How Obamacare Set In Motion Today’s Premium Crisis

Democrats are panicking about a looming 75% average increase in the out-of-pocket cost of insurance premiums next year for the roughly 6% of the population that shops for coverage on Obamacare’s exchanges. Their panic led them to shut down the government at the end of September.

The increase is a function of the expiration at the end of this year of generous enhanced premium subsidies enacted by the Biden administration as part of the March 2021 American Rescue Plan Act and extended as part of the August 2022 Inflation Reduction Act. The complicated scheme of premium subsidies would return to the structure in force in 2014, when the exchanges opened.

Individual-market premiums over the last decade-plus have been surging. Between 2013 and 2014, when Obamacare’s many regulations took effect, they rose 47%. Average premiums for benchmark plans rose 75% between 2014 and 2024.

In other words, Obamacare has been an engine of insurance premium inflation. Democrats have tried to cover up that fact with ever more taxpayer subsidies. Yet another round of subsidies will not fix that fundamental problem.

Rising premiums were not some unexpected consequence of Obamacare. They were baked into the law’s very structure. Because of Obamacare’s long list of federal insurance market regulations, insurers had no choice but to raise prices to cover their costs.

As Johns Hopkins University professor Ge Bai wrote in a recent Wall Street Journal op-ed, “The inflationary provisions of the Affordable Care Act—such as the medical loss ratio, mandated ‘essential’ benefits, community rating and premium subsidies—have inhibited insurers from offering affordable and flexible options.”

Community rating—which bans insurers from charging older, sicker patients more than three times what they charge younger, healthier ones—is a major driver of premium inflation. As is the ten “essential” health benefits requirement, which mandates that all plans cover the same list of services and procedures, regardless of what a patient actually needs or wants.

Guaranteed issue—the requirement that insurers sell to all comers, regardless of their health status or age—is another reason why Obamacare inflated premiums from the get-go.

What makes this situation all the worse is that it was so predictable. In 2011, three years before Obamacare’s insurance regulations took effect, I wrote for Forbes.com, “ObamaCare drives up the cost of insurance by piling mandates and required coverage benefits onto every single policy.” It was as obvious then as it was a year later, and the year after that, and the year after that.

Sure enough, that is exactly what happened. This year, average individual monthly premiums on the exchanges have reached $590. That’s up from just $232 in 2013.

The enhanced subsidies at the center of the shutdown debate haven’t helped matters. They have instead shifted the costs of this explosive premium growth from individual patients and onto taxpayers—at an estimated ten-year cost of $350 billion.

More subsidies will not stop premiums from growing. They’ll simply give policymakers cover for refusing to deal with the problem.

Further, the impact of the enhanced subsidies is overstated. If they expire on schedule at the end of this year, the share of total premiums that federal taxpayers pay will fall from 88% to 78%, according to The Federalist’s Chris Jacobs.

Allowing the enhanced subsidies to expire won’t fix Obamacare’s flaws all by itself. To do that, lawmakers will need to roll back the insurance market regulations that made these enhanced subsidies necessary in the first place.

Moreover, policymakers need to find ways to increase the number of low-cost offerings, such as short-term and association health plans, on the insurance market—instead of outlawing or limiting them, as Obamacare and the Biden administration did.

With Obamacare, Democrats enacted policy that was perfectly calibrated to send premiums soaring. That much was clear back when the law took shape over 15 years ago. Its defenders in Congress seem willing to empty federal coffers to cover up that embarrassment. But that ploy has already cost Americans billions more than they can afford.