A Simple Fix for ObamaCare
Why Didn’t I Think of That?
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.
Brilliant, simple, and obvious once stated.
Also straightforward enough that there would seem to be *some* chance that the politicians might actually do it!
The ACA is used by a lot of people that one might not expect. I have two good friends both lawyers, both retired at the age of 60 and they are too young for Medicare. They have ACA policies. Both of my daughters had ACA policies at times when they were doing freelance work. Not everyone works for an organization that offers health insurance as part of employment.
In one of the responses below, David describes his experience with the Federal employee benefits program. I had a similar experience when I was a research fellow at NIH.
Eventually the current house of cards will collapse. Companies don't like providing health insurance for their employees. It's a significant burden on HR departments. Many of them are reducing benefits as a function of cost control. There are also great inequities where co-pays, deductibles, and access to physician services are widely different. Ultimately, a system that gets employees out of the business of providing health care will happen. It's possible to utilize the current system in a different way by providing everyone with a basic health insurance policy and allowing users to purchase add ons. This was the proposal from Victor Fuchs and Ezekiel Emanuel back in 2005. A VAT would be used to buy these policies and Medicare and Medicaid would eventually be phased out (Medicaid immediately and Medicare when those who are currently on it pass away). The enrollee can select the insurance plan that he/she wants.