Obamacare Tax Subsidies Will Increase by $9.8 Billion Due to Premium Hikes

Tax credit spending will rise to $42.6 billion in 2017 from $32.8 billion in 2016

December 16, 2016

Taxpayers will spend $9.8 billion more on Obamacare subsidies next year than this year due to double-digit increases in premiums, according to a report from the Center for Health and Economy.

The Obama administration announced in October that Obamacare premiums were set to increase by double digits, increasing at a faster rate than they have in the past.

"For the median consumer, the benchmark second-lowest silver plan premium is increasing by 16 percent this year, before taking into account the effects of financial assistance," the administration said. According to the center, the silver benchmark plan premiums will increase by 22 percent.

The administration rarely admits that taxpayer subsidies are increasing to cover rising costs, although they often tout those subsidies for protecting Obamacare customers from higher premiums.

Of the 11.1 million individuals enrolled in Obamacare last year, 9.4 million received tax credits averaging $291. The report estimates that $32.8 billion was spent last year on tax subsides for Obamacare premiums.

"Because of the distributions of the population in the marketplace and the lack of household income growth to match premiums, we expect the average monthly tax credit to increase by 26 percent to $367," the report said. "If we assume that the proportion of enrollees receiving premium tax credits remains the same from 2016 to 2017, then the expected federal spending on premium tax credits for 2017 would be $42.6 billion."

Joseph Antos, an expert in health care policy at the American Enterprise Institute, said premiums were never correctly priced in the first place and that higher premiums are the cost of guaranteeing unlimited coverage.

"I would argue that the increase in premiums was necessary," Antos said. "It's clear that the cost of providing this coverage is much higher than anybody anticipated."

"But the insurance companies also really didn't anticipate that they were going to get what is really a very adverse mix of customers, in other words people who primarily are signing up because they have active health conditions and they need care, I think that took all of the insurers by surprise," he said.

Antos said this is the first open enrollment period where insurers have a full year's worth of data from their customers. In previous years, they had only a few months of data or none at all.

"Given the requirements to cover very generous benefits and given the limitations on just how high the deductible could be—although $5,000 or $6,000 is a huge chunk for nearly everybody and certainly low-income people—they can't afford that at all," Antos said. "There's only so far you can go with deductibles and co-payments, you have to raise the premiums if you're losing money."

"This was a necessary market correction," he said. "It's not the insurers ripping off the taxpayers or being unfair to anybody, this is just the reality of what it costs when you guarantee people unlimited coverage."

"The Affordable Care Act is covering 20 million Americans, and 2017 Marketplace premiums remain on par with the Congressional Budget Office's November 2009 projections," said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services. "More broadly, Congressional Budget Office projections show that the Affordable Care Act will reduce the deficit by more $3 trillion over the next two decades."

"This report is a reminder that Obamacare has failed on multiple levels, with customers having to pay lots more for their health care, and taxpayers being soaked for even more than the billions of dollars they’ve already had to fork over to prop up the law," said Nathan Nascimento, senior policy adviser at Freedom Partners. "Throwing good money after bad won't fix Obamacare, but it will inflate the cost of health care for everyone. The solution to this mess is for Congress to repeal Obamacare, and then pass smart, targeted solutions that help people get the care they need at prices they can truly afford."

Published under: Obamacare