Congressional Testimony
Congressional Testimony
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Civica Chief Government Affairs & Public Policy Officer Coukell Testifies Before Senate Special Committee on Aging
WASHINGTON, Dec. 5 -- The Senate Special Committee on Aging released the following written testimony by Allan Coukell, chief government affairs and public policy officer for Civica Inc., from a Nov. 19, 2025, hearing entitled "Made in America: Restoring Trust in Our Medicines":* * *
Summary of Testimony:
* Civica is a non-profit generic drug company created by US health systems and philanthropies to prevent and mitigate drug shortages.
* Civica currently delivers more than 50 injectable medications,/1 each chosen by US hospitals because they are at risk of shortage, with more than 240 million ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Special Committee on Aging released the following written testimony by Allan Coukell, chief government affairs and public policy officer for Civica Inc., from a Nov. 19, 2025, hearing entitled "Made in America: Restoring Trust in Our Medicines": * * * Summary of Testimony: * Civica is a non-profit generic drug company created by US health systems and philanthropies to prevent and mitigate drug shortages. * Civica currently delivers more than 50 injectable medications,/1 each chosen by US hospitals because they are at risk of shortage, with more than 240 millionvials of medicine delivered to date.
* Civica prioritizes domestic manufacturing, both in sourcing from contract suppliers and in our own U.S. sterile injectable fill-finish manufacturing facility located in Petersburg, Virginia. We also conduct direct quality oversight of our suppliers.
* Civica has a "no China" policy in our supply chain, both for finished drugs and for active pharmaceutical ingredient, unless there is no other supply available.
* Despite this commitment to domestic production, the financial model for producing generic drugs is challenging with many generic drugs selling below the marginal cost of domestic production.
* There isn't a single "silver bullet" policy that will restore domestic manufacturing, but a key component of any successful effort will be ensuring market prices that allow for domestic production. Targeted investments can also create new manufacturing capacity at an affordable cost.
* Onshoring active ingredient production cannot succeed unless a manufacturer has FDA approval to turn that API into a finished drug product and a viable domestic market.
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1 In nearly 80 distinct presentations.
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Chairman Scott, Ranking Member Gillibrand, and Distinguished Members of the Committee, Thank you for the opportunity to speak with you today on the issue of "Made in America" pharmaceuticals.
My name is Allan Coukell. I am a pharmacist by training, and I lead public policy for Civica, Inc., also known as Civica Rx, which is a non-profit generic drug company created specifically to mitigate and prevent drug shortages by ensuring a reliable supply of quality essential medicines for U.S. patients.
Civica currently provides more than 50 drugs to 60 health systems, accounting for 1400 hospitals around the country. Over the past seven years, we have delivered more than 240 million vials, serving about 90 million American patients. To provide these medications, we work with a range of manufacturing partners, giving preference to U.S. sourcing whenever possible. Civica has a rigorous quality oversight process for its suppliers involving in-person facility audits and ongoing quality reviews.
We also have our own newly built pharmaceutical manufacturing facility located in Petersburg, Virginia, funded partly with U.S. government support from ASPR/BARDA. It is a state-of-the-art sterile injectable finished dosage form manufacturing facility with the ability to make 90 million vials and 50 million prefilled syringes per year, as well as to fill and assemble autoinjector pens used for insulin and other products. We have dozens of generic drug products in development for this facility.
Civica has a "no China" policy in our supply chain, both for finished drugs and for active pharmaceutical ingredients (API), unless there is no other supply available.
The drugs that Civica supplies are chosen by pharmacists and physicians from US health systems because they are at risk of being in shortage. These are the products that are the bedrock of emergency and in-patient health care- products like antibiotics, anesthetics, blood thinners, sedatives, and pain medications. These tend to be long-established, low-cost drugs. Most of them are on one or more essential drugs lists.
As this committee knows, generic medications account for 90 percent of prescriptions in this country, but less than 15 percent of drug spending./2
While branded drugs are mostly produced domestically, generic drugs are more likely to be produced offshore - increasingly in low-cost manufacturing environments such as China and India. Our dependence on foreign-made active ingredients is even greater than our dependence on foreign finished drug products - a point I will return to.
It is precisely because generic drugs are so inexpensive - and because U.S. systems for drug procurement are so efficient at pushing prices down - that manufacturing has been steadily exiting the US for decades. Make no mistake: low prices are the principal barrier to onshoring generic drug manufacturing.
Let me provide a real-world example. There is a widely prescribed antinausea medication that typically sells for under $0.40 per vial. That is an astonishingly low price for a medicine that can only be produced in an expensive manufacturing facility after a complex process of scientific development, quality oversight, time-consuming testing and analytics, facility inspection and regulatory approval. Even the packaging is subject to strict regulatory requirements. While each of these steps is necessary to ensure patient safety, it would be difficult or impossible at that price for a US manufacturer to compete. Numerous injectable drugs sell for less than $1.
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Creating a sustainable market
Generic drugs are the foundation of inpatient medical care. They also cost less in the United States than they do in other OECD countries./3
In discussing how we create a sustainable market for domestic production, we must be comfortable that it is worth paying slightly more for a reliable and safe supply of quality domestic medication.
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2 Association for Accessible Medicines. The U.S. Generic & Biosimilar Medicines Savings Report (Sept. 2024), available at https://accessiblemeds.org/resources/blog/2024-savings-report./
3 For every dollar the other countries on average pay for generic drugs, in the U.S., consumers pay 67 cents. Andrew W. Mulcahy, et al. "International Prescription Drug Price Comparisons: Current Empirical Estimates and Comparisons with Previous Studies," July 1, 2022, https://aspe.hhs.gov/reports/internationalprescription-drug-price-comparisons
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The good news is that - at least for the sterile injectable drugs that I am focused on today -it should be possible to substantially increase domestic supply at a manageable cost and in a reasonable timeframe. Indeed, while I focused a moment ago on products selling for less than a dollar, there are others at higher prices that don't need support. Therefore, a policy that puts a floor price on domestic drugs would achieve the desired goal.
One possible approach, developed as a bipartisan discussion draft by the Senate Finance Committee, would be to provide extra payments to hospitals that take into account quality and supply resiliency, along with domestic sourcing, when purchasing generic drugs. Since generic drug spending accounts for only 1 to 2 percent of total hospital expenditures, such a program would have a negligible impact on overall health spending but could help to incentivize hospitals to purchase from domestic and/or more resilient suppliers.
The Senate Finance discussion draft was framed in response to drug shortages, but the general approach can also be applied to onshoring. Stakeholders generally recognize that that framework, in its 2024 form, needs to be streamlined. Nevertheless, this approach is directionally correct in that it offsets the incremental costs associated with choosing domestic, higher quality suppliers and holding a buffer inventory to mitigate supply disruptions.
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Targeted investments as an insurance policy
In combination with long-term market fixes, Congress should invest in an insurance policy so that domestic manufacturers can develop low-cost products now so the drugs can be ready when they are needed. It takes two to three years to develop a generic drug for an existing manufacturing facility, but companies cannot invest in products if they won't recover their costs. We should support companies to develop these products now and obtain FDA approval, rather than waiting for the day when the foreign supply fails. The FY26 Senate Labor HHS Appropriations bill has report language instructing the Administration for Strategic Preparedness and Response (ASPR) Industrial Base and Supply Chain Management office (IBMSC) to fund generic drug development. Congress should direct funding to ASPR to implement the policy.
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Creating new manufacturing facilities
The above policies would support manufacturing of domestic drugs in existing facilities. The cost to onshore a drug into an existing facility is two orders of magnitude less than the cost to create a new manufacturing facility where none currently exists. However, in some cases entirely new manufacturing facilities will be required. New facilities are capital intensive - typically in the hundreds of millions of dollars - and the facility startup costs can be as high, or higher, than the capital costs. And, because of the complex development and approval process mentioned previously, more than four years may elapse from the start of construction to the first commercial sales.
No single facility can produce every drug. For example, in the injectable drug space, liquidfill vials require different equipment than powder-fill vials. Some drugs, such as penicillin-type antibiotics, require their own dedicated facilities. Many cancer drugs also must be separated from facilities where other products are produced.
At current market prices, if new facilities need to be built to enable domestic production , it will require government support for capital investment - combined with some assurance of sustained demand in the face of low-cost foreign production.
Active pharmaceuticals ingredient (API) facilities are different from the facilities that produce finished dosage forms, such as vials and tablets. They require different equipment and expertise. While policymakers interested in onshoring drug production often focus on API (because that is where our dependence on China is greatest), it does no good to produce domestic API unless there is a U.S. facility with an FDA-approved finished dosage form.
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Removing harmful market distortions
Generic drugs are beyond doubt the single most effective cost-saving strategy ever deployed in American healthcare./4
They reduce prices as much as 95 percent below the precompetition prices of branded drug products./5
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4 The Association of Accessible Medicines, the generic industry trade association, calculates savings of $445 billion from generics and biosimilars in 2023 and $3 trillion over the prior decade alone.
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And yet government policies distort the market by introducing mandatory rebates that disincentivize production and prevent prices from rising the way they sometimes need to in a properly functioning market. Congress should remove the market distortions from mandatory rebates on generic drugs, allowing prices to rise to sustainable levels.
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Regulatory reforms
Finally, I would like to address the potential for regulatory reform to support domestic manufacturing. Building and qualifying a new pharmaceutical manufacturing facility is a multi-year process. Even developing a new drug for an existing facility is typically a two - to three-year undertaking, The first federal oversight is typically an FDA inspection that occurs in the months after a drug application is filed with the agency. There are opportunities to derisk this by allowing FDA inspection to occur earlier, and the agency has recently announced a program to enable such earlier engagement./6
However, most or all generic drug facilities are multi-product facilities, meaning they are not breaking even until they have multiple different FDA-approved products. The financial viability for a new generic drug facility typically depends not only on the first product approved, but on having a portfolio of approved drugs, each with a typical FDA review time of one year. By shortening the review time for drugs manufactured on already-approved lines and allowing manufacturers to submit drug stability data on a rolling basis, this cycle could be reduced by as much as nine months. This change would have a major impact for new domestic facilities.
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Conclusion
Thank you again for your attention to this important topic and for the opportunity to be with you today. I welcome your questions.
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5 Ryan Conrad & Randall Lutter, Generic Competition and Drug Prices: New Evidence Linking Greater Generic Competition and Lower Generic Drug Prices (2019), available at https://www.fda.gov/media/133509/download?attachment.
6 Food and Drug Administration. FDA Announces New FDA PreCheck Program to Boost U.S. Drug Manufacturing. 07 August 2025. https://www.fda.gov/news-events/press-announcements/fda-announcesnew-fda-precheck-program-boost-us-drug-manufacturing
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Original text here: https://www.aging.senate.gov/imo/media/doc/54f2de22-d91a-d0f2-e680-172077039edd/Testimony_Coukell%2011.19.25.pdf
Paragon Health Institute President Blase Testifies Before Senate Finance Committee (Part 2 of 2)
WASHINGTON, Dec. 5 -- The Senate Finance Committee released the following testimony by Paragon Health Institute President Brian Blase from a Nov. 19, 2025, hearing entitled "The Rising Cost of Health Care: Considering Meaningful Solutions for All Americans":* * *
(Continued from Part 1 of 2)
At a macro level, despite the significant increase in health coverage beginning in 2014 as a result of the ACA, American life expectancy declined for three straight years from 2014 through 2017./54 The 2018 Economic Report of the President by the White House's Council of Economic Advisers (CEA) put it this ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Finance Committee released the following testimony by Paragon Health Institute President Brian Blase from a Nov. 19, 2025, hearing entitled "The Rising Cost of Health Care: Considering Meaningful Solutions for All Americans": * * * (Continued from Part 1 of 2) At a macro level, despite the significant increase in health coverage beginning in 2014 as a result of the ACA, American life expectancy declined for three straight years from 2014 through 2017./54 The 2018 Economic Report of the President by the White House's Council of Economic Advisers (CEA) put it thisway:
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51 Shrank et al., "Waste in the US Health Care System."
52 Martin A. Makary and Michael Daniel, "Medical Error--the Third Leading Cause of Death in the US," BMJ 353, i2139 (2016), https://www.bmj.com/content/353/bmj.i2139 (published May 3, 2016).
