Holding Firm on the COVID Credits, Subsidizing Unauthorized Immigrants’ Health Care, and a Part D Policy Brief

As the government shutdown enters a third week, today’s newsletter tackles why Senate Democrats refuse to vote to reopen the government. I start with the COVID-era credits. I then discuss how billions in federal subsidies have been going for health services used by unauthorized immigrants. I conclude with a discussion of a new policy brief from Jackson Hammond on the deterioration of the Medicare Part D program under the Inflation Reduction Act.

Stop Throwing Good Money After Bad

Supporters of Obamacare promised that the legislation would cut family premiums by $2,500. Instead, its mix of mandates and pricing restrictions sharply increased individual market premiums. From 2013 to 2014—the first year that Obamacare’s key provisions took effect—individual market premiums increased nearly 50 percent. Obamacare plans carried high deductibles and narrow networks, often excluding top hospitals and doctors. As the late Robert Pear of The New York Times wrote in 2015, these high costs rendered many of the plans “all but useless.” Generally, only those heavily subsidized or expecting major medical bills enrolled, leaving enrollment 60 percent below expectations.

Despite this poor performance, Democrats in Congress hiked subsidies to insurers for offering Obamacare plans as a pandemic measure. These COVID credits cut enrollees’ premium share and eliminated premium obligations entirely for roughly half of them. As Paragon has documented, these COVID credits fueled widespread waste and fraud: more than half of fully subsidized enrollees were ineligible, and 40 percent never used their plan. Democrats used reconciliation to enact these credits without any Republican support and scheduled them to expire after 2025.

In an October 5 editorial, The Washington Post admitted that “the real problem is that the Affordable Care Act was never actually affordable.” According to the Post, “[t]he architects of the program assumed that risk pools would be bigger than they turned out to be. As a result, policies cost more than expected.” The Post noted:

President Joe Biden and congressional Democrats used covid-19 to justify chasing the mirage of a European-style welfare state without raising the necessary taxes to pay for it. Now, prodded by the left, party leaders have shut down the government in a bid to permanently extend what was sold in 2021 as emergency subsidies to help people struggling during the pandemic afford health insurance. … Democrats have demanded that Republicans agree to extend the covid-era insurance subsidies without proposing any way to pay for it.

In an October 10 Wall Street Journal op-ed, Senator Rick Scott (R-FL) made a powerful case against extending the COVID credits.

To keep ObamaCare afloat, the federal government has propped it up with hundreds of billions of dollars in handouts directly to the insurance industry while failing to lower costs. These handouts lacked any accountability or eligibility requirements, opening them up to fraud, waste and mass confusion that lined the pockets of insurance companies and brokers, and failing Americans who need help.… This is an unsustainable system that feeds billions of taxpayer dollars to insurance companies. The federal government spent $111.2 billion on ObamaCare subsidies last year, sending checks to insurance companies for 19 million recipients. Reports indicate five million of those recipients were ineligible. That means the average American paid $327 of tax dollars last year on these subsidies, of which some $82 covered fraudulent enrollment.… It is time to end this madness by lowering the cost of healthcare, encouraging innovation at the state level, stopping fraud and waste in the system, increasing competition in the health insurance and provider markets, and giving the American people the ability to spend healthcare dollars in the way that best meets their individual needs.

An October 8 Wall Street Journal editorial argued that Republicans shouldn’t fear this fight. The Journal made the case that Democrats are risking a shutdown to extend subsidies for a pandemic emergency that ended two years ago—an income transfer to insurers costing about $450 billion over 10 years.

Although media polls suggest public support, most Americans have heard little about the issue and don’t realize only the temporary COVID boost is expiring. The editorial cited a Paragon poll that found 53 percent of voters support letting the COVID credits expire, and a Center for Excellence in Polling survey with similar results. As The Journal observed, voters grasp that pandemic policies were temporary. Responsible policymaking can win this debate by standing firm against another bailout and offering a better alternative.

Fact Checkers Miss How Medicaid Really Works

Recent analyses by Manhattan Institute scholar Chris Pope and Daily Caller reporter Emily Kopp expose a growing problem that “fact checkers” miss: states increasingly exploit Medicaid’s financing rules to use federal tax dollars for health care for unauthorized immigrants.

Federal Medicaid funds are supposed to cover only emergency services for unauthorized immigrants, yet in practice that line has been erased. In a New York Post piece, Pope explains that nationwide Medicaid spending on emergency services for undocumented aliens nearly tripled last year—from $3.8 billion in 2023 to $9.1 billion in 2024—driven largely by California’s accounting gimmicks, with much of this funding subsidizing regular services for unauthorized immigrants.

California became the first state to offer full Medicaid coverage to all unauthorized immigrants, claiming the $8.5 billion program for 1.6 million people would rely solely on state funds. Instead, it shifted about $4.8 billion to Washington by mislabeling routine care as “emergency” spending and used a Medicaid money-laundering tactic—a strategy Paragon and EPIC previously exposed—to manufacture fake state contributions and unlock billions more in federal Medicaid matching funds.

Oregon followed suit. As Kopp reports, Oregon will spend an estimated $1.5 billion between 2025 and 2027 to provide free health coverage to unauthorized immigrants—more than twice the state’s $717 million budget for state police. Oregon says roughly one-quarter of the funding will come from Washington, using a tax-laundering tactic to draw extra federal dollars—even though recipients need not prove long-term residency.

As we documented in Addressing Medicaid Money Laundering, these arrangements let states secure federal dollars without any real state contribution—a circular system of “tax scams” that launders money through providers and insurers, which can be used to circumvent federal funding restrictions.

The One Big Beautiful Bill (OBBB) began to curb these abuses by reducing the federal match for emergency services provided to unauthorized immigrants and phasing down provider tax loopholes. According to the Congressional Budget Office, the OBBB will result in a nearly $200 billion reduction in federal funding for health services on noncitizens over the next decade. Repealing those provisions would reopen the floodgates—exposing taxpayers to tens of billions in new spending for unauthorized immigrants’ health care.

Part D in Trouble & The Importance of Phasing Down Biden’s Taxpayer Bailout of the IRA 

A new Paragon policy brief authored by Jackson Hammond examines the latest developments in Medicare Part D—and the picture isn’t pretty. The Inflation Reduction Act (IRA) has worsened the prescription drug program.

Stand-alone Part D plan premiums increased nearly seven-fold from 2023 to 2026.  The average number of plans available to enrollees has fallen by nearly two-thirds since 2021, and the federal subsidy per enrollee has more than doubled. By shifting more drug costs to insurers while capping seniors’ out-of-pocket expenses, the IRA has driven up plan liability and, in turn, premiums and taxpayer subsidies.

To avoid political fallout before the 2024 election, the Biden administration used Medicare’s demonstration authority to create the Part D Premium Stabilization Demonstration—a $5 billion annual bailout. It was not an actual demonstration as nearly every insurer participated and there was no control group to test the policy change. The “demonstration” simply poured federal tax dollars into the program to hide the IRA’s true costs. It was an outrageous misuse of executive authority designed to avoid political accountability for a failed policy. Fortunately, as Jackson discusses, CMS has begun phasing down the bailout with a series of sensible steps to restore market discipline and begin returning Part D to normal operation.

Even with the phase-down, total subsidies remain well above pre-IRA levels, and the Part D market remains distorted. Policymakers must stop bailing out failed programs with more federal tax dollars. Congress should let the demonstration expire as scheduled, fix the IRA’s structural flaws, and restore market-based competition to keep costs in check for both seniors and taxpayers.