Democrats’ plan to model child care after Obamacare is a disaster in the making

Napoleon said, “Never interrupt your enemy when he is making a mistake,” but I cannot resist. 

Progressives in Congress are planning to pass a massive childcare subsidy regime as part of the “Build Back Better” human infrastructure package, but sadly this subsidy regime is a cut-and-paste of another poorly designed program: Obamacare. 

This will be a mistake because, as Obamacare did for health insurance, it will ultimately raise the cost of child care and hurt many American families. It will also create other unintended consequences for child care quality and availability.

How does the proposed childcare subsidy structure work? It’s central planning at its finest: Government planners have decided what portion of Americans’ income we should spend on childcare. After that limit, which is 7 percent for families making 150 percent of the federal poverty line or more, the government kicks in to pay for additional costs. 

Anyone familiar with the Obamacare health insurance exchanges knows the government established a maximum that subsidized customers can pay toward their premiums: 8.5 percent of their incomes. 

One almost has to wonder what’s next: Will the government step in to tell me what portion of my income I can dedicate to housing? Transportation? Food? The whole premise is silly; things cost what they cost. And government subsidies don’t change that.

Or do they? Government subsidies can actually raise the cost of whatever is being subsidized since they distort market signals by funneling more and more money toward health care, colleges and now perhaps child care. Subsidies do change who pays.

As Peter Nelson wrote recently of the Affordable Care Act subsidies, “With premium increases fully funded by government subsidies, issuers have little incentive to control premium growth.” 

But the demand-side subsidies for childcare aren’t the only way the government will increase costs. The childcare plan will increase wages for childcare workers up to what elementary school teachers earn. Regardless of what you think about this (whether it is merited or not), it will raise childcare costs. A lot. Just like Obamacare raised health insurance costs. A lot. 

Sadly, the childcare plan currently under consideration copies another of Obamacare’s design flaws, at least in its rollout: Many families will be ineligible for subsidies entirely before 2025. This means many families could face a $13,000 increase in childcare costs under this plan. 

This number is from an analysis by People’s Policy Project, a group that is critical of the childcare plan because it is not progressive enough in their view. To continue the health reform analogy, these would be like the people who want Medicare for All instead of Obamacare.

Bottom line: Instead of establishing a true universal government-run childcare system or going the other way and making the private childcare market more competitive and affordable, the proposal currently before Congress layers complicated government subsidies and requirements onto the existing system. This will drastically increase the cost of childcare but promises to dole out some sliding-scale subsidies to some…