The Obamacare Subsidy Ruse, Fix CBO Scoring, Let Prices Fall

Democrats now warn that millions will face higher premiums if the enhanced Affordable Care Act subsidies expire at the end of 2025. The warnings are loud. The outrage is theatrical. The facts are simpler. Democrats wrote the sunset. They drafted the American Rescue Plan in early 2021 to turbocharge premium tax credits for two years, then in 2022 extended them through 2025 in the Inflation Reduction Act, again on a party line basis. Representative Darren Soto voted for these laws. He and his colleagues did not stumble into a deadline. They chose it, in part to satisfy budget rules and to compress the official cost inside a friendly ten year score. The cliff is not a betrayal of legislative intent. The cliff is the legislative intent.

That claim may sound hard. It is not. KFF’s own analyses, widely cited by Democrats, describe the ARP enhancements as temporary and the IRA extension as ending in 2025. KFF’s Drew Altman put the point plainly, Republicans correctly say they were temporary, meant to sunset in 2026, and Democrats could not make them permanent at the time given the costs. No one was surprised in 2021 or 2022. The surprise came later when members began to pretend that the clock they wound in public was a time bomb planted by someone else. If a caucus designs a program to lapse on a date certain to avoid a larger official price tag, it cannot plausibly blame others when the date arrives.

The charge of bad faith is sharper in the case of Rep Soto because he has joined colleagues in scolding Republicans for refusing to extend what he helped to make temporary. That is not a dispute over values. It is a refusal to own authorship. When a legislator writes a sunset into law, then attacks others for letting that sunset occur, the public is entitled to see a strategy, not an oversight. The strategy is familiar. Create a popular benefit for a short window, reap the praise, later demand a renewal, and when opponents balk, accuse them of cruelty. That pattern is not governance, it is brinkmanship by design.

Republicans, and many economists across the spectrum, warned that these subsidies would inflate premiums rather than bend costs down. The logic is straightforward. When government picks up the last dollar of any premium above a capped share of income, consumers feel price increases only dimly. Insurers know it. When buyers are insulated from price, sellers raise price. Health insurance markets are not exempt from that basic principle. It has been true for decades in every sector where third party payment dominates. On day one of the ACA’s exchanges the law imposed richer mandates and guaranteed issue, raising base premiums. Then subsidies shielded many enrollees from the full sticker price. The combination was always likely to lift premiums faster than medical inflation.

Evidence quickly followed. By 2017 the average individual market premium had roughly doubled from 2013, the last pre ACA baseline. Heritage cataloged the increase at about 129% from 2013 to 2019, while large employer plan premiums rose about 29% in that same span. Brookings researchers, hardly right wing partisans, found a nearly 50% increase when adjusting for plan quality and a 24% jump in 2014 alone as the new regime took hold. These are not cherry picked anecdotes. They are the main line of the data. Even before the ARP, premiums ran ahead of projections. After the ARP poured in extra subsidy dollars, marketplace list premiums continued to climb. Americans for Prosperity points to about a 75% rise in exchange premiums since 2021. Whether one prefers 70% or 60% as a precise figure, the direction is not in doubt. Subsidy expansions coincided with substantial premium growth.

Democrats reply that premiums would be worse without subsidies. The counterfactual is tricky. Still, one can separate two questions. Are subsidies helpful to individuals who receive them. Often yes. Do they restrain the underlying price of insurance. Usually not. A subsidy, by design, severs the link between what a consumer pays and what a provider charges. When a plan that costs 300 per month can rise to 600 with the federal treasury making up the difference, the discipline of price sensitive shopping is dulled. Under the ARP expansion, nearly half of exchange enrollees owe no premium at all. Zero is attractive. Zero also removes any reason to ask whether a plan is efficient. In such a world, insurers compete less on delivering care at lower cost and more on maximizing enrollment in products whose margins are padded by federal transfers. The result is predictable. Prices rise on the taxpayer’s dime.

Reformers do not have to rely on theory. Where states were allowed to redirect money toward reinsurance and targeted high cost claims, average premiums fell. In Alaska, Minnesota, and Maryland, among others, Section 1332 waivers produced premium declines in the 10% to 20% range within a year or two. By 2019, twenty states saw average exchange premiums decrease and the sharpest drops were usually in waiver states. Those results tell a simple story, when policy tackles underlying risk rather than blanketing the market with open ended premium credits, the sticker price can come down. If Democrats believed that subsidies were the only path to affordability, these data say otherwise.

The budgeting story is no prettier. The CBO’s ten year score was never designed to answer the question that actually matters to households and to the Treasury. That question is what a policy costs when it has fully phased in and then continues indefinitely. Lawmakers know this. So they game the window. They delay expensive benefits for a few years, they start taxes early, they insert sunsets for provisions they intend to renew, they slice off the late years to present a smaller number. The Affordable Care Act’s history is textbook. In 2010, the CBO scored the ACA as reducing the deficit in its first decade by around 124 billion. The Senate Budget Committee later documented the gimmicks that made that possible. Most famous was the CLASS Act, the long term care program that collected premiums during the initial window but paid benefits later, generating a paper deficit reduction of roughly 72 billion while hiding long run losses. CLASS was later deemed unworkable and repealed. Its supposed savings were a mirage.

