The Obamacare Subsidy Exacerbates Washington's Biggest Problem

The Obamacare Subsidy Exacerbates Washington's Biggest Problem
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ObamaCare's premium spikes are a microcosm of Washington's entitlement morass. While their scales are different, the same dynamic drives ObamaCare and Washington's mandated social spending programs. In both, when the government supplants the market, it creates a spending trajectory that will become unsustainable.

The Administration's recent announcement that ObamaCare's 2017 premiums for its benchmark plans will increase an average of 25% is big news in its own right. However more notable are program proponents stating enrollees will be protected by their subsidies. The failure to see that government subsidies are actually driving ObamaCare's problems - not solving them - explains ObamaCare's increasingly negative results and federally mandated social spending's more massive ones.

The premium spikes are occurring because the generous subsidies, which enticed health care insurance plans into ObamaCare in the first place, are ending. Even before they did, many plans found they could not make a financial go of it and left. The remaining plans must now seek the true cost of ObamaCare's mandated benefits from enrollees.

Not only insurance plans have given ObamaCare the slip. IRS data showed as early as 2014 that 8.1 million returns willingly paid hundreds of dollars in penalties rather than purchase what the Administration billed as affordable government health care. And that was before premiums jump like Jehoshaphat next year!

ObamaCare's liberal proponents point out, 2017's increased premiums are not really a problem because 85% of enrollees - those making up to about $48,000 annually - get sliding subsidies to defray their health insurance's true cost. That this is a problem for general taxpayers is not proponents' concern. What should concern though is that only a few years old, ObamaCare is experiencing what such economic hide-the-ball tricks always produce.

Successful economic endeavors do not need subsidies. Producers create a product consumers want to buy and realize a competitive rate of profit. Both sides gain and willingly enter into a transaction. Absent that mutually beneficial relationship, there is no market.

ObamaCare shows what occurs when government tries to enforce a market. By applying subsidies to one or both sides of the economic equation, its enforced market cannot exist without continued government subsidies in the short-term, and becomes unsustainable in the long-term as politics compounds subsidies' distortion.

In August, the Congressional Budget Office reported ObamaCare's 2015 subsidy costs at $38 billion. In the $3.7 trillion federal budget, this seems small... initially. By 2026, CBO projects the cost will be $103 billion. That 171% increase outstrips overall mandatory spending's increase, which CBO projects going from $2.3 trillion in 2015 to $4.1 trillion in 2026 - a 78% jump.

Like ObamaCare, mandatory social spending's two largest programs, Social Security and Medicare, outpace the taxes intended to support them - i.e., they too are subsidized. The difference between ObamaCare and its older siblings is simply size. They are all of the same family. According to CBO, Social Security and Medicare have averaged about 40% of federal noninterest spending over the last decade; 50 years ago, they averaged just 16%.

Such programs are not simply outstripping other federal spending, but the economy. From 1966-2015, Social Security and the major federal health care programs averaged 6.7% of GDP. In 2016, they were 10.4% of GDP. By 2046, CBO estimates they will be 15.2%.

This embrace of government's market sublimation by subsidization leaves its ultimate mark on federal debt. Having more than doubled, from $5.8 trillion in in 2008 to $13.1 trillion in 2015, it will climb to $23.1 trillion in 2026. As a percentage of the economy, it will have risen from 39.3% in 2008 to 85.5% in 2026 - its largest level since post-WWII 1947.

ObamaCare is about far more than the speeding bankruptcy of one high-profile, high-spending program. ObamaCare and its brethren are unsustainable without subsidies, just as the market is unsustainable with them. Once provided, the demand for subsidies grows. Politicians expand the list of those entitled while adding more benefits to the entitlement. Simultaneously, the bigger the benefit, the more it is demanded and the more it pushes out other alternatives.

A private sector alternative, dependent on profits, cannot compete with a program funded by federal taxpayers and borrowing. Nor will beneficiaries have any interest in paying the true economic cost of their benefits.

Once private sector alternatives are gone, so too is competition. And with competition goes the driving force behind cost containment and quality enhancement. Taxpayers and consumers both ultimately lose.

For those who have missed this basic economic lesson over the last 50 years, ObamaCare offers a refresher course. Rather than being the solution liberals imagine, government intervention and subsidies are the problem - with ObamaCare and the largest federal mandatory entitlement programs. Instead of solving a problem, ObamaCare has added to Washington's largest one.

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004, and as a congressional staff member from 1987 to 2000. 

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