As if Americans didn’t have enough on the inflation front to worry about—gas prices still higher than in early 2021, coupled with escalating food and energy bills to boot—price spikes have spread to other corners of the economy. According to a recent article, health insurance premiums for 2023 could spike in many states.
The Kaiser Family Foundation analysis states that insurers in 13 states have proposed median rate increases of 10%. While state insurance regulators may reduce the size of some rate increases before they are finalized, the numbers still carry a shock value, with insurers in New York requesting rate hikes of as much as 46%.
The premium hikes both reflect and exacerbate existing inflation problems. Medical providers continue to face labor shortages when it comes to staffing doctor’s offices and hospitals. The higher cost of labor, added to rising prices for energy and other medical supplies, means hospitals and physician groups want to charge insurers more for their services. Of course, insurers end up passing along those higher costs to American families in the form of premium increases.
Congress’s actions have worsened this trend, by encouraging insurers to jack up rates. Lawmakers recently extended for another three years the expanded Exchange subsidies originally contained in the $1.9 trillion “stimulus” measure Democrats passed last spring. These expanded subsidies lower what people buying insurance on the Exchanges pay out-of-pocket for coverage, and eliminate a prior income-based cap on subsidy eligibility.
That might sound like good news for some families, but it’s really only a windfall for insurers. Because the federal subsidies will insulate most families from the effects of higher premiums, insurance companies have every incentive to raise rates—so they can hoover up every dollar possible from Washington. Meanwhile, taxpayers will end up subsidizing the health insurance of families making several hundred thousand dollars per year, who can afford to fund their coverage themselves.
While people buying individual coverage through the Exchanges will see the federal government paying their higher premiums for them, small businesses will receive no such similar good fortune. They will bear the brunt of these premium increases, and face agonizing choices in the process. Small firms, who lack the clout of bigger businesses, will have to decide whether to pass premium increases on to employees—at a time when businesses nationwide find it difficult to hire and retain staff—or absorb higher rates into their already narrow profit margins.
In some cases, small firms could find premium increases so unaffordable that they decide to stop offering coverage entirely. The Journal quotes a Moody’s Investors Service analysis stating that some businesses could do just that. Little wonder then that the Congressional Budget Office (CBO) recently concluded that permanently extending the enhanced Exchange subsidies, as Democrats in Congress want to do, would lead to “a reduction in offers of employment-based coverage that would result from the enhanced [Exchange] subsidies.”
All told, CBO believes that permanently extending the enhanced subsidies would reduce the number of individuals enrolled in employer coverage by 2.3 million Americans. That wouldn’t just increase the size and scope of government, by shifting people from privately funded to publicly-financed coverage. By insulating more people from the effects of higher premiums, it would exacerbate the current inflation spiral in which the economy now finds itself.
Democrats named the legislation they passed in August, which included the enhanced insurance subsidies and other spending measures, the Inflation Reduction Act. They were very nearly right, but off by a single word. As the Journal story demonstrates, the legislation won’t reduce prices and rather will lead to their acceleration. Just call it the Inflation Act instead.
• Mary Vought is the founder of Vought Strategies and a visiting fellow at the Independent Women’s Forum (iwf.org).