Napoleon said, “Never interrupt your enemy when he is making a mistake,” but I cannot resist.
Progressives in Congress are planning to pass a massive childcare subsidy regime as part of the “Build Back Better” human infrastructure package, but sadly this subsidy regime is a cut-and-paste of another poorly designed program: ObamaCare.
This will be a mistake because, as ObamaCare did for health insurance, it will ultimately raise the cost of child care and hurt many American families. It will also create other unintended consequences for child care quality and availability.
How does the proposed childcare subsidy structure work? It’s central planning at its finest: Government planners have decided what portion of Americans’ income we should spend on childcare. After that limit, which is 7 percent for families making 150 percent of the federal poverty line or more, the government kicks in to pay for additional costs.
Anyone familiar with the ObamaCare health insurance exchanges knows the government established a maximum that subsidized customers can pay toward their premiums: 8.5 percent of their incomes.
One almost has to wonder what’s next: Will the government step in to tell me what portion of my income I can dedicate to housing? Transportation? Food? The whole premise is silly; things cost what they cost. And government subsidies don’t change that.
Or do they? Government subsidies can actually raise the cost of whatever is being subsidized since they distort market signals by funneling more and more money toward health care, colleges and now perhaps child care. Subsidies do change who pays.
As Peter Nelson wrote recently of the Affordable Care Act subsidies, “With premium increases fully funded by government subsidies, issuers have little incentive to control premium growth.”
But the demand-side subsidies for childcare aren’t the only way the government will increase costs. The childcare plan will increase wages for childcare workers up to what elementary school teachers earn. Regardless of what you think about this (whether it is merited or not), it will raise childcare costs. A lot. Just like ObamaCare raised health insurance costs. A lot.
Sadly, the childcare plan currently under consideration copies another of ObamaCare’s design flaws, at least in its rollout: Many families will be ineligible for subsidies entirely before 2025. This means many families could face a $13,000 increase in childcare costs under this plan.
This number is from an analysis by People’s Policy Project, a group that is critical of the childcare plan because it is not progressive enough in their view. To continue the health reform analogy, these would be like the people who want Medicare for All instead of ObamaCare.
Bottom line: Instead of establishing a true universal government-run childcare system or going the other way and making the private childcare market more competitive and affordable, the proposal currently before Congress layers complicated government subsidies and requirements onto the existing system. This will drastically increase the cost of childcare but promises to dole out some sliding-scale subsidies to some people, sometime in the future. Sound familiar?
And just as culture wars followed ObamaCare (about birth control coverage, for example), culture wars will follow this childcare proposal, right into the classrooms where the youngest Americans are supposed to be learning their numbers and colors.
This is because when government funding gets involved, government rules and requirements get involved. It’s nonsense to think that 330 million Americans would all agree on what should be covered by a health insurance policy. Similarly, it’s nonsense to think we want the same type of childcare for our kids.
Today, many Americans have resigned to living with Obamacare and whatever costs have come along with it. This may be because they do not see some of the behind-the-scenes problems faced by Americans in the market for individual (rather than job-based) insurance in the exchanges.
Insurers, in response to ObamaCare’s restrictions on how to price premiums, created plans with higher cost-sharing and narrower networks. What good will it do parents to have lower out-of-pocket childcare costs if there are no daycares open within 50 miles? Or if those daycares have 24-month waitlists to get a child into a classroom? Market realities have a way of surfacing, if not through higher prices to consumers, in other nasty ways, like implicit rationing.
And once the government gets involved in subsidizing something, it’s never enough. Even now, as part of the Build Back Better plan, lawmakers are looking to make pandemic-induced “enhanced” ObamaCare subsidies permanent. Just as ObamaCare was a messy step toward single-payer health care, we can expect today’s childcare proposal to follow a similar path.
We shouldn’t go down this path. ObamaCare had its merits, but surely Americans recognize that the promise to lower health insurance premiums was broken and the opposite happened. The real mistake here would be trusting the same people with the childcare system now.