53 Atul Gawande. "Overkill," New Yorker, May 11, 2015, https://www.newyorker.com/magazine/2015/05/11/overkill-atul-gawande.
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[T]he evidence shows that health insurance provided through government expansions and the medical care it finances affect health less than is commonly believed.
Determinants of health other than insurance and medical care--such as drug abuse, diet and physical activity leading to obesity, and smoking--have a tremendous impact and have exacerbated recent declines in life expectancy, despite the ACA's increased coverage.55
The CEA report evaluated numerous studies, including the two well-known health insurance experiments--the RAND health insurance experiment and Oregon's Medicaid experiment--in its conclusion that expansions of government coverage produce negligible health benefits.
They suggest at least four reasons why health insurance, through government coverage expansions, has a minimal effect on health.
According to the report, "The first three of these reasons--that the uninsured were often able to obtain care before coverage, access problems for patients who gain Medicaid coverage, and mandated insurance benefits that have a minimal impact on health--are particularly salient when examining the results of the ACA coverage expansion."56 The fourth reason raised by CEA is that "public coverage may have limited or possibly negative effects on health because of its long-run impact on innovation. Many governments, particularly in Europe, have paired large coverage expansions with the imposition of price and spending controls. These centralized controls may have an adverse impact on medical innovation and make healthcare less effective and more costly to obtain in the future."57 The lack of clear health benefits from the expansion of Medicaid, which I detailed in a report released in the spring of 2020, should raise policymakers' concerns about additional subsidies that simply expand government spending on the current structure.58 I concluded that large coverage expansions disappoint for several reasons: The uninsured receive nearly 80 percent as much care as similar insured people, potentially superior private coverage is crowded out, and expansion has indirect effects on others such as longer wait times for care.
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Other Government Policies That Are Inflationary
Medicaid Money Laundering and State-Directed Payments
State-directed payments (SDPs) are a growing and inflationary component of the Medicaid program. Under SDPs, states order Medicaid managed care plans to make extremely high payments to providers. In essence, states use legalized money-laundering schemes to obtain federal money without any actual state contributions to then provide corporate welfare for the politically powerful.59 The most recent analysis from the Medicaid and CHIP Payment Access Commission estimates that SDPs cost $110.2 billion in an 18-month period from February 2023 through August 2024. This was a 60 percent increase over the prior period-- an explosive upward trajectory.60 As of this year, at least 30 states use SDPs.61 SDPs create perverse incentives that limit access and increase costs for health care services in several ways.62 SDPs encourage consolidation by disproportionately benefiting large health systems, enabling them to buy up smaller providers. This reduced competition creates scarcity that, in turn, allows large providers to command higher prices.
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54 Owen Dyer, "US Life Expectancy Falls for Third Year in a Row," BMJ 363, k5118 (2018), https://doi.org/10.1136/bmj.k5118.
55 Council of Economic Advisers, Economic Report of the President with The Annual Report of the Council of Economic Advisors, February 2018, https://www.govinfo.gov/content/pkg/ERP-2018/pdf/ERP-2018.pdf.
56 Ibid.
57 Ibid.
58 Brian Blase and David Balat, "Is Medicaid Expansion Worth It?," Texas Public Policy Foundation, April 21, 2020, https://www.texaspolicy.com/wp-content/uploads/2020/04/Blase-Balat-Medicaid-Expansion.pdf.
59 Brian Blase and Niklas Kleinworth, "Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform," Paragon Health Institute, March 2025, https://paragoninstitute.org/medicaid/addressing-medicaid-moneylaundering-the-lack-of-integrity-with-medicaid-financing-and-the-need-for-reform/.
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The Biden administration issued a regulation that permits SDPs so that the total Medicaid payment can equal average commercial rates.63 Average commercial rates are more than 2.5 times Medicare rates nationally, meaning that Medicaid is now a much better payer than Medicare in many states.64 Moreover, by tying Medicaid rates to commercial rates, there is an incentive to increase those rates in order to raise government payments through Medicaid.
Thus, the inflationary spiral harms both taxpayers and people with private plans. The Working Families Tax Cut Act limited payment rates through SDPs to at, or about, Medicare rates beginning in 2028--taking a giant step toward reducing corporate welfare in Medicaid.65
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Medicare Site of Service Payment Differentials
Medicare often pays different rates for the same procedure depending on where that procedure is performed. Payment rates can vary depending on if the patient is treated in a hospital, an ambulatory surgical center, or a physician's office.66 For example, in 2016, Medicare paid on average 60 percent as much to an ambulatory surgical center and 45 percent as much to a physician's office as it paid to a hospital outpatient department (HOPD) for the same procedure.67 Site-specific payment policies also apply to an off-campus HOPD, which is often not located on the same grounds as the main hospital. Various policy actions from both Congress and CMS over the past decade have sought to reduce site-specific differentials. If site-neutral payment policies were applied to most services for all off-campus and on-campus HOPDs, CBO projects savings of $157 billion over 10 years.68
Site-specific payments steer patients to more expensive settings, increasing spending and distorting the market. In Medicare, these differentials increase Part B premiums and costsharing for beneficiaries, as well as costs to the taxpayer. In addition, site-specific payments increase costs across the health system. Private payers frequently adopt rates based on
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60 These values were calculated from preprints available between February 2023 and August 2024, then annualized value for the most recent rating period. Medicaid and CHIP Payment and Access Commission, "Directed Payments in Medicaid Managed Care," October 2024, https://www.macpac.gov/wp-content/uploads/2024/10/Directed-Payments-in-Medicaid-Managed-Care.pdf.
61 A. Mok et al., "GOP Lawmakers Reportedly Target Provider Tax Reform, Posing Material Risk to Hospitals," Barclays, pp. 3, February 2025.
62 Ann Kemspski and Ge Bai, "North Carolina Medicaid Expansion Puts Employers and Workers at Risk for Higher Hospital Prices," Health Affairs, June 21, 2023, https://www.healthaffairs.org/content/forefront/north-carolina-medicaid-expansion-putsemployers-and-workers-risk-higher-hospital.
63 Jackson Hammond, "Biden's Medicaid Changes: High Costs, Misguided Policy," Paragon Health Institute, November 2024, https://paragoninstitute.org/medicaid/bidens-medicaid-changes-high-costs-misguided-policy.
64 Christopher M. Whaley et al., "Prices Paid to Hospitals by Private Health Plans," RAND, December 10, 2024, https://www.rand.org/pubs/research_reports/RRA1144-2-v2.html.
65 Chris Medrano et al., "What Made It into Law: Health Provisions of the One Big Beautiful Bill," Paragon Health Institute, July 10, 2025, https://paragoninstitute.org/medicaid/what-made-it-into-law-health-provisions-of-the-one-big-beautiful-bill/. Starting in 2028, total Medicaid payments, including payments through SDPs, cannot exceed 100 percent of Medicare rates in Medicaidexpansion states and 110 percent of Medicare rates in non-Medicaid expansion states.
66 Joe Albanese, "Reducing Overpayments in Medicare Through Site-Neutral Reforms," Paragon Health Institute, June 7, 2023, https://paragoninstitute.org/medicare/reducing-overpayments-in-medicare-through-site-neutral-reforms/
67 Albanese, "Reducing Overpayments in Medicare."
68 CBO, Options for Reducing the Deficit: 2025 to 2034, December 2024, https://www.cbo.gov/system/files/2024-12/60557budget-options.pdf.
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Medicare's payment policies, so these differentials push up payments in the commercial market, too.
Site-specific payments also undermine the competitive landscape and choices of care available to patients. Because off-campus HOPDs receive higher hospital payment rates, site-specific payments encourage hospitals to buy independent, free-standing physician offices and convert them into off-campus HOPDs--a move that increases consolidation and ultimately raises prices and spending.69 Site-neutral payment reforms have enjoyed bipartisan support, as evidenced by the panel hosted by Paragon last year featuring scholars from the American Enterprise Institute, the Brookings Institution, the Center for American Progress, and former HHS secretaries Kathleen Sebelius and Alex Azar with uniform views on the wisdom of moving to site-neutral payments in Medicare.70
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340B
The 340B Drug Pricing Program is the second-largest drug-pricing program in the country behind Medicare Part D and will eclipse Part D in a few years based on the current trajectory.
The program requires pharmaceutical manufacturers to offer discounts on qualifying outpatient drugs to specified "safety-net" hospitals and other federal health entities (namely federally qualified health centers, among others) in exchange for being allowed to participate in Medicare and Medicaid. Due to severe program opacity, the size of individual discounts is not publicly known, though estimates range from 22.5 to 50 percent of a drug's average sales price.71 In 2023, total 340B spending had grown to over $66.3 billion annually,72 equivalent to 14.7 percent of annual prescription drug spending in the United States.73
The 340B program directly contributes to higher health care spending. CBO has found that 340B has increased government and private sector drug spending as well as incentivized health care consolidation.74 Because 340B allows all sub-entities of participating hospitals (known as "child sites") to receive 340B discounts, hospitals have strong incentives to buy up independent physician offices to capture their patients and divert resources into new offcampus HOPDs and other child sites in wealthier areas.75 One study found that a higher concentration of 340B participants in a market is associated with higher ACA premiums and more than $2 billion in additional annual federal ACA subsidy spending.76 The program results in the use of higher-priced drugs, greater drug volume, and lower biosimilar uptake.
The program is intended to help hospitals that are true safety nets for the needy, but the structure of the program directs most aid to wealthier entities and communities.
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69 Albanese, "Reducing Overpayments in Medicare."
70 Paragon Health Institute, "Medicare Site-Neutral Payments: A Commonsense, Bipartisan Reform," event, July 29, 2024, https://paragoninstitute.org/event/medicare-site-neutral-payments-a-commonsense-bipartisan-reform/.
71 85 Fed. Reg. 156 (Aug. 12, 2020), https://www.govinfo.gov/content/pkg/FR-2020-08-12/pdf/2020-17086.pdf.
72 Adam J. Fein, "The 340B Program Reached $66 Billion in 2023--Up 23% vs. 2022: Analyzing the Numbers and HRSA's Curious Actions," Drug Channels, October 22, 2024, https://www.drugchannels.net/2024/10/the-340b-program-reached-66-billionin.html.
73 Jackson Hammond, testimony Before the 2025 Kansas Special Committee on Pharmaceutical Studies, https://kslegislature.gov/li/b2025_26/committees/ctte_spc_2025_on_phrmcy_bnft_mngrs_and_340b_prgrm_1/documents/testi mony/20250926_05.pdf.
74 CBO, "Growth in the 340B Drug Pricing Program," September 2025, https://www.cbo.gov/system/files/2025-09/60661-340Bprogram.pdf.
75 Katie Thomas and Jessica Silver-Greenberg, "How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits," New York Times, September 24, 2022, https://www.nytimes.com/2022/09/24/health/bon-secours-mercy-health-profit-poorneighborhood.html.
76 Neal Masia et al., "The Association of the 340B Program with Affordable Care Act (ACA) Premiums: A Longitudinal Analysis from 2018 to 2022," Inquiry, September 4, 2025, https://doi.org/10.1177/00469580251370317.
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Physician-Owned Hospitals Limitation
The ACA imposed major restrictions on physician-owned hospitals (POHs) by amending the Stark Law to bar new POHs from participating in Medicare. Existing physician-owned facilities were allowed to continue but were barred from expanding their capacity without a complex exception process. These ACA changes effectively froze the growth of POHs. Prior to the ACA, they had been expanding and specializing rapidly--accounting for more than 200 facilities nationwide. Proponents of the restriction, including the American Hospital Association, argued that physician ownership created conflicts of interest, encouraging overutilization of services (known as "self-referral"). The Physician Hospitals of America contend that these facilities delivered higher-quality care at lower costs due to aligned incentives and operational efficiency.
The ACA's restrictions on POHs drive higher health care prices by limiting competition and preserving market dominance for large, non-physician-owned hospital systems. POHs have historically operated with Medicare costs 1 to 20 percent lower per case than their peers due to streamlined administration, lower overhead, and stronger incentives to avoid unnecessary procedures.77 This lack of competitive pressure reduces incentives for efficiency across the system.