Timing tricks mattered too. Subsidies did not begin until 2014, while taxes and fees began earlier, so the original 2010 to 2019 score counted about ten years of revenue and only six years of full outlays. When analysts later examined a full decade of implementation, the picture flipped. By 2014, Senate Budget Committee staff described a swing of about 300 billion, with the law projected to raise deficits across the next ten years rather than reduce them. That reversal teaches a general lesson. If you squeeze a costly policy into a ten year window by delaying its start and adding a sunset, you can claim it is affordable. If you then extend it later, you reveal the true price. The ACA’s enhanced subsidies in the ARP and IRA followed that script exactly. The CBO scored a short IRA extension at about 64 billion over three years. The same office estimated a permanent extension at roughly 248 billion over ten years. The gap is not a new benefit, it is the same benefit continued. Everyone in the room knew that the politics of reversal make temporary credits functionally permanent. The short window masked the real cost.

This is why complaints about expiring subsidies are best described as bad faith. It was not an accident that the extra credits end in 2025. It was a tactic. It made the headline price palatable. It allowed leaders to say that the IRA was fiscally responsible. It left the messy truth for future Congresses, who would be told that allowing the lapse was cruel and would be blamed for higher premiums that the design of the subsidy itself helped to create. That is clever strategy. It is not honest budgeting.

What should be done. First, let the subsidies expire as their authors wrote. The case is not that no one needs help. It is that this form of help, an open ended premium credit that mutes price discipline, is a poor way to finance care and a reliable way to raise the sticker price for everyone else. Allowing the lapse would reintroduce pressure on insurers to hold premiums down, since more buyers would again face something closer to the true price. If Congress wants to support people with low incomes, it should do so with transparent appropriations, or with targeted support for the highest cost cases, or with flexible state waivers that meet people where they are, not with a sprawling transfer that primarily enriches carriers. The moral critique here should not be soft pedaled. An entitlement that routes billions through households into corporate revenues without changing the production function of care is not compassion. It is a transfer from taxpayers to insurers. That transfer is not only inefficient, it is wrong.

Second, reform the scorekeeping. CBO is filled with honest professionals who do what Congress asks. The problem is what Congress asks. A ten year window invites manipulation. If lawmakers intend a policy to continue beyond the horizon, the public deserves a steady state score, a projection of cost once the policy is in place and ongoing, not just a snapshot of the cheapest slice. Require, by statute, that every score include a long run estimate for the subsequent decade under continuation. Require that any sunset provision be accompanied by an alternative score that assumes renewal. Require that front loading of revenue and back loading of costs be flagged in plain language. Require sensitivity analysis in which utilization and price respond to subsidy generosity. Above all, prohibit the practice of counting paper savings from programs that collect money inside the window while paying out later. The CLASS Act should have ended that practice. It did not. End it now.

A skeptic might ask whether allowing the ARP and IRA subsidies to lapse would cause short term pain. It would for some. The honest answer is that transition should be paired with policies that attack costs directly. Expand and fast track state reinsurance waivers. Free plans to narrow networks to trade access for price. Permit broader use of short term or association plans that suit people who want catastrophic coverage without all the ACA bells. Encourage price transparency so consumers can see and compare the actual costs of procedures. These steps, taken together, would push the market toward a lower price equilibrium. They would do more to make coverage affordable than adding another layer of federal subsidy on top of a misdesigned market.

Some will point to CBO’s finding that if the enhanced subsidies end, average exchange premiums will still rise because some healthy people will leave the pool. That analysis is not an argument for extending the subsidy. It is a description of one mechanism in a static policy environment. Change the policy environment, revitalize competition, target help where it lowers costs rather than hides them, and you change the outcome. The experience of the waiver states is concrete proof. Prices can fall when dollars are spent on risk, not on hiding the sticker.

Rep Soto and his colleagues can continue to insist that allowing their own sunset to occur would be a disaster. They can demand that Congress fix a problem they created by renewing the exact policy choice that fueled the price surge. They can blame opponents for refusing to play the same game for another three years. Or they can admit the obvious. The enhancements were a stopgap, designed to score cheaply and to be extended later. That approach pushed up prices, fed insurer profits, and blew a hole in the pretense of deficit reduction. The honest course now is to let the policy lapse, move resources toward measures that reduce the cost of care, and replace a politicized scorekeeping regime with one that treats voters as adults.

The ACA was sold in 2010 as a deficit reducer. It was not. It was sold as a cost curve bender. It was not. The ARP and IRA subsidy expansions were sold as temporary relief. They were, until elections arrived. Now the pitch has shifted, and the temporary has become the new normal that must never be allowed to end, all while the official scorekeepers are asked to ignore that obvious reality when producing tidy ten year tables. Voters are not obligated to accept this ritual. They are entitled to a transparent account of what policies cost and what they do to prices over time. They are entitled to an admission that heavy subsidies in a regulated market open the door to higher sticker prices and that directing money at risk rather than at premiums can bring prices down. They are entitled, finally, to a politics that keeps its own promises. Democrats wrote a sunset. Let it happen. Then build a market that delivers affordable coverage because plans must compete to earn it, not because Washington mails checks to erase the bill.

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