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Obamacare Subsidies, Infant Formula, COVID PHE…

President at Paragon 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.

I hope everyone had a relaxing Memorial Day weekend, enjoying time with family and friends and remembering the sacrifices of so many heroes and loved ones. Just a few items for you as the first week of summer unofficially kicks off. The issues—expanded Obamacare subsidies, the shortage of infant formula, and the extension of the federal COVID public health emergency—involve recent government policy failures.

Problems with Continuing the Expanded Obamacare Subsidies 

Writing in Forbes last week, I explained fourteen reasons why Congress should let the expanded Obamacare subsidies, enacted in the American Rescue Plan Act, expire: 

  1. They were intended to be temporary COVID relief, not a permanent expansion of government.
  2. Extending them would crowd out private financing and be inflationary.
  3. Extending them would lead to higher health care prices and premiums.
  4. Extending them would lead to a large loss of employer coverage.
  5. The budgetary cost will grow as employers drop coverage.
  6. Extending them would be a very inefficient way to spend taxpayer dollars because most of the spending is on coverage for people who are already insured.
  7. Government health care commitments are already unsustainable, and extending them would worsen the already grim U.S. fiscal picture.
  8. Extending them provides unfair benefit for wealthy households, who obtain far more financial benefit from them than do lower-income households.
  9. Only about 1,000 West Virginians with income above 400% of the poverty line are enrolled in the exchanges.
  10. The effect of the loss of the expanded subsidies is much more limited than the media projects.
  11. Extending them mostly benefits insurers since consumers generally place a low value on the coverage.
  12. Extending them would reduce work and economic output.
  13. Extending them discriminates against women.
  14. Extending them papers over Obamacare’s problems and reduces Congress’s appetite for actual reform.

One key development—in its Budget and Economic Outlook released last week, the Congressional Budget Office raised its projected cost of the expanded subsidies in 2022 by more than 50%. 
Today, a Wall Street Journal editorial—which links to my 2021 Galen Institute report, “Expanded ACA Subsidies: Exacerbating Health Inflation and Income Inequality”—also takes aim at the subsidies. The editorial starts: “A time-honored political trick is to pass a ‘temporary’ subsidy that people get used to and then cry hardship when the emergency program ends.” From the editorial:

Shoveling more money into ObamaCare won’t improve the quality of the health coverage. A family of four looking for a plan on the ObamaCare exchanges without subsidies “can expect to pay about $25,000 for the year in premiums and deductibles,” according to an analysis by eHealth. Bonus: You probably can’t see the doctor you like, given that the plans tend to have narrow doctor and hospital networks.

The Government’s Contribution to the Baby Formula Shortage 

Dr. Joel Zinberg, the director of Paragon’s Public Health and American Well-Being Initiative, took a deep dive into the reasons for the confounding and unacceptable shortage of infant formula in a May 26 National Review piece. Joel found that Washington deserves much of the blame. 
First, Americans can’t import formula from the European Union if foreign manufacturers don’t conform to FDA nutritional and labeling requirements—despite no evidence of problems with E.U.-produced formula.
Second, U.S. policy discourages the importation of formula with tariffs. Joel noted, “Tariffs on top of the cost of complying with FDA labeling, nutrition, and inspection requirements make it uneconomical for foreign producers to export to the U.S.”
Third, problematic provisions in the Supplemental Nutrition Program for Women, Infants, and Children (WIC), which finances about half of baby formula in the U.S., bears responsibility as well. Each state contracts with a single formula manufacturer, and many stores sell only their state’s WIC-preferred brand. According to Joel:

The sole-source contracting in the WIC program enables states to buy at deep discounts. But when half or more of a state’s customers are locked into a specific brand, it discourages other manufacturers from entering the market. Just two producers, Abbott and Reckitt, have nearly all the WIC contracts nationwide, thus creating a potential (and now real) vulnerability to shortages if either of them has production difficulties.

It is possible that an Abbott manufacturing facility in Michigan had problems that resulted in two infants dying from contaminated formula. However, the FDA waited too long to investigate the facility and has lacked a sense of urgency to get the facility reopened. The FDA commissioner testified before Congress, acknowledging that the FDA was: “Too slow, and there were decisions that were suboptimal along the way.” In an admission of bureaucratic incompetence, FDA attributed a delay in addressing a whistleblower complaint “to problems in the FDA’s mailroom that kept the complaint from reaching senior FDA officials for months.”
Joel criticized the FDA’s guidance on May 16 which stated that it will consider exercising ‘enforcement discretion’ on a case-by-case basis to allow importation of formula. Joel believes it will be ineffective since the enforcement discretion will be exercised for only the next six months. Joel also wrote that President Biden’s decisions to invoke the Defense Production Act and use military aircraft to fly in European formula were public-relations stunts because neither a deficiency of formula ingredients nor an unavailability of air transports contributed to the formula shortage.
Joel concludes with a few key recommendations:

  1. “FDA regulations limiting the supply of competing foreign formulas should be permanently eased.”
  2. “Tariffs on foreign formula should be ended.”
  3. “[T]he WIC program should be permanently reformed so that states and their citizens can more easily access multiple types of formula.”

The Biden Administration’s Extension of the PHE

Finally, you may also be interested in Paul Mango’s thoughtful RealClear Politics piece about the Biden administration’s decision to extend the COVID public health emergency. Paul is a Paragon public advisor and was the deputy chief of staff for policy at the U.S. Department of Health and Human Services from 2019-2021. Paul makes the case that the actual public health emergency is over, but that politics, “pork,” and a desire to keep federal COVID-related spending elevated are trumping sensible policy from the Biden administration. 

All the best,
Brian Blase
Paragon Health Institute

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