For example, a 2020 study in Health Affairs found that patients treated in physician-owned medical practices incurred 5.8 to 6.3 percent lower annual spending compared to those in hospital-owned practices, with competitive spillover effects encouraging neighboring facilities to reduce unnecessary services and overhead.78
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Growth in Complexity
Annual federal health spending now exceeds $1.9 trillion across Medicare, Medicaid, and the ACA exchanges.79 This spending is more than twice national defense, and with it has come waves of regulations directing that spending and attempting to ensure that it is used as intended. At the same time, thousands of pages of regulations seek to engineer outcomes, using payment rates to incentivize providers and patients to take certain actions. Private insurers often follow this lead, even though they should have more incentives for cost control using utilization management and anti-fraud practices. With government spending comes extensive regulation--and complexity that forces providers to spend more time on paperwork instead of patients and to hire administrators instead of clinicians.
Spending on health care administration totals approximately $1 trillion a year and represents roughly 17 percent of total national health expenditures.80 Not only does increased complexity result in greater direct spending; it also influences spending indirectly by its impact on consolidation. Although larger providers can generally dedicate resources to handle the burdens of administrative complexity, smaller providers struggle to keep up. The burden on small providers has fallen hardest on independent physicians, who have resorted to selling their practices to larger health systems. Between 2007 and 2017, the percentage of physician practices owned by hospitals or health systems grew more than 20 percentage points.81 As of 2024, nearly half of physicians are employed by other entities--mostly hospitals and health systems--rather than being independently employed, an increase from less than 30 percent in 2012./82 This increased consolidation has resulted in higher prices for patients. One study found that a 10 percent increase in hospital system market share is associated with a $880-$1,880 higher negotiated rate per admission.83
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77 Michael O. Leavitt, Secretary of Health and Human Services, Study of Physician-Owned Specialty Hospitals Required in Section 507(c)(2) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 2005, https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Downloads/RTC-StudyofPhysOwnedSpecHosp.pdf.
78 Vivian Ho et al., "Annual Spending per Patient and Quality in Hospital-Owned Versus Physician-Owned Organizations: An Observational Study," Journal of General Internal Medicine 35, no. 3 (September 3, 2019), https://pmc.ncbi.nlm.nih.gov/articles/PMC7080686/.
79 Juliette Cubanski et al., "FAQs on Health Spending, the Federal Budget, and Budget Enforcement Tools," KFF, March 20, 2023, https://www.kff.org/medicare/faqs-on-health-spending-the-federal-budget-and-budget-enforcement-tools/.
80 Ryan Long et al., "Cui Bono? Misaligned Incentives in the 340B Program," Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California, September 2025, https://schaeffer.usc.edu/wpcontent/uploads/2025/09/2025-09-Misaligned-Incentives-340B-web.pdf; Nikhil R. Sahni, "Active Steps to Reduce Administrative Spending Associated with Financial Transactions in US Health Care," Health Affairs Scholar 1, no. 5 (November 2023), https://pmc.ncbi.nlm.nih.gov/articles/PMC10986268/.
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Certificate of Need Laws
Certificate of need (CON) laws are state-level policies that were originally intended to curb health care costs. Yet they have the opposite effect by preventing competition and discouraging innovation. CON laws require providers to justify to regulators the need for investments in new technology, services, or facilities. These laws were originally encouraged by a federal policy that threatened states with funding cuts if they lacked CON requirements--a policy that has since been repealed. However, 38 states and Washington, D.C., continue to enforce CON or CON-like laws.84
It is estimated that CON laws raise the per capita cost of health care services by 10.5 percent.85 CON laws most often apply to nursing homes, psychiatric services, and hospitals-- the areas facing the greatest shortages.86 Costs for services in these areas continue to rise as demand, particularly in rural communities, outpaces supply. CON laws also promote consolidation by denying new services where they already exist through other providers. This is exacerbated by the employees of incumbent providers who often sit on CON boards and deny applications from would-be competitors. This entrenches monopolies and their market power over prices in those areas.87 Recognizing the ill effects of CON, the Rural Health Transformation Program--authorized through the Working Families Tax Cuts Act--provides a key federal incentive for states to repeal their CON laws in order to receive increased funding to invest in their communities.
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Scope of Practice Limitations
State scope-of-practice limits for non-physician medical professionals often place arbitrary barriers on practitioners who could serve underserved communities. Physicians are constrained by private credentialing boards and professional organizations.88 By contrast, non-physicians face many similar credentialing requirements but are often subject to stricter limits despite being trained to do more. Many states have taken recent steps to roll back portions of their scope-of-practice limitations in order to better meet the needs of their residents, particularly in rural areas.89
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81 CBO, "Growth in the 340B Drug Pricing Program."
82 Government Accountability Office, Health Care Consolidation: Published Estimates of the Extent and Effects of Physician Consolidation, September 22, 2025, https://www.gao.gov/products/gao-25-107450.
83 Yuvraj Pathak and David Muhlestein, "Hospital System Market Share and Commercial Prices: a Cross-Sectional Approach Using Price Transparency Data," Health Economics Review 14 (2024), https://healtheconomicsreview.biomedcentral.com/articles/10.1186/s13561-024-00580-w.
84 Some sources report only 34 states and D.C. have active CON laws. However, Cicero's numbers include four states that do not have an official CON law, but have CON-like restrictions on providers. These states include Arizona, Louisiana, Minnesota, and Wisconsin. Cana Cossin et al., "Comprehensive Certificate of Need (CON) Laws Dataset," Cicero Institute, July 17, 2025, https://ciceroinstitute.org/blog/comprehensive-certificate-of-need-con-laws-dataset/.
85 Chris Jones and Tanner Jones, "Ranking Certificate of Need Laws in All 50 States," Cicero Institute, December 2024, https://ciceroinstitute.org/wp-content/uploads/2024/12/50-State-CON-Rankings-Report-12-5-2024.pdf.
86 Matthew Mitchell, "Welcome Competition: Scale Back Certificate of Need Laws," in Don't Wait for Washington: How States Can Reform Health Care Today, ed. Brian Blase (Paragon Health Institute: 2021), https://paragoninstitute.org/wpcontent/uploads/2023/12/dont-wait-for-washington.pdf.
87 Mitchell, "Welcome Competition."
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Scope-of-practice laws raise costs by creating shortages, duplicating services, and reinforcing provider monopolies.90 Requiring patients to see physicians for treatments that nurse practitioners, physician assistants, or pharmacists are trained to provide forces them into higher-cost care settings. Scope-of-practice laws also lead to duplicative payments when an initial evaluation by a non-physician must be followed by a second visit with a physician solely to satisfy regulatory rules. Beyond limiting access, these policies are anticompetitive, preserving physicians' control over services that would otherwise face competition and enabling higher prices without corresponding improvements in care.
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Conclusion: Reform Requires Incentives, Not More Spending
Renowned health economist and Harvard Business School professor Regina Herzlinger has written that "choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper."91 Unfortunately, government policies--despite good intentions--often stifle choice, competition, and innovation in health care. Furthermore, these programs and policies produce incentives that lead to waste rather than value in our health care expenditures:
* Government mandates have pushed up the price of insurance. The high price of insurance necessitates large subsidies so people can afford the coverage.
* Government restricts people from buying coverage that works best for them and prevents small employers from joining together to gain the same advantages that large employers obtain in their coverage.
* Government contributes to higher health care prices and overall inflation with poorly designed subsidies.
More subsidies are not a remedy for unaffordable health care--they are the accelerant that fuels higher premiums and deeper market dysfunction. Expanding subsidies entrenches a system in which premiums rise faster, competition weakens further, and taxpayers finance an ever-growing transfer to insurers. The only path to genuine affordability is structural reform that restores price discipline, aligns incentives, and shifts power from insurers to patients.
The ACA's poorly designed subsidy structure has funneled hundreds of billions of dollars to insurers while doing little to improve health outcomes. A sustainable solution requires letting the temporary COVID-era enhanced subsidies expire, appropriating CSRs, replacing the inflationary benchmark formula, and giving lower-income families the option to receive their cost-sharing subsidies as deposits into HSAs. These reforms would redirect dollars away from insurers and toward patients, strengthen market discipline, and meaningfully improve affordability without increasing federal spending.
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88 Blase, ed., Don't Wait for Washington.
89 Colorado, Idaho, Indiana, Iowa, and Montana all expanded prescriptive authority for pharmacists in accordance with their training. Ohio is one example of a state seeking to do the same as part of its application for funding through the Rural Health Transformation Program authorized by the Working Families Tax Cut Act. See Tim Frost and McKenzie Richards, "2025 Policy Strategies for Full Practice Authority," Cicero Institute, August 2025, https://ciceroinstitute.org/research/2025-policy-strategiesfor-full-practice-authority/; Ohio Department of Health, "Ohio Rural Health Transformation Program Project Narrative," November 2025, https://odh.ohio.gov/know-our-programs/rural-health-transformation-program/media/rht-program-narrative.
90 Blase, ed., Don't Wait for Washington.
91 Regina Herzlinger, Who Killed Health Care? America's $2 Trillion Medical Problem--and the Consumer-Driven Cure (McGraw-Hill, 2007).
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Fortunately, by reforming existing government programs and pursuing policies that promote choice and competition in health care, policymakers can expand access to affordable health coverage without new government spending.
The following policies, if fully implemented, would help millions of families and reduce the number of uninsured by a projected 2 million people--all without any new federal spending:
* AHPs offer significant savings to small employers for high-quality coverage.
* ICHRAs allow employers to provide health coverage in ways that some employees may prefer.
* Short-term health plans represent more affordable and attractive coverage for some individuals and families.
* In addition to the expansion of coverage opportunities, new price transparency rules that are properly implemented can improve the functioning of health care markets and expand opportunities for consumers and employers to maximize value from their expenditures.
Lastly, policymakers should avoid centralized regulatory or price controls that would diminish health care innovation. Rather, policymakers should create a climate conducive to innovation in which entrepreneurs are best serving patient needs.
Thank you for the opportunity to testify before the committee today, and I look forward to your questions.
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Original text here: https://www.finance.senate.gov/imo/media/doc/11192025_blase_testimony.pdf
Paragon Health Institute President Blase Testifies Before Senate Finance Committee (Part 1 of 2)
WASHINGTON, Dec. 5 -- The Senate Finance Committee released the following testimony by Paragon Health Institute President Brian Blase from a Nov. 19, 2025, hearing entitled "The Rising Cost of Health Care: Considering Meaningful Solutions for All Americans":* * *
My name is Brian Blase, founder and president of Paragon Health Institute. From 2017 through 2019, I served as a Special Assistant to the President for Economic Policy at the White House's National Economic Council, and from 2014 through 2015 I worked for the Senate Republican Policy Committee under then-Chairman John Barrasso. I appreciate ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Finance Committee released the following testimony by Paragon Health Institute President Brian Blase from a Nov. 19, 2025, hearing entitled "The Rising Cost of Health Care: Considering Meaningful Solutions for All Americans": * * * My name is Brian Blase, founder and president of Paragon Health Institute. From 2017 through 2019, I served as a Special Assistant to the President for Economic Policy at the White House's National Economic Council, and from 2014 through 2015 I worked for the Senate Republican Policy Committee under then-Chairman John Barrasso. I appreciatethe opportunity to testify on this important topic.
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Why Health Care and Coverage Are Increasingly Unaffordable
For tens of millions of Americans, neither health care nor health coverage is affordable. And once we account for the taxes and debt required to finance government health programs, health care is not just unaffordable; it is a direct threat to our fiscal future.
Counterproductive government policies have significantly contributed to high and rising health care prices and spending--both by inflating demand through excessive subsidies and mandates and by restricting supply through regulations that protect incumbent insurers, hospital systems, and provider monopolies. These combined forces drive prices higher and produce rampant inefficiencies throughout the health sector.
In many sectors of the economy, products and services have improved in quality over time while real prices, after accounting for inflation, have declined (Figure below: "Price Changes.")1 Health care is a glaring exception. Rather than delivering higher quality at lower real prices, the hospital sector--now the largest driver of U.S. health spending--has delivered the opposite: steeply rising prices, declining competition, and consolidation that shields providers from market discipline. As the data clearly show, prices for hospital services--the largest component of health care expenditures--have risen three times faster than general inflation since the turn of the century. No major industry has experienced faster price escalation than hospitals.
