-
Click here to listen to this article - Share via
See more from the L.A. Times in Google Search. Set us as preferred
At the heart of the budget standoff that has shut down the government is Democrats’ insistence on extracting a laundry list of policy changes, including locking in the supposedly temporary, COVID-era expansion of Obamacare premium tax credits (or “Biden COVID credits”). In essence, Democrats think the best way to lower healthcare costs is to direct more funding to insurance companies. This idea could not be more wrong. The credits are costly, poorly targeted and riddled with fraud, and do nothing to stop rising premiums.
Start with the price tag. Based on Congressional Budget Office (CBO) estimates, permanently extending the Biden COVID credits would cost about $410 billion over the next decade, including interest. Total spending over 10 years would amount to $488 billion. Funds would go straight to insurance companies to mask the real cost of coverage.
And let’s be clear: Those insurance premiums are rising for reasons subsidies can’t fix. According to the Economic Policy Innovation Center’s Gadai Bulgac, insurers themselves say individual-market premiums are on track to rise by roughly 18% in 2026, driven by the familiar culprits: soaring medical-care costs, nurse and physician shortages, expensive specialty drugs like Ozempic, an aging population, wider use of high-end diagnostics, new tariffs on pharmaceuticals and the lingering effects of inflation.
Independent reviews attribute well over half of this increase to medical-cost pressures alone, with roughly 20% tied to tariffs and other macroeconomic factors. None of that disappears if Congress continues mailing outsized checks to insurers. Subsidies don’t cut costs; they hide them, shifting the bill from plan enrollees to taxpayers while dulling consumer pressure to demand better value.
There’s also the uncomfortable reality of program integrity. The COVID-era expansion coincided with — and helped fuel — improper enrollment and “phantom” coverage. In 2024, nearly 12 million exchange enrollees filed no medical claims at all — not a single office visit, test or prescription. Insurers still pocketed taxpayer subsidies on their behalf. Among those in fully subsidized, high-value plans, about 40% had zero claims. Some $35 billion in 2024 subsidies was paid out to insurers for coverage of people who never used their plans.
In 2025, improper enrollments are projected to reach 6.4 million — roughly one-quarter of exchange participants — at a federal cost of about $27 billion. Much of this stems from brokers automatically enrolling people into zero-premium plans, or re-enrolling them without verification, because the system rewards quantity over accuracy.
Even on its own terms, Democrats’ planned credit expansion is a costly way to buy small gains in coverage. The CBO estimates that extending the Biden COVID credits would increase the insurance rolls by about 3.8 million people in 2035. Subsidies for each “newly insured person” would cost taxpayers an average of $10,000, rising to more than $11,500 by 2035. Many would have alternate coverage, but with insurance coming at public expense, employers drop job-based plans and push workers onto the exchanges.
Here are four types of reforms that would actually help:
- Let the pandemic add-on expire as planned. The original Obamacare subsidies will remain, and taxpayers will still cover most of the premiums for low- and moderate-income enrollees.
- Address the root causes of high costs. Expand the supply of care by modernizing scope-of-practice rules to reflect what nurses and physicians’ assistants do well. Adopt site-neutral payments to even out billing in different settings. Remove tariffs and trade barriers that raise drug and equipment costs. Speed approval of biosimilar and generic drugs.
- Restore the exchanges’ integrity. End the auto-enrollments without verification, reconcile advance credits promptly and recover improper payments.
- Bring back consumer pressure and patient choice. That means improving price transparency and expanding access to more affordable alternatives such as association health plans and short-term renewable policies.
If Congress insists on the Obamacare framework, it should focus on transparent, cost-effective reforms like these rather than inflating premium subsidies. It has the power to both lower premiums and reduce total subsidy costs, particularly if paired with deregulatory reforms for marketplace plans.
Finally, let’s dispense with fearmongering. The beneficiaries of the Biden-era sweeteners were higher-income households, including families earning more than four times the federal poverty level, some in the top 10% of earners and, in certain states, households bringing in more than $500,000. The original and large Obamacare subsidies aren’t going anywhere, low-income households will still receive large tax credits, and many will continue paying little or nothing for coverage.
Democrats are holding government funding hostage to maintain the Biden COVID credits. The subsidies are not going toward training new doctors or nurses, manufacturing more MRI machines or lowering hospital prices. Why deepen deficits to entrench a system that raises premiums and keeps taxpayer money flowing to insurers, including for individuals who never use their coverage?
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
More to Read
Insights
L.A. Times Insights delivers AI-generated analysis on Voices content to offer all points of view. Insights does not appear on any news articles.
Viewpoint
Perspectives
The following AI-generated content is powered by Perplexity. The Los Angeles Times editorial staff does not create or edit the content.
