In Senate Democrats’ latest iteration of a reconciliation package is an expansion of Obamacare subsidies paid for through price controls on medicines and Medicare expansion. This package will exacerbate inflation, reduce medical innovation, and could increase healthcare costs and premiums.
This new framework is a result of a third round of reconciliation negotiations. Due to several Democrat lawmakers having concerns about tax hikes and inflationary spending, previous negotiations have fallen apart.
Previously, reconciliation was supposed to spend trillions on climate subsidies, universal pre-kindergarten, paid family leave, free college, expanded Child Tax Credit, supersizing the Internal Revenue Service, and more. Previous plans also included massive tax increases on corporations, pass-through businesses, and individuals.
As inflation worsened and Americans began preparing for a recession, it became obvious that these leftist pipedreams could not be implemented.
While grassroot efforts and the political climate have protected against more egregious policies Democrats have proposed, their latest plan is still unacceptable. Simply put, with inflation at record highs, now is not the time to spend tens of billions of dollars on subsidies.
What would this reconciliation bill do?
The American Rescue Plan, passed by President Biden and congressional Democrats, expanded the advanced refundable premium tax credit. The legislation increased this Obamacare subsidy’s benefits for households at every income level and expanded them to households earning more than 400 percent of the federal poverty level.
These enhanced benefits are set to expire later this year. Now, Democrats are attempting to extend them through 2025. This two-year extension alone would cost $74 billion.
The proposed reconciliation framework includes a few pay-fors, the most substantive being price controls on prescription medicines. Specifically, the bill would give the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. Really, the Secretary would simply determine the price they deem acceptable and impose a steep tax of up to 95 percent on companies who charge more.
In 2023, the Secretary would be able to determine the prices of 10 prescription drugs. The determined price would go into effect in 2026. The number of drugs the HHS Secretary could set prices for would then increase to 15 in 2028 and 20 in 2029. These drug price controls would raise around $101.8 billion.
In order to raise more money, the bill would also impose an inflation rebate and make detrimental changes to Medicare Part D. The CBO estimates that the plan will raise nearly $300 billion.
The proposed reconciliation framework would exacerbate inflation.
Democrats’ framework utilizes a budget gimmick. While the subsidies would kick in immediately, the measures that raise revenue would be implemented in the beginning of 2026.
While leftists deny that this package would increase inflation because it’s “paid for,” they have conveniently left out that, under this plan, the government would spend at least $74 billion over two years before any additional revenue is collected.
Americans are suffering under inflation now. The consumer price index increased by 9.1 percent in June, setting yet another 40-year high for the seventh time under President Biden. Inflation is now costing American households an extra $635 a month and, at the very least, an additional $7,620 over the year.
The federal government’s reckless spending is to blame for surging inflation. Democrats’ ARP passed in March 2021 while the U.S. was already in recovery, spending $1.9 trillion on paying people not to work, fully refundable tax credits, and, as mentioned, Obamacare subsidies. Spending even more on these initiatives will exacerbate inflation.
The released text of the bill includes a substantial amount of money raised going to pay down the deficit. Inevitably, Democrats will seek to use this money on other policy goals. In the unlikely case that Democrats don’t use the money raised for other initiatives, this plan will still presumably add to the federal debt in the long run.
Once these expanded subsidies have been in place for five years total, it will be difficult to get rid of them. Worse, the expanded subsidies under this bill would expire ahead of the 2024 presidential election, increasing the pressure to extend them again. Thus, expanded Obamacare subsidies could be made permanent, costing $220 billion over 10 years.
Further, there’s a good chance that a Republican-led government would repeal the invasive, dangerous price controls pay-fors before they’re ever implemented in 2026.
Democrats should focus their efforts on issues voters care about—like inflation – rather than policies that would exacerbate those issues.
Drug price controls will lead to fewer lifesaving, life-preserving medications.
Drug price controls will discourage investment and innovation in drug development, leading to fewer cures and life-preserving medicines.
Adopting foreign price controls will create the same problems that foreign healthcare systems suffer from.
According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. The U.S. had access to 90 percent of these cures. By comparison, the United Kingdom had access to 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.
A CBO report analyzing the proposed price controls in the reconciliation bill found that “about 15 fewer drugs would be introduced over the next 30 years.” While 15 fewer drugs could easily translate into the needless death and/or decline in the quality of life of thousands, this number is a gross underestimation.
Manufacturers will not begin expensive research and development projects if they can expect the government to eat up any profits they make from the medicine. This is especially true for developing treatments for common, but severe, ailments like cancer, diabetes, heart disease, and Alzheimer’s. Manufacturers seeking to cure these diseases understand that they would be the target of a government price control scheme.
The plan will not accomplish its goal of decreasing costs and expanding coverage.
In fact, these expanded subsidies have already led to higher healthcare costs and premiums.
Because the subsidies limit the amount that households pay for a benchmark exchange plan to a percentage of their income and the rest is paid by the government, insurers lack any incentive to lower premiums or costs. A 2022 CBO report confirmed that premiums for exchange plans are rising more quickly than originally anticipated.
Not only do these subsidies exacerbate costs, but they also provide little benefit to those who need assistance in securing health coverage. A CBO report notes that nearly 75 percent of this drastic new spending was spent on individuals who already had health insurance, with little of the spending going towards reducing the number of uninsured Americans.
While Americans have avoided trillions in reckless spending and tax hikes, we must stay vigilant in opposition to any new inflationary spending.