As health costs have risen, insurance premiums have soared. At the same time, plan deductibles have risen dramatically, too. To understand why costs have risen so sharply, policymakers must look beyond market forces and recognize how federal policy itself-- particularly the structure of the Affordable Care Act (ACA)--has directly contributed to higher premiums, narrower networks, and reduced affordability.
In 2024, health care spending was approximately 18 percent of U.S. gross domestic product (GDP), a 38 percent increase from 2000 when it was 13 percent of U.S. GDP.2 A significant part of this health care spending is waste, with credible estimates suggesting that up to a quarter of health care spending provides people on with little, if any, health benefit.3
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1 Mark J. Perry (@Mark_J_Perry), "New version of the Chart of the Century, thanks to graphic artist http://OlivierBallou.com https://t.co/8XcNxKJtuT," X, August 4, 2025, https://x.com/Mark_J_Perry/status/1952494716970303774.
2 Data is available at https://www.cms.gov/data-research/statistics-trends-and-reports/national-healthexpenditure-data/projected.
3 William H. Shrank et al., "Waste in the US Health Care System: Estimated Costs and Potential for Savings," JAMA 322, no. 15 (October 15, 2019), https://pubmed.ncbi.nlm.nih.gov/31589283/.
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Despite widespread inefficiencies in the U.S. health sector, there are pockets of excellence.
In the past few decades, there have been meaningful advances, such as a decline in cardiac mortality, improvement in cancer survival rates, a cure for Hepatitis C, and new AIDS treatments. Yet health outcomes have stagnated despite the ACA's new spending and the significant expansion of Medicaid. American life expectancy was lower in 2019 (a prepandemic measure) than it was in 2013, before the ACA's coverage and spending provisions took effect.4
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Government Policies Drive Higher Prices and Distort the Market
These problems stem not from a lack of government action but from perverse incentives embedded in government programs. There are many policies--at both the federal and state levels--that raise health care prices and costs. In most areas of the economy, high prices signal high value. But in health care, heavy government involvement--driving excessive thirdparty payment and consolidation--means that high prices often reflect distortions. A major consideration for policymakers in addressing high prices for medical care should be examining how existing government policies contribute to the problem and then focusing on reform.
Federal tax and spending programs inflate health care demand and generate large expenditures that produce little, if any, value. Roughly a quarter of health care spending provides no health benefit--and some of it may even harm patients. Reforms are clearly needed, particularly to our health care entitlement programs.
* * *
How Third-Party Payment and Government Regulation Inflate Costs
A primary way that government inflates health care prices and costs is through tax and spending policies. In 2023, government health care spending--including both state and local government spending--was 48 percent of total U.S. health care expenditures.5
Federal policy also strongly shapes private sector health care spending. One important policy is the long-standing tax exclusion for employer-sponsored insurance. The exclusion contributes to higher overall health spending by encouraging compensation to flow through health benefits rather than wages and because its value grows as premiums rise. However, these effects are far less pronounced than under the ACA's subsidies. Unlike the ACA subsidies, the exclusion does not penalize additional work, does not encourage misreporting of income, and does not generate the type of escalating dollar-for-dollar subsidy increases that fuel the ACA's premium spiral. The White House estimates that the exclusion will reduce federal revenue by $395 billion in 2025--a substantial amount--but it remains considerably less distortionary than the ACA's subsidies.6
The key economic reality is that when government subsidizes something, that thing becomes more expensive. Subsidies increase demand, raise prices, and thus increase total spending in that area. Substantial and open-ended federal subsidies mean most Americans hold comprehensive insurance coverage. This in turn puts upward pressure on health care prices and diminishes the amount of shopping for health coverage and care.
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4 MacroTrends, "U.S. Life Expectancy 1950-2025," https://www.macrotrends.net/countries/USA/united-states/life-expectancy (retrieved February 13, 2025).
5 Centers for Medicare and Medicaid Services, "Historical," National Health Expenditures Data, table 5, n.d., https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical.
6 Office of Management and Budget, "Budget FY 2025--Analytical Perspectives Budget of the U.S Government Fiscal Year 2025," March 11, 2024, https://www.govinfo.gov/app/details/BUDGET-2025-PER/summary. My calculation includes exclusion of employer contributions for medical insurance premiums and medical care, $246,510,000,000, in addition to employer contributions for health effects on payroll tax receipts, $148,040,000,000, for a total of $394,550,000,000 for 2025.
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For complete economic analysis, the taxpayer share of the total cost must be considered.
Every subsidy is ultimately financed by other households--through higher taxes or greater debt. More debt represents higher taxes in the future, either through direct taxes or higher inflation. And there is substantial deadweight economic loss from the higher spending. The deadweight loss of taxation represents the value of forgone productive activity. According to assumptions used by the Council of Economic Advisors about deadweight loss, extending the Biden COVID credits would cause about $200 billion of deadweight loss over the next decade.7
Although the magnitude of government subsidies for health care increases prices and spending, the design of the subsidies is also problematic. Historically, government programs and tax policy have encouraged third-party payment of health services. Thus, for the vast majority of health care transactions, individuals do not directly spend their own money but instead rely on government programs or their insurance plans, which are generally either directly subsidized or tax-favored. Insurance should protect people from catastrophic expenses--not function as a pre-paid medical subscription for every routine or shoppable service. Yet federal policy pushes precisely that model, severing the link between patients and prices, eroding incentives to economize, and converting everyday spending into bloated third-party transactions.
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Lessons from Markets Where Consumers Control Spending
Although inflation in health care services has been substantial, health care services where third-party payment is limited--such as cosmetic and LASIK eye surgery--have seen real price declines as quality has significantly improved.8 These examples demonstrate what happens when consumers spend their own money and providers compete on price--precisely the opposite of the ACA's structure. Also, a number of physician practices and medical centers, such as the Oklahoma Surgery Center, do not accept insurance and have much lower average prices.9
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The Affordable Care Act's Inflationary Spiral
The ACA promised affordable, high-quality insurance. It failed to deliver. Premiums and deductibles have escalated--often for coverage that excludes the best hospitals and doctors. The law entrenched an inefficient, insurance-dominated health sector with massive subsidies flowing straight from the U.S. Treasury to insurance companies.
As a temporary pandemic measure, the American Rescue Plan Act further increased subsidies for this coverage from 2021 through 2022. It increased taxpayer assistance for exchange plans in two ways. First, it reduced what people with income between 100 and 400 percent of the federal poverty level (FPL) need to pay for a benchmark plan. Second, it lifted the cap on subsidy eligibility at 400 percent of FPL. The Inflation Reduction Act did not
introduce any reforms in the market and continued the expanded subsidies--setting them to expire after 2025.
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7 Council of Economic Advisors, Economic Report of the President with The Annual Report of the Council of Economic Advisors, March 2019, https://bidenwhitehouse.archives.gov/wp-content/uploads/2021/07/2019-ERP.pdf.
8 Mark Perry, "What Economic Lessons About Health Care Costs Can We Learn from the Competitive Market for Cosmetic Procedures?," American Enterprise Institute, April 25, 2019, https://www.aei.org/carpe-diem/what-economic-lessons-abouthealth-care-costs-can-we-learn-from-the-competitive-market-for-cosmetic-procedures-2/.
9 For a discussion of the Oklahoma Surgery Center, see Russ Roberts and Keith Smith, "Keith Smith on Free Market Health Care," EconTalk, November 18, 2019, https://www.econtalk.org/keith-smith-on-free-market-health-care/.
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Here are the basic economics:
* The ACA's regulations increased premiums for the vast majority of people.
* Subsidies were then needed so people could afford coverage that the government regulations made more expensive.
* The underlying regulatory and subsidy structure leads to ever-escalating premiums and prices.
* Higher premiums create pressure for still more subsidies, and those additional subsidies only worsen the underlying problems--fueling the very premiums and price escalation they are meant to offset.
If Congress wants to make health care more affordable, it must reform the structure itself, not throw more good taxpayer money after bad. In fact, the surest way to avoid meaningful reform would be to continue the pandemic-era subsidy boosts.
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ACA Exacerbated Harmful Health Care Consolidation
In addition to driving premiums up through subsidy design, the ACA reshaped market structure in ways that reduced competition and locked in persistently high prices. The ACA's regulatory and subsidy architecture helped institutionalize market concentration, reduced competitive discipline, and thereby reinforced rising costs rather than reversing them.
According to Joel White's November 6, 2025, testimony, many county-level exchange markets now have two insurers with at least 70 percent of enrollment, 97 percent of inpatient hospital markets lack meaningful competition, and uncompetitive hospital markets lead hospitals to increase prices 15 to 30 percent.10 Instead of competition driving costs down, consolidation on both sides created a stable high-price equilibrium in which neither hospitals nor insurers had incentives to reduce prices.
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The Specific Damage from the ACA and the Enhanced Subsidies
From 2014 to 2026, individual market premiums are up 129 percent, employer-sponsored insurance premiums are up 68 percent, and general inflation is up 39 percent.11 This is after individual market premiums increased nearly 50 percent from 2013 to 2014./12
In 2026, the average deductible for an individual on a bronze plan is $7,476, and the average deductible for an individual on a silver (no CSR) plan is $5,304./13
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10 Joel White, President, Council for Affordable Health Coverage, testimony before Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs, November 6, 2025, https://www.hsgac.senate.gov/wpcontent/uploads/White-Testimony.pdf.
11 Mark Howell and Brian Blase, "Obamacare Plan Premiums Have Increased Nearly 2x Faster Than Employer-Based Premiums Since 2014," Paragon Health Institute, https://paragoninstitute.org/paragon-pic/obamacare-plan-premiums-have-increasednearly-2x-faster-than-employer-based-premiums-since-2014/.
12 Avik S. A. Roy, Manhattan Institute, "Transcending Obamacare: Achieving Truly Affordable, Patient-Centered, Near-Universal Coverage," testimony before House Committee on Energy and Commerce, Subcommittee on Health, May 11, 2016, https://media4.manhattan-institute.org/sites/default/files/T-AR-0516.pdf.
13 KFF calculated these figures as simple averages of all unique plans available in each metal tier on a per-individual basis. KFF, "Deductibles in ACA Marketplace Plans, 2014-2026," November 6, 2025, https://www.kff.org/affordable-care-act/deductibles-inaca-marketplace-plans/.
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During the annual open enrollment period, applicants estimate their household income for the following year, often with the assistance of brokers or agents. Based on this reported income, the government sends monthly subsidies, dubbed advance premium tax credits, to the insurer offering the plan selected by the applicant. Almost all of the subsidies are direct payments from the Treasury to health insurance companies. In many cases, the insurer receives more money than the enrollee was lawfully entitled to during the year--and the insurer gets to keep the excess payments, with some combination of the federal taxpayer taking the loss and the enrollee being liable for a portion of the excess payment.
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The Structural Failures of the ACA's Subsidy Design
The ACA's subsidies are ill-designed and inflationary in critical ways. The enrollee's share of the premium is capped--regardless of the total premium. This structure is inherently different than other federal health programs, such as Medicare Part B and the Federal Employees Health Benefits Program, where enrollees pay a percentage of the premium. As premiums have dramatically increased over time, the federal taxpayer has borne almost the entire increase. The figure below demonstrates the increase in premiums and the split between taxpayer and enrollee from 2014 through 2026 for a 50-year-old enrollee at two times the FPL--about the average enrollee's age and income.
The federal taxpayer share of the premium increased gradually from 68 percent of the premium in 2014 to nearly 80 percent in 2020. As a result of the COVID credits, the federal taxpayer share of the premium reached 93 percent from 2021 through 2025. Next year, when the COVID credits expire, the federal share will exceed 80 percent. Because enrollees pay only a small slice of the premium, insurers face virtually no price discipline--giving them incentives to inflate costs rather than improve value.
The ACA subsidy structure does not just fail to control costs--it actively rewards insurers for raising them. A recent analysis by the Joint Economic Committee shows that consumers capture only 34 percent of the benefit, with roughly two-thirds captured by insurers through higher premiums and inflated benchmark prices.14 This occurs because subsidies automatically increase as premiums rise, insulating insurers from competition and enabling them to absorb most of the subsidies rather than pass savings on to enrollees.
