The federal government shutdown has entered its third week, and Democrats want it to stay that way until they can secure an extra $350 billion in subsidies for the insurance industry.

Those subsidies were first implemented during Covid to prop up the failing Obamacare insurance exchanges. They were meant to be temporary, but Democrats believe the shutdown is the perfect opportunity to make them permanent. They claim if the subsidies expire, millions of people who buy insurance off the exchanges will face massive increases in their out-of-pocket premiums. However, this debate sidesteps the real issue: rapidly rising healthcare costs. Despite what Democrats believe, extending the Covid-era enhanced premium tax credits does nothing to fix this underlying problem. It only masks it.

The subsidies, referred to as “premium tax credits,” were initially introduced under the Affordable Care Act and act as a subsidy towards health insurance premiums for consumers enrolled in the ACA Marketplace. The premium tax credits are paid out to the insurers, who then lower premiums by the amount of money given to them by the government. While the provision is referred to as a “tax credit,” it is actually economically structured as a subsidy due to the fact that they are paid straight from the government and into the pockets of insurance companies.

A consumer’s “tax credit” or subsidy amount is calculated by using expected household income and the number of people in the household and comparing those factors to a premium benchmark, which is the second-lowest cost Silver plan in the consumer’s area in the Marketplace. The premium tax credits capped out-of-pocket consumer premiums anywhere from 2.06% of income for those at 100% of the FPL to 9.78% of income for those at 400% of the FPL.

Enhanced premium tax credits were first implemented under the American Rescue Plan Act of 2021 as a temporary measure to lessen the pressure of rising healthcare costs during the tumultuous economic times of the pandemic era. As the enhanced premium tax credits had a sunset date only one year later, Democrats further extended them under the Inflation Reduction Act in 2022, leaving the subsidies to now expire at the end of 2025.

The enhancement drastically increased the amount of subsidies paid out by the government. Before 2021, premium tax credits were reserved for those only between 100% and 400% of the federal poverty line. After the enhancements, those above 400% of the FPL could qualify for tax credits, so long as the cost of the benchmark health insurance premium exceeded 8.5% of their household income. Those between 100% and 150% of the FPL could also now get their premiums fully covered by the government.

Some income levels saw their premiums more than halved. For instance, those at 200% of the FPL initially had to pay for an insurance premium equivalent to 6.49% of their household income. Now, they only have to put 2% of their income towards a premium.

The enhanced premium tax credits drastically increased enrollment in ACA coverage from 11.4 million people in 2020 to 24.3 million in 2025.

If Congress lets the tax credits expire, there is no question that health insurance premiums for tax credit recipients will go up. Estimates show that enrollees may receive over a 75% increase in their out-of-pocket insurance premiums. The Congressional Budget Office also projects that gross premiums may initially increase due to healthier people leaving the insurance market after the premium hikes, resulting in a sicker insurance pool overall.

Senator Baldwin said in response to the expiration of the enhanced premium tax credits, “Working Americans don’t want handouts, they just want a system that isn’t rigged for and by those at the very top. They want health care they can afford when they need it.”

The issue with the debate over extending the enhanced premium tax credits is that it ignores the root of the problem: health care insurance premiums are far too expensive in the United States and are inflated to be even higher than what consumers in the free market would be willing to pay.

While wanting accessible and affordable healthcare is an agreeable cause, Senator Baldwin’s statement ignores the complicated reality. The enhanced tax credits don’t make healthcare more affordable, they just shift costs from consumers to taxpayers.

Installing large subsidies that go straight to health insurers further creates a cycle where insurers are allowed to charge above-market-price premiums as taxpayers are forced to foot the rest of the bill.

There are also little to no provisions that came with either the Affordable Care Act or enhanced premium tax credits that require insurance companies to keep their insurance premiums affordable.

The Affordable Care Act does require every insurance company to submit annual premium hikes over 15% to the government for the “rate review process.” However, beyond this arbitrary oversight, there is nothing keeping insurers in check.

Moreover, when you have the government vowing to cover any premium costs over 8.5% of household income, there is very little incentive for insurers to control their premiums. This, in turn, creates a subsidy trap.

Arguing against a system that is “rigged by those at the very top” while simultaneously being in favor of giving high-dollar subsidies to multi-billion-dollar insurance companies raises questions about who really benefits.

It is important to note that insurance premiums are not even affordable with the enhanced tax credits. For example, a family of four in Wisconsin who currently pays a premium of $893 per month will have to pay a premium of $1,589 a month after the expiration.

The enhanced premium tax credits also come at a high cost to the federal government. The drastic increase in enrollment along with the larger payouts has put budgetary pressures on healthcare spending. The CBO estimates that a permanent extension will increase the federal deficit by over $350 billion over the next decade.

Until we address the root cause of rising healthcare costs, Wisconsinites will continue to pay high premiums. The only question is: will it be paid for by the consumers themselves, or will it be shifted onto taxpayers, giving health insurers massive subsidies with little pressure to control prices?

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This article was originally published with The MacIver Institute.