To Cut Waste, Stop Obamacare Subsidies For ‘Zombie Enrollees’

Sometimes, official reports have a way of saying more than some in Washington want to hear. For instance, a group of Democrat lawmakers recently asked the Congressional Budget Office (CBO) for additional information about the consequences if enhanced Obamacare Exchange subsidies expire at the end of next year.

The lawmakers got the answer they wanted from CBO — namely, the number of uninsured Americans would rise. But they also received more information they probably didn’t want to know because it undermines the case for extending the increased subsidies: Millions of Americans are receiving government subsidies they do not particularly want, meaning Washington should stop wasting billions of taxpayer dollars on these “zombie enrollees.”

Inertia When Subsidies Expire

In the letter, CBO concluded that should the higher subsidies expire as scheduled in December 2025, the number of uninsured Americans would rise in 2026 and beyond. But the budget gnomes also believe that the effects of the change would unfold over multiple years:

Without a permanent extension, CBO estimates, the number of uninsured people will rise by 2.2 million in 2026, by 3.7 million in 2027, and by 3.8 million, on average, in each year over the 2026-2034 period. (The initial increase is significantly smaller because CBO expects that some people will remain temporarily enrolled after the expanded credits expire at the end of 2025. CBO assumes enrollees would need time to fully respond to the expiration, for example, because of automatic renewal policies.)

It’s worth unpacking that paragraph. CBO thinks the number of uninsured will rise modestly because people will, for whatever reason, find their premiums unaffordable when the higher federal subsidies expire — a fair enough assumption.

But focus on the last sentence, where the budget office says “enrollees would need time to fully respond to the expiration … because of automatic renewal policies.” In CBO’s estimation, roughly 40 percent of the total increase in the uninsured (1.5 million out of 3.7 million) would come over a year after the increased subsidies expire, and this inertia would occur because they were automatically renewed in a plan.

That wording suggests many people are enrolled in Exchange coverage only because it’s “free” and because the federal government keeps re-upping their enrollment automatically. But if the enhanced subsidies expire, which means individuals would have to pay at least 2 percent of income for “benchmark” health insurance in the Exchanges, millions will cancel their plans.

Giveaway to Insurers 

To most rational people, the CBO analysis raises an obvious question: If 1.5 million individuals won’t recognize or respond to the expiration of the enhanced subsidies for over a year, why are we subsidizing them in the first place? It’s a good question — and one for which the Democrats supporting a subsidy extension don’t have a good answer.

Ever since the implementation of Exchanges and Exchange subsidies in 2014, there has been a sharp divide between subsidized and unsubsidized enrollees. While people qualifying for “free,” or nearly free, coverage have signed up in large numbers, most other people have not.

Rather than addressing this fundamental dilemma — namely, that people don’t see value in buying Obamacare plans using their own money — Democrats in 2021 “solved” it by throwing more taxpayer money at the problem. Increasing the subsidies made many more people qualify for “free” coverage: More than 9 in 10 Exchange enrollees now receive subsidies, and more than half of all enrollees qualify for benchmark plans with $0 premium.

But the subsidy increases, coupled with automatic renewal, have led to the dynamic that the CBO report highlighted, whereby millions of Americans are effectively “zombie enrollees.” These individuals have their Exchange coverage renewed automatically, even though they may not use the coverage at all — and certainly don’t value it enough to pay for their premiums out of their own pockets.

In this equation, the enrollees themselves receive little benefit by obtaining coverage to which they attach little value. Taxpayers lose, based on an average subsidy per subsidized enrollee of roughly $6,056 in 2025. Only insurance companies, which receive generous federal subsidies yet have to fund minimal treatments for enrollees seemingly uninterested in their health care, benefit.

End the Wasteful Funding

Ending the subsidies for Obamacare’s “zombie enrollees” would be an excellent place to start cutting government waste and requires three simple steps. First, Congress should let the enhanced Exchange subsidies expire as scheduled next year. Second, the Trump administration should take regulatory action to end automatic renewals for subsidized enrollees and require them to re-up their plans every year if they wish to continue receiving subsidies. Finally, Congress should increase subsidy repayment amounts for enrollees who misstate income during the application process, to reduce the ongoing fraud risk. These three steps would provide some much-needed sanity to an irrational and inefficient Obamacare regime.