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14 Liam Sigaud, "New JEC Report: Insurers and Brokers Receive More Benefit from ACA Subsidies Than Enrollees," Paragon Health Institute, November 2025, https://paragoninstitute.org/paragon-prognosis/new-jec-report-insurers-and-brokers-receivemore-benefit-from-aca-subsidies-than-enrollees.
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The ACA regulations drive higher costs. For example, the ACA's essential health benefit mandates require all plans to cover the same set of services regardless of what consumers want or need. These rules increase wasteful spending and premiums.
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The Insurer-Provider Alliance That Raises Prices
A second critical flaw is the ACA's medical loss ratio, under which insurers must spend a minimum share of premium revenue on medical claims. In other words, to increase profits, insurers must have higher premiums. In reality, despite the claims of lobbyists, insurers, and health systems, they do not negotiate prices across the table from each other. Rather, they sit on the same side of the table, as both are incentivized to extract more dollars from employers, enrollees, and taxpayers.
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The Rise of Improper, Zero-Claim, and Phantom Enrollment
Among the perverse incentives inherent to the enhanced subsidies is their enabling of fraud in the exchanges. The benefit of hindsight reveals that these premiums--particularly their creation of fully subsidized plans--encouraged enrollees, often at the behest of unscrupulous brokers, to improperly enroll in coverage with subsidies they are not entitled to.
Many of those improperly enrolled do not even know about their coverage, as they are victims of fraud schemes designed to pocket commissions and subsidies. This is evidenced by the rising percentage of people who do not use their coverage at all, by government enforcement actions, and news stories.
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Improper Enrollment Pressures Created by the COVID Credits
Enrollment in the exchanges was well below projections until the COVID-era subsidy boost.
From 2015 to 2020, exchange enrollment averaged about 10-11 million people15--about 60 percent below what the Congressional Budget Office (CBO) projected in May 2013 in its last analysis before the ACA's provisions took effect.16 Enrollment did surge beginning in 2022, but much of the surge was from improper enrollment caused by Biden COVID credits and among people unaware of their coverage--along with a large increase in the number of enrollees who did not use the coverage.
CBO's most recent ACA subsidy baseline projection is 91 percent above its 2021 projection over the 2026-2033 period.17 Continuing the COVID credits would result in about $40 billion in higher deficits annually over the next decade. This surge in spending reflects widespread fraud and administrative decisions that prioritized enrollment over eligibility verification.
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15 The average number of enrollees over the course of the year accounts for (1) the fact that some people who choose coverage during open enrollment fail to pay any premium and (2) net attrition in enrollment over the course of the year.
16 CBO, "CBO's May 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage," May 2013, https://www.cbo.gov/sites/default/files/recurringdata/51298-2013-05-aca.pdf.
17 The reason we show spending on the ACA subsidies only through 2033 is that CBO projects that spending on the subsidies will drop in 2034 because of repayment of excess Basic Health Plan subsidies that New York state has accumulated.
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COVID Credits Created Financial Incentives for Misreporting and Manipulation
COVID-era subsidy boosts resulted in fully subsidized coverage for people claiming income within a category--100 to 150 percent of FPL. In a June 2025 paper that I coauthored, we found the amount of improper enrollment grew substantially between 2024 and 2025 for those claiming income between 100 and 150 percent of FPL.18 The number of ineligible enrollees rose from an estimated 5.0 million to 6.4 million from 2024 to 2025. In total, 29 states had more sign-ups in this income category than the number of eligible individuals in the population, based on our conservative methodology for determining improper enrollment.19 In 15 states, there are more than twice as many enrollees in fully subsidized plans than are eligible. The estimated cost to taxpayers from this improper enrollment will likely exceed $27 billion in 2025 alone. Under more expansive assumptions, the number of ineligible enrollees in 2025 could reach as high as 7.1 million.
The enhanced subsidies led to massive fraud. This policy decision created strong financial incentives for applicants and those allegedly acting on their behalf to misstate income and enroll in this income category. In addition to the expanded subsidies, the Biden administration adopted policies that prioritized maximizing enrollment over verifying eligibility.
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18 Brian Blase et al., "The Greater Obamacare Enrollment Fraud: The Fraud Got Much Worse in 2025," Paragon Health Institute, June 2025, https://paragoninstitute.org/private-health/the-greater-obamacare-enrollment-fraud/.
19 These states include Alabama, Arizona, Arkansas, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, and West Virginia.
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Fraud, Misrepresentation, and Unauthorized Enrollment Are Widespread
Fraudsters took advantage of these relaxed eligibility checks. Many enrollees were signed up without their knowledge or consent. A recent Bloomberg investigation highlighted how largescale deception rings take advantage of these perverse incentives, with some enrollees being coached on how to fill out their applications to take advantage of the fully subsidized coverage and some unscrupulous brokers and agents just enrolling people without their consent. Tactics include misleading advertising promising cash benefits as well as unscrupulous lead generators and brokers enrolling people without their knowledge and switching applicants into plans without their consent.20 One former customer service worker at a large brokerage firm said, "Half the time they didn't even know they were signing up for insurance."21
Insurers and their intermediaries benefit from this flawed structure. Brokers receive commissions for each enrollment, creating strong financial incentives to maximize sign-ups by any means necessary. And insurers receive monthly payments from the Treasury on behalf of many people unaware of their enrollment or with other coverage, with many of them automatically reenrolled from year to year.
The Centers for Medicare and Medicaid Services (CMS) received more than 200,000 complaints about unauthorized plan switches in 2024 alone.22 In 2025, the Department of Justice brought charges against insurance executives accused of defrauding taxpayers out of more than $160 million.23 In addition, a Florida-based brokerage executive pled guilty to a separate $133 million scheme that targeted homeless and mentally ill individuals to improperly enroll them in subsidized ACA plans.24
Four figures demonstrate the large scale of improper enrollment. The first figure shows the shift in overall enrollment to the lowest income category in the states that use HealthCare.gov. The first open enrollment period with fully subsidized plans was 2022. By 2025, a stunning 55 percent of people who signed up for coverage during open enrollment reported that their income was between 100 and 150 percent of FPL. This figure shows only the federal exchange sign-ups, because not all states with state-based exchanges reported sign-ups by income grouping prior to 2022. We estimate that 62 percent of individuals reporting income between 100 and 150 percent of FPL in HealthCare.gov states are not actually eligible, meaning that for every two eligible enrollees, there are more than three ineligible enrollees in this category.
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20 Zeke Faux and Zachary R. Mider, "Chasing Big Money with the Health-Care Hustlers of South Florida," Bloomberg, June 5, 2025, bloomberg.com/features/2025-deepfake-ads-fueled-florida-health-insurance-scheme/.
21 Faux and Mider, "Chasing Big Money."
22 Joseph Walker, "Americans Clicked Ads to Get Free Cash," Wall Street Journal, September 13, 2024, https://www.wsj.com/health/healthcare/social-media-ads-health-insurance-scams-37d1ecfa; and Turner et al. v. Enhance Health, LLC et al., no. 0:24-cv-60591 (S.D. FL), https://litigationtracker.law.georgetown.edu/litigation/conswallo-turner-et-al-v-enhancehealth-llc-et-al/.
23 Department of Justice, "President of Insurance Brokerage Firm and CEO of Marketing Company Charged in $161M Affordable Care Act Enrollment Fraud Scheme," press release, February 19, 2025, https://www.justice.gov/opa/pr/president-insurancebrokerage-firm-and-ceo-marketing-company-charged-161m-affordable-care.
24 Department of Justice, "Executive Vice President of Insurance Brokerage Pleads Guilty in $133M Affordable Care Act Fraud Scheme," press release, April 18, 2025, https://www.justice.gov/opa/pr/executive-vice-president-insurance-brokerage-pleadsguilty-133m-affordable-care-act-fraud.
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Zero-Claim and Phantom Enrollment Has Exploded
The next figure shows the explosive growth in zero-claim enrollees. From 2021 to 2024, the number of ACA exchange enrollees who did not use their plans for a single service tripled, reaching almost 12 million people. The zero-claim enrollment data include anyone enrolled during the year. Overall, 35 percent of enrollees did not use their plans a single time. A staggering 40 percent of fully subsidized enrollees used no medical services in 2024. These percentages are up from 19 and 20 percent, respectively, in 2021. Many of these zero-claim enrollees are "phantoms"--people who are unaware of their enrollment in the program or have duplicate coverage. Federal taxpayers sent more than $35 billion to insurers for people who did not use their plans a single time. In contrast, only 15 percent of people with private health insurance typically do not use their plans a single time.25 The fact that nearly 40 percent of fully subsidized enrollees used no services despite access to free preventive care further indicates that much of this enrollment is either improper or phantom rather than a genuine expansion of access.
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25 KFF, "Key Facts about the Uninsured Population," December 18, 2024, https://www.kff.org/uninsured/key-facts-about-theuninsured-population/.
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The large growth in zero-claim enrollees has occurred even as most ACA insurers aggressively advertise that they offer free preventive services, including annual wellness checkups, mammograms, colonoscopies, and immunizations. Although the evidence strongly suggests large-scale improper and phantom enrollment, the alternative explanation is that coverage does not equate to care.
Meanwhile, yet another data study (see figure: "Obamacare enrollment: CMS vs CPS"), this one from Jeremy Nighohossian of the Competitive Enterprise Institute, is also suggestive of a surge of phantom enrollment in the ACA exchanges. According to Nighohossian's review of federal data, twice as many people were enrolled in exchange plans in 2024 as reported having coverage, a much larger gap than in the years prior to the COVID credits.26
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26 Jeremy Nighohossian, "Obamacare's Subsidy Cliff: How Many Enrollees Are Actually Affected?," Competitive Enterprise Institute, November 7, 2025, https://cei.org/blog/obamacares-subsidy-cliff-how-many-enrollees-are-actually-affected/.
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Finally, as the next figures shows, in 2024 and 2025, the government did not have race or ethnicity data for more than half of ACA enrollees--a dramatic increase from 2021. This is yet another indication that many enrollees were likely signed up by agents or brokers who did not really know the applicant--obtaining only the minimum amount of information that was needed to get them enrolled in fully subsidized plans.
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How the Enhanced Subsidies Harm Work, Productivity, and People with Employer Coverage
According to CBO, the enhanced ACA subsidies in the Inflation Reduction Act increase deficits, boost overall demand, reduce labor supply, and reduce long-run economic output.27 CBO made clear that the enhanced subsidies reduce labor supply by diminishing the financial returns to work. With fewer people working or working fewer hours, the economy's productive capacity shrinks, leading to lower long-run output. The COVID credits, by lifting the subsidy cap at four times the FPL, encourage early retirement. It has led to situations such as a retired couple in their mid-50s--who earn $136,000 in pension income from government service--receiving $15,000 in ACA subsidies.28
Moreover, the ACA's subsidy structure, particularly with the COVID add-ons, incentivizes small employers to drop coverage. As the next figure shows, the benefit from receiving coverage from an employer is much lower than the benefit of the ACA subsidy for low- and middle-income enrollees. The tax benefit from receiving coverage through an employer is that the premium is not subject to income and payroll taxes. This subsidy design punishes work and penalizes employer-sponsored coverage (see figure: "ACA Subsidies Provide Much Greater Tax Benefit"). It creates a dramatic wedge between people who earn their benefits through employment and those who qualify for large, unearned tax credits--pressuring small employers to drop coverage and shifting millions into a more expensive federal program.
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27 CBO, "Economic Analysis of Budget Reconciliation Legislation," August 4, 2022, https://www.cbo.gov/publication/58357.
28 Greg Iacurci, "ACA Enhanced Subsidy Lapse Could Hit Early Retirees Hardest Amid Shutdown Fight," CNBC, October 17, 2025, https://www.cnbc.com/2025/10/17/aca-enhanced-subsidy-lapse-government-shutdown.html.
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Obamacare is a cause of this problem: Notwithstanding the tax break for employersponsored benefits, Obamacare treats workers who earn their job-based benefits much more harshly than individuals who claim Obamacare's unearned tax credits. Recent research from Paragon illustrates this effect.
