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Getting Rid of ACA Subsidies Is Easy, Politically and Economically

Sunday, January 8, 2017 8:04

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The conventional wisdom is that creating a subsidy program creates a sense of entitlement that, via political pressures, prevents it from being phased out later. This wisdom applies, perhaps, to a number of federal programs.

But the Affordable Care Act’s premium assistance subsidies (technically, they are “tax credits” administered with the personal income tax) are different because, unlike beneficiaries of Social Security, Food Stamps and so many others, a recipient of a premium assistance subsidy must also pay SOME OF HIS OWN MONEY. Many of them are doing so because of the individual mandate, which could be eliminated with little political cost. With the individual mandate gone, these people would voluntarily forgo their subsidy in order to keep their own money.

A few states have already seen something like this with their Medicaid program — asking program participants to pay a small part of the overall cost — and many participants voluntarily exited.

In addition, the rules setting minimum benefits could be eliminated. Some of those previously receiving subsidies would rather get a plan with fewer benefits but also requiring less of their own money (I wrote about them in my book). They too would voluntarily exit the ACA’s premium assistance program.

Yet another step would be to cap the subsidy at the DOLLAR AMOUNT that persons with the same income and same state of residence were ACTUALLY RECEIVING during the Obama administration. The amount that the recipient would have to pay out of pocket would be the difference between the premium and that dollar amount. As premiums inevitably rise over time, that amount increases and participants would continue to voluntarily exit the program, never to return.

(A more dramatic version of this would be to cap the subsidy at the dollar amount that the SAME PERSON ACTUALLY RECEIVED during the Obama administration).

Presumably, exit from the subsidy program would not be random — those whose participation had been more costly to the insurance plan would differentially remain in the program. As they did so, premiums would further rise above what they would have been with the ACA intact, which would further increase what participants have to pay out of pocket, and thereby further encourage voluntary exit.

Approaches like this not only make political sense, they make economic sense. Why should the American taxpayer pay, say, $200/month for a person’s insurance coverage when that person himself is unwilling to pay $50/month for it? The answer: the primary beneficiaries of the subsidies are health providers (more paying demand for what they sell) and high-income Democrats (feel good when the official statistics say that coverage rates are high), and it need not be not politically unpopular to take away what is effectively a subsidy to health providers and high-income Democrats yet advertized as something else.

As with many things about the ACA, the conventional wisdom is wrong.

Source: http://caseymulligan.blogspot.com/2017/01/getting-rid-of-aca-subsidies-is-easy.html

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