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Growing Cost of Obamacare, Dire Medicare Trustees Report, and More

Paragon Newsletter
Brian Blase
PresidentatParagon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Today’s newsletter tackles the escalating cost of Affordable Care Act (ACA) subsidies from Biden administration regulatory actions, including one last week to extend subsidies to non-citizens, the new Medicare trustees report, and misguided legislation to eliminate Medicaid estate recoveries.

ACA Subsidies for DACA Residents

The Biden administration continues to issue legally dubious regulations to increase Affordable Care Act (ACA) subsidies, expanding the definition of “lawfully present” to include non-citizen residents with Deferred Action for Childhood Arrivals (DACA) status. Previously, federal regulations issued by the Obama administration had explicitly excluded individuals with DACA status from being eligible. The Biden administration expects about 100,000 DACA recipients will enroll, with a ten-year cost of roughly $3 billion.

Escalating Cost of Obamacare Subsidies: Projected Ten-Year Cost Up $336 Billion

Premium subsidies received by insurers offering ACA exchange plans are escalating in cost. Both legislative changes and Biden administration regulatory actions, many legally dubious, increased the size of subsidies and extended eligibility for them. This week’s Paragon Pic shows the escalating cost, comparing the Congressional Budget Office’s (CBO) most recent estimates with its projections in September 2020 prior to several policies that inflated the subsidies. CBO expects that the cost of the ACA subsidies from 2021-2030 will be $336 billion more, or 53 percent higher, than it projected in 2020 before all the subsidy expansions.

Escalating Cost of Obamacare Subsidies

The American Rescue Plan Act of 2021 increased subsidies for everyone already receiving one and expanded subsidy eligibility to people in households with income above 400 percent of the federal poverty level (FPL). This policy change made fully-subsidized plans with minimal cost-sharing available for individuals with income between 100-150 percent of FPL. The Inflation Reduction Act then extended the increased subsidies through 2025. Driven by these higher subsidies, exchange enrollment has surged, particularly for people below 150 percent of FPL, who are now nearly half of all enrollees. Many of these new enrollees have replaced employer plans with a heavily subsidized exchange plan.

Even after the increased subsidies expire, CBO still expects a much higher subsidy cost than it projected in 2020. In 2030, CBO now projects that ACA insurance subsidies will cost $27 billion more than in its 2020 projection. This cost growth is largely because of three Biden administration unilateral actions to pump up enrollment by directing more money to insurers.

  • The legally dubious “family glitch” fix results in fewer employers offering dependent coverage and more people eligible for subsidies.
  • A new special enrollment period allows enrollees with income below 150 percent of FPL to enroll year-round.
  • income verification requirements permit more people to enroll in subsidized coverage even if administrative data suggest their income is too low to qualify.

The Paragon Pic analysis provides more explanation of these regulatory actions.

We Can’t Ignore Medicare’s Financial Woes

The annual Medicare trustees’ report, released on Monday, projects that Medicare’s Part A hospital trust fund will be insolvent in 2036, five years later than last year’s projection. While this means that large payment cuts to hospitals are not imminent, the Part A trust fund is not the best measure of Medicare’s financial challenges. As Joe Albanese explains in a new National Review piece, “Over the next decade, Medicare’s real cost is projected to expand by over a third – from 3.8 percent of the economy in 2024 to 5.1 percent in 2033.” From Joe’s piece:

Roughly 61 percent of Medicare spending now comes from Part B, which covers outpatient and physician services, and Part D, which covers prescription-drug benefits. About three-quarters of funding for these programs comes from tax revenue or deficit spending. As a result, Medicare’s continued growth will directly crowd out other government priorities and contribute to the nation’s debt burden. This is why the trustees issue a “funding warning” when Medicare is overly reliant on revenue coming from outside of its dedicated funding sources.

Medicare expenditures now exceed national defense expenditures. The only budget item growing faster than health care is interest payments on existing debt, with Medicare being the driver of projected future health-care spending.

Rising costs for these benefits will also increase the financial burden on Medicare enrollees, because they typically pay about 20 percent of the cost for Part B services. On average, retirees spend about 26 percent of their Social Security checks on Part B and D expenses alone.

Joe’s piece also contains numerous recommendations for how Congress could put Medicare on a sustainable path.

Letting Heirs Bilk Medicaid is Bad Policy

Speaking of the importance of putting federal health programs on a sustainable path, Congress should not adopt legislation that would make it easier for individuals to maximize their inheritances by putting their parents on Medicaid and forcing taxpayers to pick up long-term care (LTC) expenses. LTC expert Steve Moses and I have a new piece in National Review on this issue:

[T]here is no limit to how much income or assets people can have while receiving Medicaid LTC benefits so long as their medical expenses are high enough and their largest assets are exempt. Prospective heirs looking to preserve their inheritances often take advantage of these features to qualify their parents for Medicaid.

Aside from the low quality of care delivered in many Medicaid-financed nursing homes, however, there is one feature of Medicaid that causes some people to hesitate to creatively arrange their assets to qualify for it.

Ever since 1993, the federal government has required state Medicaid programs to recover the cost of their care from the estates of deceased recipients. Every dollar collected from the estates of deceased Medicaid recipients is one more dollar the program can use to provide care for people truly in need.

Until Congress eliminates Medicaid policies that allow the affluent to retain their wealth and consume the program’s scarce LTC resources, recovering costs from some recipients’ estates is the only way states can discourage abuse and encourage responsible, private LTC planning. The main problem is not too much cost recovery from recipients’ estates but rather too little.

Here’s the bottom line: Medicaid should help the needy, not subsidize soon-to-be heirs who are placing their elderly relatives on public assistance. As long as the criteria for Medicaid eligibility remain so loose, cost recovery is essential to deter the program’s abuse by those who seek to maximize their inheritances.

All the best,

Brian Blase
Paragon Health Institute

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