Ideas expressed in the piece
The COVID-era expansion of Obamacare premium tax credits that Democrats are demanding as part of the budget standoff will not lower healthcare costs but will instead mask real expenses and shift the burden to taxpayers. Based on Congressional Budget Office estimates, permanently extending these credits would cost approximately $410 billion over the next decade, including interest, with total spending reaching $488 billion, all of which would flow directly to insurance companies.
Subsidies fail to address the fundamental drivers of premium increases, which include soaring medical-care costs, healthcare worker shortages, expensive specialty drugs like Ozempic, an aging population, increased use of high-end diagnostics, pharmaceutical tariffs, and lingering inflation effects. According to analysis, insurers project individual-market premiums will rise by roughly 18% in 2026, with more than half attributable to medical-cost pressures and roughly 20% tied to tariffs and macroeconomic factors. Subsidies merely hide these costs rather than eliminating them, transferring the expense from enrollees to taxpayers while reducing consumer incentive to demand better value.
The program suffers from severe integrity problems, with approximately 12 million exchange enrollees in 2024 filing no medical claims whatsoever—no office visits, tests, or prescriptions—yet insurers still collected taxpayer subsidies for their coverage. Among those with fully subsidized, high-value plans, about 40% had zero claims, resulting in roughly $35 billion in 2024 subsidies paid to insurers for people who never used their plans. Improper enrollments are projected to reach 6.4 million in 2025—roughly one-quarter of exchange participants—costing the federal government approximately $27 billion, largely due to brokers automatically enrolling people into zero-premium plans without proper verification.
Even by its own metrics, the expansion represents an inefficient approach to increasing coverage, as the Congressional Budget Office estimates that extending the credits would add only about 3.8 million people to insurance rolls by 2035. This translates to subsidies averaging $10,000 per newly insured person, rising to more than $11,500 by 2035, with many of these individuals having access to alternate coverage before employers drop job-based plans and shift workers onto the exchanges due to the availability of public subsidies.
The beneficiaries of these enhanced subsidies are disproportionately higher-income households, including families earning more than four times the federal poverty level, some in the top 10% of earners, and in certain states, households with incomes exceeding $500,000. The original Obamacare subsidies will remain in place regardless, meaning low-income households will continue receiving substantial tax credits and many will still pay little or nothing for coverage, making Democratic claims about the necessity of the expansion misleading.
Genuine healthcare cost reduction requires fundamentally different reforms: allowing the pandemic add-on to expire as originally intended, expanding the supply of care by modernizing scope-of-practice rules for nurses and physicians’ assistants, adopting site-neutral payment policies, removing tariffs and trade barriers on drugs and equipment, expediting approval of biosimilar and generic drugs, ending automatic enrollments without verification, promptly reconciling advance credits and recovering improper payments, improving price transparency, and expanding access to more affordable alternatives such as association health plans and short-term renewable policies.
Different views on the topic
Democrats have blocked a clean continuing resolution that would have simply carried forward spending levels from December 2024, instead leveraging the threat and reality of a government shutdown to demand $1.5 trillion in new entitlements, including making the Obamacare emergency subsidy expansions permanent[1]. This represents an effort to use budget brinkmanship to secure policy changes that expand the social safety net during a period when the federal government has accumulated $2 trillion in additional debt over the past 12 months[1].
The expansion of subsidies reflects a broader commitment to maintaining coverage levels achieved during the pandemic, particularly as taxpayer support for premiums has grown substantially from covering 68% of Obamacare premiums in 2014 to 80% by 2020, and now 93% with the COVID-era credits[1]. This progression demonstrates an ongoing policy trajectory toward greater government involvement in ensuring healthcare access, which proponents view as necessary to prevent coverage gaps.
The Democratic position emphasizes concerns about coverage losses if the enhanced subsidies expire, arguing that millions of Americans who gained access to affordable health insurance during the pandemic would face significantly higher out-of-pocket costs or lose coverage entirely without continued federal support. This perspective prioritizes maintaining expanded access to health insurance as a critical component of the healthcare system, even at substantial fiscal cost.
More From the Los Angeles Times
Podcasts
Kim, an attorney and former San Francisco supervisor, is running against State Sen. Benjamin Allen for the role of running California’s long-beleaguered Department of Insurance. In this episode she talks to Rebuilding L.A. host Kate Cagle about why she should get the job.
The Hillside Strangler murders terrorized Los Angeles in the late 1970s. The killers were a pair of sadistic cousins. One confessed. The other was set to stand trial—until L.A. prosecutors flinched.
Modern LA earned its first smoggy nickname 450 years ago, as the “bay of smokes.” At the La Brea tar pits, we take a short walk through a long history with curator Regan Dunn, who explains how and why the first Angelenos would have set fires that filled the broad bowl of LA and foretold the curse of smog.