Take a young family with 35-year-old parents and two children, ages 7 and 10 years. If the family's income is $64,300 (200 percent of FPL), it will receive an original ACA subsidy of $19,059. The tax break for an employer-based health plan for the family would be only $5,904 (in a state with no income tax). The difference is a $13,155 net government benefit for not receiving coverage at work. However, if Congress extends the Biden COVID credits, the family's subsidy would be $22,017, and the net government penalty for receiving coverage at work would increase to $16,113.
In addition, millions of people will likely lose workplace coverage. In fact, CBO projects that about 4.1 million people will replace employer-provided insurance or unsubsidized individual market insurance with subsidized exchange coverage if the COVID credits were made permanent.29
Although almost all large employers have continued to offer coverage, there has been a substantial decline in the percentage of small employers offering health plans. In fact, as the figure below shows, the percentage has dropped by about one-third since 2010. This leads to two concerns: (1) a growing taxpayer burden because of the expense of the ACA subsidies and (2) potentially worse coverage given the narrow networks of ACA plans. From a federal budget perspective, employer-sponsored health insurance is the least expensive option on average--only about one-third of the budgetary cost of the other main types of coverage for the non-elderly. According to CBO, in 2025, the average federal subsidy per enrollee under 65 is $2,553 for employer coverage, compared to a roughly $6,714 cost for Medicaid and Children's Health Insurance Program (CHIP) enrollees and individual market exchange enrollees.30
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29 CBO, "The Effects of Permanently Extending the Expansion of the Premium Tax Credit and the Costs of That Credit for Deferred Action for Childhood Arrivals Recipients," June 24, 2024, https://www.cbo.gov/publication/60437. CBO reports a 600,000 enrollment decline in unsubsidized ACA enrollment and a 3.5 million decrease in enrollment in employment-based coverage.
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The ACA also led some state and local governments to drop retiree health coverage, offloading that expense onto the federal taxpayer. Many cities are offloading the cost of retiree health care by shifting retirees under the age of 65 to the exchanges, transferring the financial burden of local and state government obligations to federal taxpayers. If the COVID credits are extended, the offloading of this cost would accelerate.31
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Large Subsidies Remain, and Most Enrollees Would Pay Low Monthly Amounts
ACA premiums will rise next year because of underlying flaws with the program and growing cost pressures. Only a small portion of the increase is from the expiring COVID credits. As the next figure shows only 3.3 percent of the 2026 premium is from the expiration of the COVID credits.
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30 CBO, "Health Insurance and Its Federal Subsidies: CBO and JCT's June 2024 Baseline Projections," June, 2024, https://www.cbo.gov/system/files/2024-06/51298-2024-06-healthinsurance.pdf.
31 Allysia Finley, "The ObamaCare Blue-City Bailout: Federal Taxpayers Pay as Municipalities Save Billions by Dumping Their Retirees onto the Government Exchanges," Wall Street Journal, November 2, 2025, https://www.wsj.com/opinion/the-obamacareblue-city-bailout-e7d72bee.
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The underlying ACA subsidy provides enormous protection for more than 93 percent of enrollees from high premiums. Most will pay less than $80 a month for a plan next year, with the federal taxpayers picking up 80 percent of the premium cost and a higher percentage for lower-income enrollees.
The table below shows the weekly premiums that enrollees would pay for the lowest-cost silver plans available to them.32 In 2025, 45 percent of exchange enrollees claimed income between 100 and 150 percent of FPL. Those enrollees would pay between $4 and $14 a week for silver plans next year. Another 20 percent of enrollees are between 150 and 200 percent of FPL and would need to pay up to $32 per week. Another 10 percent of enrollees are between 200 and 250 percent of FPL and would have to pay up to $52 a week for coverage.
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32 Brian Blase and Trevor Carlsen, "Biden's COVID Credits Are an ObamaCare Expansion That Congress Should Allow To Expire," Foundation for Government Accountability and Paragon Health Institute, September 3, 2025, https://thefga.org/research/bidenscovid-credits-are-obamacare-expansion-congress-should-allow-expire/.
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Large ACA Subsidies Now Flow to Affluent Households
In areas of the country where exchange premiums are high, the expansion of the ACA subsidies leads to extremely high taxpayer subsidies for affluent households. For example, the benchmark premium for an exchange plan in Prescott, Arizona, for a family of five with a 60-year-old household head is $52,176 in 2025.33 A benchmark plan covers 70 percent of a household's expected health care expenses on average. A $52,000 benchmark premium for a single family reflects a market that has fundamentally failed, not one offering exceptional value.
* If that family made $150,000, it would qualify for a subsidy of $39,426.
* If that family made $350,000, it would qualify for a subsidy of $22,426.
* If that family made $500,000, it would qualify for a subsidy of $9,676.
* The family does not lose subsidy eligibility until it earns about $614,000.
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Insurers Getting Rich Off Over Subsidized Market
The subsidies go directly to health insurance companies, subsidizing their profits even though enrollees may place low value on the coverage and would prefer different health care and health coverage products. Of the premium revenue that insurers collect for selling exchange plans, more than 83 percent came from the Treasury in 2024. Insurers' business models now revolve around securing federal subsidies rather than designing plans that consumers value.
Insurers' main client is now the federal government, which essentially ensures their revenue stream and guarantees them a profit. Insurer profits rose sharply during the period when pandemic-era subsidies expanded--not because coverage improved but because federal transfers increased dramatically. Both the design of the ACA's premium subsidies as well as the ACA's Medicaid expansion were inflationary and resulted in high payments to health insurance companies. There have been a variety of news stories documenting how these programs that are intended to benefit lower-income Americans have produced windfall profits for health insurance companies.34
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33 The numbers that appear in this testimony are from the KFF's health insurance subsidy calculator. The zip code was 86301 and the information is for two 60-year-old adults and children ages 20, 18, and 16.
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My Personal Experience with the ACA
In January 2021, my wife and I moved our family to Florida. For the previous 18 months, we had been using temporary continuation of coverage (the analogue to COBRA for federal workers) following my service at the White House. Shortly after arriving, I explored enrolling in an ACA individual market plan. I called several major providers to ask whether they accepted ACA coverage. Most flatly said they did not--several even equated ACA plans with Medicaid, saying their practices did not participate in those narrow networks. Fortunately, the Trump administration had expanded access to short-term, limited-duration plans. The shortterm plan option cost roughly one-third the premium of an ACA plan with a similar deductible and offered a broader network of physicians. With five children, it was an obvious decision for us, and the coverage worked well for our family.
When I launched the Paragon Health Institute, we offered an individual coverage health reimbursement arrangement (ICHRA) so employees could use tax-preferred employer contributions to purchase ACA-compliant plans that met their needs. In fact, in the fall of 2020 I had written a paper for the Galen Institute arguing that the best way to maximize consumer control was precisely this model: employers funding a bronze plan and contributing to an employee's health savings account (HSA).35 That structure allows people to choose their plans while shifting more resources into HSAs--the most effective tool for empowering consumers to be cost-conscious purchasers of care. Beginning in November 2021, my family enrolled in an ACA-compliant individual market plan through Paragon's ICHRA.
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34 Chad Terhune and Anna Gorman, "Insurers Make Billions off Medicaid in California During Obamacare Expansion," Los Angeles Times, November 5, 2017, https://www.latimes.com/business/la-fi-medicaid-insurance-profits-20171101-story.html.
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Since then, I have seen and experienced firsthand the steadily rising premiums, climbing deductibles, and increasingly narrow networks that now characterize the ACA individual market. Like millions of Americans, my family is paying both premiums and deductibles with almost no meaningful return. Even this year, when my daughter broke her arm, nearly all expenses fell below the deductible, leaving us responsible for the full cost. Our current plan's premium is projected to increase to $33,000 next year, paired with a deductible of nearly $14,000. It is extraordinarily unlikely that my family will incur $47,000 in health costs next year--yet that is the financial exposure the ACA imposes. These trends underscore the deep structural flaws of the ACA.
For the first time, Paragon is seriously considering whether we can continue offering an ICHRA, because individual market plans have become so unattractive. Paragon employees do not receive ACA subsidies or COVID credits, as we offer an ICHRA that precludes employee eligibility for ACA subsidies. As of the date of this testimony, we still do not know what we will do about providing employee coverage next year. This is deeply discouraging. My hope was that ICHRAs would help strengthen the individual market by broadening the risk pool and bringing more private dollars into it. We need a vibrant individual market--both to offer options for people without affordable workplace coverage and to support a consumer-driven alternative to the employer system. Instead, ACA-driven premium and deductible inflation is pushing organizations such as mine to reconsider remaining in that market at all. Paragon will continue offering a health plan, but other firms in this position have decided to drop coverage or will drop coverage--a decision that will be easier if the COVID credits are extended.
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Principles for Reforming Federal Health Policy
In reforming federal programs that affect the demand side of the market, policymakers should be guided by five principles:
1. The policy should not increase federal subsidies for health care or insurance beyond the current law baseline. Excessive subsidies are driving the health care unaffordability crisis.
2. The policy should improve incentives. Current government policy incentivizes spending with other people's money and, as a result, drives wasteful spending.
3. The policy should redirect existing subsidies away from insurers to people, so the health care system is more responsive to people and best meets their preferences.
4. The policy should expand coverage options for families and small businesses, not limit choices to those preferred by central planners and insurers looking to restrict competition. We need innovation in health care financing approaches to improve incentives for health care providers to be more efficient.
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35 Brian Blase, "Integrating Health Savings Accounts with New Health Reimbursement Arrangements: Maximizing Employee Health Care Control and Minimizing Employer Burden," Galen Institute, October 15, 2020, https://galen.org/assets/IntegratingHealth-Savings-Accounts-with-the-New-Health-Reimbursement-Arrangement.pdf.
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5. The policy should ensure that Americans are able to use their own money on the health coverage and health care that works best for them.
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Policies to Lower ACA Premiums and Expand Patient Control
Affordability Idea No. 1: CSR Appropriation Fixes a Core ACA Distortion
The ACA contained two subsidy programs--one for premiums and one for out-of-pocket payments. The latter was called the cost-sharing reduction (CSR) subsidy. Exchange enrollees who selected silver plans are entitled to a CSR subsidy that reduces their plan deductibles, copayments, and plan out-of-pocket limits. In effect, the CSR subsidy raised the actuarial value (AV) of plans.36 The CSR subsidy was sent directly from the Treasury to insurers.
The ACA did not include a valid appropriation for the CSR program. A court ruled that the Obama administration made illegal CSR payments to insurers. The Trump administration complied with the courts and stopped the payments. In response, insurers who still had the CSR obligation significantly increased silver plan premiums. This raised the premium subsidy, which is based on the second-lowest-cost silver plan in an area. The termination of CSR payments, and insurers' response of "silver-loading," led to an overall increase in ACA subsidies and caused silver premiums for unsubsidized enrollees to soar.
A CSR appropriation would lower silver premiums by about 12 percent and would lower the overall subsidization of the ACA market--and thus deficits--by tens of billions of dollars.37 Even progressive health policy analysts suggest that a funded CSR program would increase the ACA's efficiency for a given level of subsidization.38 A CSR appropriation is a true policy no-brainer that lowers ACA premiums and federal deficits and aligns the ACA with its original design.
Affordability Idea No. 2: The HSA Option Empowers Patients, Not Insurers
Building off a CSR appropriation, I coauthored a Paragon report in 2022 that proposed a reform to the ACA subsidy structure that we call the HSA Option. Rather than taking their CSR subsidy as insurer-controlled reductions in cost-sharing, eligible enrollees could instead choose to receive that subsidy as a deposit into an HSA. This approach puts money directly in patients' hands and allows them to use the subsidy in the way that best meets their families' needs.
HSAs expand patient control, improve flexibility, and create incentives to seek value in health care. HSA funds can be used for a far broader range of services than a typical health plan covers--dental, vision, mental health, over-the-counter items, and many services obtained outside narrow ACA networks. The funds roll over year after year, easing family cash flow, helping enrollees manage high deductibles, and better preparing households for future health care needs.
