The federal government is covering a smaller share of Obamacare enrollees' premiums this year. That has Democrats warning of a surge in the number of uninsured, as people struggle to shoulder more of the cost themselves.
But recent reporting on some of those losing their enhanced premium subsidies reveals that the federal dollars have merely masked the dysfunction Obamacare foisted on the insurance market.
Last week, the Los Angeles Times profiled several Californians whose premium subsidies shrank this year.
One is a 29-year Los Angeles-based publicist with epilepsy.
In 2025, she paid $535 a month for a mid-level silver exchange plan.
This year, her premium quote jumped to $823 per month.
Yet as the paper noted, her actual healthcare costs are modest.
Her epilepsy medication costs about $175 every three months without insurance, and her annual doctor visits total roughly $250.
After earning about $55,000 last year, she calculated that paying for routine care out of pocket would cost far less than nearly $10,000 a year in premiums.
That is not an argument for restoring the enhanced subsidies.
It's an indication that the insurance market is broken.
Insurance is supposed to protect against catastrophic risk — not pre-pay for predictable, routine expenses.
But Obamacare effectively eliminated most low-cost, catastrophic-style policies by requiring all plans to cover ten essential health benefits, forcing insurers to sell to all applicants regardless of health status or history, and restricting age-based pricing.
Those rules made comprehensive coverage mandatory — and expensive.
It should come as no surprise that exchange premiums have more than doubled since 2014, the year Obamacare's regulations took effect.
For many Americans, especially younger and healthier ones, comprehensive coverage doesn't make financial sense.
According to data from the Peterson-KFF Health System Tracker, the bottom 50% of Americans by total health spending in 2022 averaged just $374 in health expenditures that year. Americans between the ages of 19 and 34 spent an average of about $629 out of pocket in 2021.
Spending hundreds of dollars each month on premiums to insure against costs that rarely materialize is hardly rational.
A more sensible option would be lower-cost catastrophic coverage — policies designed to protect against major medical events while leaving routine care to be paid out of pocket.
On Feb. 9, the Centers for Medicare and Medicaid Services proposed a sweeping rule that would loosen eligibility rules for catastrophic plans and allow insurers to offer multi-year versions of these products.
Public comments on the proposed rule are due by March 11. Such changes could give consumers meaningful alternatives to today's comprehensive, and costly, exchange plans.
Pairing catastrophic coverage with a health savings account would make even more sense. Individuals can contribute up to $4,400 tax-free this year to cover routine expenses.
For someone with modest annual medical costs, that combination can provide financial protection at a fraction of the cost of comprehensive exchange coverage.
Extending the enhanced subsidies would not have been cheap.
The Congressional Budget Office projected last year that renewing them would cost roughly $350 billion through 2035.
That's a staggering sum to spend merely to cushion consumers from premiums inflated by regulation.
The enhanced subsidies also expanded eligibility far beyond Obamacare's original intent.
They effectively made it possible for some higher-income individuals to retire early or scale back their work hours while taxpayers covered most of their insurance costs.
That may be a rational response to incentives.
But it's fair to ask whether underwriting early retirement or fewer hours on the job is the best use of hundreds of billions of taxpayer dollars.
The real problem exposed by the expiration of enhanced subsidies is not that Americans need more federal assistance.
It's that Obamacare made affordable, limited-benefit coverage largely unavailable — and then relied on subsidies to conceal that fact.
Now that Americans are seeing the true cost of their coverage, policymakers should respond not by reinstating expensive subsidies but by restoring choice.
Giving consumers access to lower-cost catastrophic options could provide a sustainable path to affordability — and save taxpayers billions in the process.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Healthcare Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It." Follow her on X @sallypipes. Read more Sally Pipes Insider articles — Click Here Now.
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