Few can dispute the fact that the health care exchanges — where people without employer-provided insurance obtain their health coverage — have had their problems; I’ve written several critiques myself. The recently passed tax law — the One Big Beautiful Bill — attempts to address concerns over fraud and double coverage on the exchange. While its goal of eliminating waste and fraud makes sense, the ham-handed approach it takes will result in people losing health insurance for no good reason, with no money saved.
For starters, many of the reforms are predicated on the notion that the exchanges make it too easy for people to obtain insurance, and that kicking people off their coverage will produce savings. However, this assertion is simply not credible: Pushing people off their coverage for the sin of not using their insurance is precisely what critics, who have offered no better or more market-friendly alternative, advocate.
For instance, the Wall Street Journal recently suggested that the exchange tax credits have resulted in millions of Americans signing up for insurance that they never use, that tax credits for these insurance policies amount to little more than a giveaway to health insurers, and that stricter requirements would save the government billions of dollars.
The notion that purchasing health insurance for someone who does not avail themselves of any services is axiomatically wasteful is akin to saying that someone with fire insurance on his home is wasting his money if he never has a fire, or that taxpayers are wasting money on the fire department because their own or their neighbor’s house did not burn down. Insurance, public or private, is about security, not constant use.
Strictly speaking, most health insurance in the United States is not actually insurance, which would entail mainly paying for large, unexpected treatments. Instead, what we call health insurance pays nearly all of the costs for any actual treatment for most people.
Many exchange consumers choose higher-deductible plans to keep their monthly premiums affordable. This bona fide insurance means they are willing to shoulder several thousand dollars in a higher cost up front, before their coverage kicks in, to save money. For these people, avoiding health care is not unusual at all--minimizing their utilization of services is the explicit intent of their insurance.
The typical person on the exchange today works multiple jobs and has family obligations that add up to a busy and stressful life. They avoid going to the doctor not just because of the nature of their health insurance but also because they simply don’t have the time to sit in a doctor’s office. They make too much money for Medicaid and not enough for comprehensive coverage, and they do not have access to employer-subsidized coverage. Left in the in-between, their only option for insurance is to go cheap on the exchange.
The Journal argues that people who receive health insurance but don’t use it is tantamount to a giveaway to the insurance companies, but this makes little sense either. Health insurers are heavily regulated, and the government limits the proportion of gross profits they can make from their customers. A cohort of people who don’t use any health services effectively results in lower premiums for other insured customers.
Of course, nearly everyone receives some sort of government subsidy for their insurance. Most people on the exchange receive an explicit credit based on their income, but people who receive insurance via their employer receive an implicit subsidy as well, since the benefit is exempt from income taxes. The only difference is that the effective government subsidy for people with employer-provided insurance actually increases with income, as marginal tax rates increase with income.
And while Congress may be aggrieved at the cost of the tax credits going to people on the exchange, on a per-person basis, the Congressional Budget Office estimates that the cost of tax credits for exchange coverage is less than the implicit subsidies for employer coverage via its exclusion from the income tax.
While imperfect, the individual marketplace has made significant strides in recent years, achieving record levels of insurer choice and affordable prices. Failing to extend the enhanced premium tax credits set to expire at year-end poses a risk to this fragile equilibrium that could lead to market destabilization, insurer exits, and fewer affordable private coverage options.
While the revenue scorers may conclude this would reduce government outlays in the near term, the actual impact for taxpayers would be the opposite: People who lose insurance coverage will not cease to obtain treatment if they become sick or injured. Instead, they will go to the emergency room for treatment, and providers will ultimately get reimbursed for their costs from more costly government programs such as Medicaid.
The Journal did identify two clear problems in the current market — namely, the fact that one million people who have coverage on the exchange also have Medicaid, and that insurance brokers have apparently been fraudulently reporting low incomes for applicants in order to obtain higher subsidies. Both of these can and should be addressed by regulators.
Simply put, a functional individual marketplace is the most market-aligned way to preserve consumer choice and provider access, and throwing people off their insurance because they didn’t use it enough would not save any money and hurt millions of working-class families who are trying to do the right thing.