Our analysis, using modeling from Milliman, shows that nearly seven in 10 enrollees with incomes below 200 percent of FPL would benefit financially from selecting the HSA Option, gaining roughly $1,500 per year on average. More than three-quarters of those between 200 and 250 percent of FPL would also benefit, with average gains between $500 and $600.
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36 A plan's actuarial value represents the expected percentage of health care expenses covered under the plan that the plan will cover for a typical enrollee.
37 Keith Hall, "Re: Appropriation of Cost-Sharing Reduction Subsidies," Congressional Budget Office, March 19, 2018, https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53664-costsharingreduction.pdf.
38 Matthew Fiedler, "The Case for Replacing 'Silver Loading,'" Brookings Institution, May 20, 2021, https://www.brookings.edu/articles/the-case-for-replacing-silver-loading/.
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Most importantly, the HSA Option shifts power away from insurers and back to patients-- where it belongs--and allows lower-income Americans to choose the form of subsidy that provides them the greatest value.
Affordability Idea No. 3: Make HSAs More Flexible and Accessible
In a paper I coauthored in May 2024, "Follow the Money: How Tax Policy Shapes Health Care," we included numerous additional reforms to expand the usability of HSAs. The paper highlights a major reform proposal to allow greater flexibility in AV requirements for health plans tied to HSAs. Currently, many HSA-eligible plans require very high deductibles and limit pre-deductible coverage, which restricts access for individuals with chronic conditions and reduces choice. By decoupling HSA eligibility from rigid deductible thresholds and linking it to a clear AV standard, policymakers could broaden HSA-qualified plan options and strengthen consumer choice. By permitting HSA-eligible plans that meet appropriate AV benchmarks--even if they deviate somewhat from current designs--consumers gain more control over how they use tax-advantaged dollars.
Affordability Idea No. 4: End the Inflationary Subsidy Structure
The inflationary subsidy structure needs reform as well. A key reform would be to fix the inflationary design of the ACA's premium tax credit by capping the value of the benchmark plan used to calculate subsidies. Today, the federal subsidy is tied to the second-lowest-cost silver plan in each region, and an enrollee's contribution is capped as a percentage of income.
When benchmark premiums rise, federal subsidies rise dollar for dollar--shielding enrollees from costs and rewarding insurers with larger checks from the Treasury. In competitive regions, this problem is smaller, but in areas with limited insurer competition--or in states that impose expensive mandates--the design becomes highly inflationary.
Capping the benchmark at a fixed percentage of the national average premium (we proposed 125 percent of the average premium) would preserve reasonable geographic variation while preventing insurers or states from inflating benchmark premiums to extract larger subsidies.
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Expand Coverage Options
There are ways to increase affordable health coverage without new federal spending. Many policies implemented by the previous Trump administration expanded affordable coverage options for employers and families without new federal spending.
These policies include:
* expanded coverage options through short-term limited duration plans and association health plans (AHPs);
* new flexible financing methods through individual coverage health reimbursement arrangements (ICHRAs)--which built off qualified small employer health reimbursement arrangements (QSEHRAs); and
* price transparency policies intended to improve the functioning and efficiency of health care markets.
Affordability Idea No. 5: Short-Term Health Plans Provide Affordable Alternatives Short-term, limited-duration plans are dramatically more affordable than ACA exchange plans and typically offer far broader provider networks. These plans give families access to real medical choice rather than the narrow-network options that dominate the individual market today. When my family moved to Florida in 2021, we enrolled in a short-term plan, and it was unquestionably a better deal for us--lower premiums, lower deductibles, and far more providers who actually accepted the coverage. For many middle-class families who are ineligible for large ACA subsidies, short-term plans are often the only option that combines affordability with access to a wide network of doctors and hospitals. Short-term plans serve different consumers than ACA plans, and research shows they do not siphon away healthy enrollees and threaten the exchange risk pool.39
Paragon's research shows that expanding access to short-term plans not only benefits consumers directly but also strengthens the overall individual health insurance market.
States that allowed short-term plans without restrictive limits between 2018 and 2023 experienced individual-market enrollment growth more than 13 times greater than states that heavily restricted them. Insurer participation in ACA exchanges also increased far more in these states, and premiums grew more slowly. In other words, the data clearly show that short-term plans do not harm the ACA risk pool. If anything, states with freer short-term plan markets saw better ACA market performance. The evidence demonstrates that permitting affordable alternatives improves consumer welfare without destabilizing the exchange market--and, in many cases, helps it function better.
Affordability Idea No. 6: Let Small Employers Form Association Health Plans
Employers--especially small employers--need additional options to provide affordable coverage to their workers. One such option is to permit employers to band together to offer coverage through AHPs. While AHPs have existed for decades, employers needed to have a close nexus in order to join together and offer coverage. For example, dental practices could form an AHP, but a dental practice and an auto mechanic shop in the same town could not.
In June 2018, the Department of Labor (DOL) finalized a rule creating a new pathway for any employer, including sole proprietors, within a state and or common metropolitan area to join together and offer coverage through an AHP. This rule provided smaller employers a way to gain the regulatory advantages and economies of scale that large employers receive when offering health insurance.
As discussed in a Washington Post piece from early 2019, the AHP expansion had a promising start, with most new AHPs launched by regional chambers of commerce.40 According to the Post, "there are initial signs the plans are offering generous benefits and premiums lower than can be found in the Obamacare marketplaces."41 The Post wrote that an analysis of the new plans showed they offered benefits comparable to most workplace plans and did not discriminate against people with preexisting conditions.42 A study by the Foundation for Government Accountability found that new AHPs produced savings of 29 percent on average.43 One local chamber of commerce that enrolled hundreds of employers was projected to save policyholders more than $2,000 on average.44 CBO projected that these new AHPs would cover as many as 4 million people by 2023, half a million of whom would have been uninsured.45 Unfortunately, a March 2019 decision by a federal judge invalidated this new pathway.46 Although the Department of Justice appealed this decision and the appellate court heard arguments in November 2019, the court granted the Biden administration's motion to pause the appeal while the DOL considers further agency action.
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39 Brian Blase, "Short-Term Health Plans, Long-Term Benefits: States that Allow Short-Term Coverage Have Stronger Health Insurance Markets," Paragon Health Institute, September 2023, https://paragoninstitute.org/private-health/short-term-healthplans-long-term-benefits/.
40 Paulina Firozi, "The Health 202: Association Health Plans Expanded Under Trump Look Promising So Far," Washington Post, January 30, 2019, https://www.washingtonpost.com/news/powerpost/paloma/the-health-202/2019/01/30/the-health-202association-health-plans-expanded-under-trump-look-promising-so-far/5c50ba751b326b29c3778d05/.
41 Firozi, "The Health 202."
42 Firozi, "The Health 202."
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The Biden administration then rescinded the 2018 rule.
Given the litigation challenges, congressional action may be necessary for businesses to benefit from a new AHP pathway. As projected by CBO, these new AHPs would help hundreds of thousands of businesses and millions of employees obtain more affordable health coverage and would reduce the number of uninsured. This increase in health coverage would involve no new federal spending. Congress should consider legislation that builds on the Trump administration's 2018 regulation.
Affordability Idea No. 7: Unleash ICHRAs and QSEHRAs
In June 2019, the Department of Health and Human Services (HHS), DOL, and the Treasury issued a rule creating ICHRAs. Like AHPs, the idea behind ICHRAs should be bipartisan. They work within the ACA's basic framework and could significantly increase individual market enrollment.
As of January 1, 2020, employers have been able to provide tax-preferred contributions through ICHRAs, which their employees can use to purchase the individual market plans that work best for them. Most employers that offer health insurance provide workers with only a single option, so the HRA rule has the potential to significantly increase worker choice and control over their health insurance. Employees are currently limited to purchasing ACAcompliant plans in the individual market, although Congress could permit employees to use their ICHRAs to purchase a broader set of plans.
Assuming there are attractive insurance products to purchase, ICHRAs would help employers attract and retain employees, gain greater predictability over their health costs, and reduce administrative expenses, allowing them to focus more on their core business. The rule should help reverse the decline in the number of small employers that offer coverage to their workers. Moreover, the rule contains significant flexibilities for larger employers to offer coverage to part-time workers or hourly workers.
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43 Hayden Dublois, "Association Health Plans Work: How the Trump Administration Expanded Access to Affordable and Quality Health Care," Foundation for Government Accountability, October 27, 2020, https://thefga.org/wpcontent/uploads/2020/10/AHPsWork-Trump-admin-expanded-access-to-affordable-quality-health-care.pdf.
44 Eugene Scalia, "How the Labor Department Is Defending Your Access to Association Health Plans," Washington Examiner, November 12, 2019, https://www.washingtonexaminer.com/opinion/op-eds/how-the-labor-department-is-defending-your-accessto-association-health-plans.
45 CBO, How CBO and JCT Analyzed Coverage Effects of New Rules for Association Health Plans and Short-Term Plans, January 2019, https://www.cbo.gov/system/files/2019-01/54915-New_Rules_for_AHPs_STPs.pdf.
46 In July 2018, a coalition of 12 Democratic attorneys general filed a lawsuit challenging the final AHP rule for violating the Administrative Procedure Act. The attorneys general argued that the DOL's interpretation of employer was inconsistent with the Employee Retirement Income Security Act (ERISA) and that the rule was intended to undermine the ACA. On March 28, 2019, Judge John D. Bates of the U.S. District Court for the District of Columbia found that the AHP rule was "clearly an end-run around the ACA" and struck down most of the rule. Judge Bates found that allowing any employers within a state or common metro area to join together did not meaningfully limit the types of associations that could qualify to sponsor ERISA plans and that the working owner provision is inconsistent with ERISA's purpose, which is to regulate benefit plans that derive from employment relationships.
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According to estimates provided in the June 2019 rule, 800,000 employers would be offering ICHRAs by now with more than 11 million people receiving individual market coverage with an ICHRA.47 The Departments expected the rule to reduce the number of people without health insurance by about 1 million.48 According to the Department's analysis, "Most of these newly insured individuals are expected to be low- and moderate-income workers in firms that currently do not offer a traditional group health plan."49 Similar to AHPs, the increase in insured people through ICHRAs would involve no new federal spending.
ICHRAs have similarities to QSEHRAs, which Congress enacted on a bipartisan basis in 2016.
QSEHRAs permit employers with no more than 50 full-time employees to reimburse individual market premiums. QSEHRAs have some limitations that do not apply to ICHRAs, such as setting an overall limit on the amount the employer can reimburse as well as a prohibition of creating classes of employees to vary benefit offerings. However, QSEHRAs represent a valuable coverage option for many small businesses and their employees.
Congress could codify the 2019 HRA rule to enhance employers' certainty about the future of defined contribution health insurance. To date, ICHRA uptake has been significantly less than expected, with employers' understandable focus on weathering the pandemic as well as a general risk aversion to changing employee benefits in a tight labor market. The main deterrents to ICHRA uptake are the general unattractiveness of individual market coverage, particularly the high premiums and deductibles, and the expanded ACA subsidies, which crowd out employer coverage.
Affordability Idea No. 8: Expand Price Transparency to Enable Market Discipline In 2019, HHS finalized a rule requiring hospitals to post complete price information starting in 2021. In 2020, HHS with DOL and Treasury finalized a separate rule that requires health insurers and health plans to post complete price information starting this year (2026).
Price information can enable individual consumers as well as employers to be better shoppers of health care. Price information is particularly important in health care because it is a large part of the typical family's budget and because there is significant variation in prices--with prices for the same service often varying by magnitudes, even within the same geographic area.
Although transparency is not the final goal, it is the prerequisite for a functioning market in which patients and employers can reward value rather than blindly pay high, opaque prices.
I analyzed these requirements and their potential impact in a 2019 report.50 Expanded price transparency should result in five benefits.
1. First, price transparency will encourage more consumers to shop and obtain lower prices.
2. Second, price transparency will help employers establish better payment structures.
These payment structures include reference pricing models, in which the plan sets a payment rate regardless of which provider delivers the service, and which have been shown to generate significant savings.
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47 84 Fed. Reg. 28959 (June 20, 2019), https://www.govinfo.gov/content/pkg/FR-2019-06-20/pdf/2019-12571.pdf.
