The debate about ending the “shutdown” in Washington has increasingly focused on $1.5 trillion in healthcare demands from congressional Democrats, even though basic government funding is a separate issue.
Democrats have especially focused on a COVID-era increase to Obamacare subsidies for health insurance. Initially passed and extended by Democrats in 2021 and 2022, the increase expires in 2025. They have used a mantra when calling for another extension: that the subsidy increase is needed to address the rising cost of healthcare.
However, this gets the problem exactly backwards. Rather, when a government heavily subsidizes something its real cost reliably goes up.
Inflationary Subsidies
That fact is explained by basic economics. When the consumer-level price is artificially lowered by a government subsidy, the consumer will want more of it. When consumer demand goes up, producers can (and typically do) charge more. Often, corporations capture most of a subsidy that was supposedly meant to help consumers.
The problem of subsidy capture has been pronounced in the healthcare sector. The federal government’s share of total healthcare spending increased from 7% in 1962 to 38% in 2024, and healthcare inflation strongly outpaced overall inflation over the same period. Companies such as health insurers reap a financial windfall from Uncle Sam.
Government subsidies are inflationary in many other areas of the economy.
Subsidized student loans (and illegal student loan write-offs) helped to drive tuition costs skyward. The 2025 One Big Beautiful Bill Act included provisions to limit loan subsidies, and there are already tangible results.
A combination of housing subsidies and regulations, typically enacted in the name of “affordability,” have resulted in punishing housing inflation. This is not only an immediate economic concern but also contributes to societal problems such as lower birthrates and homelessness for families.
The so-called Affordable Connectivity Program for broadband internet access resulted in higher prices as service providers captured the subsidy.
State and local governments giving enormous handouts for the construction of sports stadiums has been accompanied by a dramatic escalation of stadium costs.
The unprecedented spending spree during the COVID pandemic (an economy-wide subsidy) was a core cause of the sharp inflationary spike that began in 2021.
Thus, not only do subsidies impose economic burdens such as rising debt, but attempting to lower costs with handouts has the effect of making costs higher in the end. Sold as helping families, subsidies instead function as corporate welfare.
Biden COVID Credits: Additional Concerns & Policy Alternatives
The Biden bonus Obamacare subsidies suffer from a multitude of additional policy flaws. Households with incomes of more than half a million dollars are eligible for the subsidy in some states; the subsidy’s price tag is high; the expansion caused a wave of fraudulent enrollments; and many of the eligible insurance plans cover abortion, meaning that taxpayers are funding abortions through the back door.
Even if the bonus subsidy expires, households with incomes of less than $100,000 will still be eligible for heavily subsidized insurance through Obamacare. This hardly constitutes a “crisis” unless one believes that federal healthcare subsidies should extend to middle- and upper-class households.
Fortunately, legislators who want to address high healthcare costs in a constructive manner have many reforms available to work with.
Anti-inflation healthcare policies include:
- Expanding the use of Health Savings Accounts, encouraging cost-consciousness.
- Increasing the number of doctors by expanding residency positions.
- Creating a level playing field with site-neutral payments.
- Codifying Trump Administration rules regarding Association Health Plans, Individual Coverage Health Reimbursement Arrangements, and more.
- Fighting counterproductive certificate of need rules at the state and local level.
The debate about healthcare affordability has been raging for decades and is unlikely to end any time soon. Yet it should be clear by now that blindly throwing money at the healthcare industry is a cause, not an answer, for high costs.
