Log in
The Affordable Care Act’s subsidy formula guarantees that people buying health insurance through the marketplaces pay no more than a fixed percentage of income for a benchmark plan. The government pays the rest. This shields buyers from premium increases but ensures that when premiums rise, taxpayers pay more. Insurers face little pressure to compete on price, and government costs grow faster than enrollment.
The subsidy design has shifted costs over time. In 2015 ObamaCare enrollees who received assistance paid about 36% of their premium out of pocket; by 2023 that share had fallen to 17%. At the same time, the Kaiser Family Foundation finds that average net premiums for subsidized enrollees largely remained flat even as gross premiums rose because taxpayers absorbed the increase.
This is from Tony LoSasso and Kosali Simon, “The Real Fix for ObamaCare,” Wall Street Journal, November 18, 2025 (print edition.)
I caught up on past Wall Street Journals during my birthday weekend and came across the gem I quoted above.
LoSasso and Simon continue:
The coming debate over extending these subsidies is a chance to correct the design, not only the price. A sustainable marketplace would look more like the Federal Employees Health Benefits Program: The government makes a predictable contribution pegged to a lower-cost, benchmark plan; consumers who choose pricier options pay the difference. The system, sometimes called “managed competition,” helps keep public costs in check and rewards insurers that deliver value rather than raise premiums.
Modest reforms could go a long way, while preserving affordability. Pegging subsidies to a lower-cost, benchmark plan would immediately reduce overspending. Setting the subsidy slightly below the cheapest plan would eliminate zero-premium gaming, which has raised concerns about fraudulent enrollment. With growing bipartisan interest in allowing health savings accounts in the marketplace, regulators could let enrollees keep the savings when they choose lower-cost plans.
I was in the FEHBP when I was a federal employee. The authors describe it accurately. The feds were saying, in effect, “We’ll pay x percent of this low-cost health insurance; if you want more generous health insurance that is priced at, say, $2,000 more annually than this low-cost insurance, you pay the whole $2,000.” That way, I faced the right incentives.
Moreover, the insurance company faced the right incentives. The insurance company decision makers knew that anything extra they charged would be paid by the insured person rather than being covered by a passive government whose officials had no skin in the game.
The WSJ identifies the authors: Mr. LoSasso is a professor of economics at DePaul University. Ms. Simon is a distinguished professor of economics at Indiana University.
