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Tags: cbo | gdp | subsidies

Healthcare Subsidies? A Ticking Time-Bomb

healthcare subsidies a ticking time bomb


Sally Pipes By Thursday, 19 October 2023 11:07 AM EDT Current | Bio | Archive

For more than a decade, Democrats have responded to rising healthcare costs by increasing government insurance subsidies and leaving future taxpayers to worry about paying the bill. But the harm these policies have inflicted on America's long-term fiscal health can no longer be ignored.

new study from the Congressional Budget Office (CBO) makes this startlingly clear.

The federal government spent a jaw-dropping $1.8 trillion on healthcare subsidies this year, the CBO says.

In 2033, federal subsidies for healthcare are projected to reach $3.3 trillion.

Add it all up, and the federal government is on track to spend $25 trillion subsidizing healthcare between now and 2033.

By then, federal subsidies for healthcare will represent 8.3% of GDP. That's how big the entire U.S. finance and insurance sector was, as a share of GDP, in 2020!

Lawmakers need a plan for making healthcare more affordable without condemning the nation to fiscal ruin and increasing government control over the system.

Fortunately, there are a number of promising ways to achieve that aim.

The CBO's numbers are proof that something has gone awry in the way we pay for health care. Over the next decade, Medicare is expected to cost taxpayers $11.7 trillion.

Spending on Medicaid and the Children's Health Insurance Program will reach $6.3 trillion. And subsidies for health plans purchased on the Obamacare exchanges will total $1.1 trillion.

But what might surprise many is the amount our government will spend subsidizing employer-sponsored health coverage — a whopping $5.3 trillion.

That's because money spent on employer-sponsored insurance is exempt from payroll and income taxes. The exemption is the largest tax expenditure in the tax code.

These giveaways aren't just unsustainably expensive.

They're also among the greatest impediments to making health care more affordable in the United States.

By insulating patients from the cost of care, these subsidies prevent the health sector from functioning as an efficient market.

Patients have little incentive to shop around for the highest-value, lowest-cost care because someone else is generally paying the bill.

Providers, meanwhile, have significant pricing freedom. Patients have little interest in what they charge, and insurers generally feel pressure to cover the providers their customers want to see.

Price hikes from providers beget premium hikes from insurers.

Government subsidies obscure these spiraling costs from patients.

Take the tax exemption for employer-sponsored insurance.

One dollar of health coverage costs an employer the same as one dollar of wages.

But employees understandably prefer a dollar's worth of untaxed health benefits over a dollar of taxed wages.

Employers are happy to oblige that preference — and so offer more generous health plans than they would if wages and health benefits were on equal tax footing.

A more functional market would incentivize patients to spend their healthcare dollars wisely — which, in turn, would force providers to compete for patients' business. Over time, prices would come down, alleviating the need for massive federal subsidies.

In practice, this would mean either eliminating or dramatically reducing the tax exemption for employer-sponsored insurance and transforming Medicare so that seniors receive means-tested vouchers to purchase private plans.

At the same time, the federal government would need to make sure that its subsidies empower patients rather than enriching insurers and providers.

That means expanding access to tax-advantaged health savings accounts (HSAs), which enable people to set aside and grow money tax-free for future healthcare expenses.

Allowing more people to contribute to HSAs — including Medicare beneficiaries and people without high-deductible plans, both of whom currently cannot do so — and then spend the money as they see fit would inject a much-needed dose of consumerism into the healthcare market.

Subsidizing insurance without addressing the reasons why healthcare costs are surging will soon send the nation off a fiscal cliff.

There is still a chance to shift course and build a competitive market unencumbered by the costs and distortions of bottomless government subsidies. But time is running out.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.

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Subsidizing insurance without addressing the reasons why healthcare costs are surging will soon send the nation off a fiscal cliff. There's is still a chance to shift course, but time is running out.
cbo, gdp, subsidies
Thursday, 19 October 2023 11:07 AM
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