. Nevertheless, the evidence suggests that the lack of coverage will not adversely affect their health.

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Meantime, the budget savings from letting the subsidies expire would be substantial. The CBO estimates that permanently extending the enhanced ACA credits would swell the deficit by nearly $400 billion over ten years. Furthermore, about half of additional enrollees would be substituting inferior, narrow-access exchange plans for employer plans with wider provider networks.

We should not extend expensive and wasteful subsidies that provide minimal health benefits. The Trump team’s plan to address unhealthy behaviors that are the major determinants of health and to prioritize chronic disease research, prevention, and treatment is a more constructive, and cost-effective, strategy to improve Americans’ health.

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