48 Ibid., at 28965
49 Ibid.
50 Brian Blase, "Transparent Prices Will Help Consumers and Employers Reduce Health Spending," Galen Institute, September 27, 2019, https://galen.org/assets/Blase_Transparency_Paper_092719.pdf.
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3. Third, price transparency will better enable employers to monitor the effectiveness of their insurers by comparing different rates received by providers across payers and across regions.
4. Fourth, transparent prices should help employers eliminate counterproductive middlemen and contract with other entities that will incentivize employees to utilize lower-cost providers, including ones outside of their local regions.
5. Fifth, just as sunlight is often the best disinfectant, price transparency will better enable consumers and the broader public to hold providers accountable when prices reach outrageous levels.
The effectiveness of the price transparency efforts to date has been hindered by uneven compliance and enforcement. Congress could consider putting additional penalties on hospital systems and insurers that fail to comply with the requirements.
Affordability Idea No. 9: Expand Availability of Catastrophic Plans
The ACA arbitrarily restricted catastrophic plans--low-premium, high-deductible options designed to protect against major medical expenses--to people under age 30 or those with hardship exemptions, sharply limiting affordable choices for many adults who prefer this type of coverage. Recent federal guidance expanded eligibility beginning in 2026 by allowing people of any age who are ineligible for CSR subsidies to enroll in catastrophic plans. This modest step restores some choice, but Congress should go further and simply make catastrophic plans available to everyone, regardless of age or subsidy status, so individuals and families can choose the coverage that best fits their needs.
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Disappointing Health Benefits from Government Coverage Expansion
While access to affordable health coverage and care are important, it is vital for policymakers to recognize two key facts: First, a large amount of medical spending is wasteful--with some of it even harmful to patients. Second, health insurance expansions, particularly through government programs such as Medicaid, tend to have disappointing results in terms of health improvements.
A significant concern with our high medical spending is that a large share of it--estimated by some researchers to be 25 percent of spending, as mentioned above--does not provide Americans with any benefit.51 In fact, some of that spending may instead harm our overall health. A 2016 study found that medical errors are the third leading cause of death in the United States, and as many as 250,000 people die each year from errors in hospitals and other health care facilities.52 Medical tests and treatments all carry some risk. Those that are unnecessary will result, on balance, in harm to patients.53
The impact of health insurance on health is not as clear or as positive as commonly believed.
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(Continues with Part 2 of 2)
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Original text here: https://www.finance.senate.gov/imo/media/doc/11192025_blase_testimony.pdf
Oxford Pharmaceuticals Chairman Neely Testifies Before Senate Special Committee on Aging
WASHINGTON, Dec. 5 -- The Senate Special Committee on Aging released the following written testimony by Oxford Pharmaceuticals Chairman Tom Neely from a Nov. 19, 2025, hearing entitled "Made in America: Restoring Trust in Our Medicines":* * *
Chairman Scott, Ranking Member Gillibrand, and Members of the Committee:
Thank you for the opportunity to testify on an issue central to our nation's health security: strengthening domestic manufacturing to produce safe, affordable, and dependable medicines.
My name is Tom Neely, and I am the chairman of Oxford Pharmaceuticals, a U.S. manufacturer of ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Special Committee on Aging released the following written testimony by Oxford Pharmaceuticals Chairman Tom Neely from a Nov. 19, 2025, hearing entitled "Made in America: Restoring Trust in Our Medicines": * * * Chairman Scott, Ranking Member Gillibrand, and Members of the Committee: Thank you for the opportunity to testify on an issue central to our nation's health security: strengthening domestic manufacturing to produce safe, affordable, and dependable medicines. My name is Tom Neely, and I am the chairman of Oxford Pharmaceuticals, a U.S. manufacturer ofgeneric oral solid-dose medicines based in Birmingham, Alabama. Our 150,000-square-foot facility--built from the ground up with a total investment exceeding $130 million during an almost 10-year development period--was approved by the FDA in 2019 and is among the most modern generic pharmaceutical production plants in the country.
Oxford produces 13 product families of generic medicines, 10 of which have no other U.S."owned" and operated manufacturer, and three of which are classified as critical medicines.
Our portfolio is focused on chronic disease management, spanning cardiovascular and blood pressure treatments, mental health, and pain management therapeutics. From amlodipine, the fifth-most prescribed drug in America, to trazodone, the 11th-most prescribed therapy, we manufacture high-quality generics on which millions of Americans rely daily.
We founded Oxford on the belief that these medicines can be made in America to the highest standards of quality and accountability. Our team takes pride in the enormous value we deliver to consumers. Unlike many generic manufacturers-in-name-only, including those with significant federal procurement awards, we don't import finished tablets from India and China only to repackage or relabel them. We procure raw materials, weigh, blend, compress, coat, package, and perform quality tests on everything within the four walls of our facility. We perform the full transformation of active pharmaceutical ingredient into finished dosage form that defines end-to-end American manufacturing.
At Oxford, our purpose is simple: ensuring that Americans can trust and afford the medicines they take and proving that we can still make them here at home.
I. A Fragile System Subject to Overseas Dependence
Two decades of offshoring and price compression from imports have gutted American generic pharmaceutical manufacturing. Our domestic peers are a dying breed, leaving Oxford as one of the last remaining U.S. manufacturers of generic pharmaceuticals.
Understanding the pharmaceutical supply chain reveals how deeply foreign governments have penetrated every stage of American medicine production. The process begins with key starting materials, the basic chemical building blocks. These materials are synthesized into active pharmaceutical ingredients, the compounds that provide therapeutic effects.
Manufacturers then transform APIs into finished dosage forms through weighing, blending, compressing, and coating. Wholesalers distribute these finished products to pharmacies, hospitals, and clinics. China dominates the first two stages while India controls much of the third stage but is itself heavily reliant on China for its precursor chemicals. American manufacturers like Oxford operate in stage three but depend heavily on foreign-origin APIs. This nested dependence means a single disruption or chokepoint in China or India cascades through the entire system, potentially leaving American patients without essential medicines.
More than 80 percent of the active pharmaceutical ingredients (API) used in U.S. prescription drugs have no domestic source.1 With China being the sole source for approximately 45 percent of all key starting materials on the global market, Beijing casts a long and dangerous shadow over the pharmaceutical supply chain.2 Meanwhile, India produces about half of the generic finished drugs used in the United States but remains heavily dependent on China for its own active ingredients and starting materials.3 America's foreign dependence is both deliberate and engineered. As a manufacturer that has fought to sustain robust domestic operations, we face competitors backed by entire foreign countries and their industrial policies. Building a pharmaceutical plant in India costs a fraction of what it costs in the U.S. For a low-margin, high-volume business like generics, these advantages are already almost insurmountable. In addition, India has dedicated roughly $4.5 billion in production-linked subsidies for pharmaceutical exports through its national incentive program. It also provides discounted utilities and financing to its companies as well as minimal regulatory overview and barriers.
China offers its own tax rebates, cheap industrial power, and soft loans. In China's "12th Five-Year Plan," the central government allocated CNY 10,000 million (about $1.65 billion) for the Key Drug Innovation Program. Local governments added another CNY 30,000 million (about $4.96 billion).4 These state-backed advantages make it nearly impossible for U.S. producers to compete on price alone.
Every tablet that leaves our factory is undercut by foreign government-subsidized competitors who treat medicine as a strategic export. The current U.S. trade model has distorted and manipulated the market, directly harming U.S. manufacturers like us and ultimately the well-being of American citizens.
U.S. policy opened our market to unlimited, unfettered drug imports from anywhere, letting the chips fall where they may. Other countries then ruthlessly dominated and captured our industry.
The consequences are visible across our country. The number of U.S. plants producing generic drugs has fallen by more than 40 percent since 2013.5 Facilities in states such as Louisiana, New Jersey, and California have closed or gone idle. In Shreveport, Dr. Reddy's Laboratories abandoned its 1980s-build facility, which now stands empty after years of losses.6 That facility once supplied household medicines used by tens of millions of Americans weekly but today is little more than a monument to our policy failures. Its closure shows what happens when we treat medicine as an ordinary consumable. We cannot watch our industry get offshored under the false belief that America has simply been outcompeted.
For Oxford and other U.S. manufacturers, the message is clear: we are on borrowed time.
The current policy threatens our livelihood and existence.
II. Foreign Safety Failures and Double Standards
Unrestricted generic pharmaceutical trade has failed American consumers and patients because of foreign states' determination to own the global means of production and their willingness to subvert safety standards in a race to the bottom. Foreign governments have succeeded in creating an enormous U.S. national security weakness that can be weaponized or leveraged at will.
Our own government has created a widening divide between what it demands of American manufacturers and what it tolerates from foreign suppliers. No country should accept a two-tiered system of drug safety with one standard for domestic producers and another more lax regime for importers. But that's the reality U.S. manufacturers and patients face today.
U.S. plants operate under continuous FDA inspection, strict documentation, and full compliance with Good Manufacturing Practices. These are sound safety measures that we're proud to follow. They guarantee the integrity of our medicines. Every Oxford employee understands that quality isn't optional--it defines who we are. When our team upholds those standards, they're not just satisfying a regulation; they're protecting someone's health.
Our facility was built to exceed FDA requirements, with HEPA-filtered environments, validated cleaning systems, serialized packaging, and duplicated digital and paper-base batch recording safeguards. We welcome inspectors at any time because transparency and safety define our operation.
This commitment becomes unsustainable when not everyone plays by the same rules. Many foreign manufacturing facilities go five years or more without FDA inspection.7 When inspected, advance notice is given in at least 90 percent of cases.8 Recently, the FDA began conducting more surprise inspections of overseas facilities. Still, the FDA's foreign inspection program fails to provide the same level of quality assurance as U.S. products because of funding and staffing realities and the massive volume of foreign-origin KSM, API, and generic drugs.
When oversight is this inconsistent, patient outcomes suffer. Indian-made generic drugs have a 54% higher rate of severe adverse events compared to those made in the United States.9
Recent FDA reports reveal what these safety gaps look like in practice. The lack of consistent oversight lets foreign plants conceal unsafe practices until U.S. inspectors finally arrive. At India-based Intas Pharmaceuticals, for instance, investigators discovered shredded and acid-doused documents in an apparent attempt to hide falsified safety tests and records.10
When FDA inspectors entered an undisclosed Indian facility run by Hetero Labs, they found birds flying through storage areas, lizards crawling over raw ingredients, and cats weaving between pallets.11 Damaged drums with torn labels sat open to the air, and an uninspected truck full of material drove away after staff refused to allow the FDA team access.12 Inspectors had already been denied entry to the facility for two hours while the assistant manager and warehouse staff "had ran out of plain sight upon announcing our intent to inspect the facility."13 Such conditions are unthinkable in any U.S. facility--they would trigger an immediate shutdown. Yet this site still ships medicine into our supply chain.
Hundreds of foreign producers have received FDA Form 483 letters for data falsification, contamination, or document destruction. Foreign-site inspections uncover severe violations more than twice as often as U.S. sites, but penalties remain rare.14 This double standard puts patients at risk by creating uneven regulatory burdens that punish companies like ours that invest heavily in safety, people, and process controls.
At Oxford, quality is a moral obligation. Every batch we make is tested, recorded, and traceable. Our employees know the medicines they manufacture serve their own families and neighbors. Only domestic production ensures this accountability.
Quality isn't cheap, but unsafe imports cost much more in recalls, shortages, and adverse patient outcomes.
III. The Economics of Survival for U.S. Manufacturers
Major U.S. institutional buyers of generic drugs prioritize price over quality or safety.
Generic drug production is a low-margin, high-volume business where price trumps all.
This business reality facilitates capture by state actors who can heavily subsidize their own industries. They know that if subsidies can be maintained for even a relatively short period, domestic U.S. production can be displaced.
But this does not mean that Americans have seen price savings.
For a typical Oxford product, we receive about $1.50 per hundred tablets. Medicare reimbursement for the same quantity averages $13.25. A handful of large intermediaries absorb the difference. Wholesalers, pharmacy benefit managers (PBMs), and group purchasing organizations (GPOs) dominate this space.
Three Group Purchasing Organizations--Vizient, Premier, and HealthTrust--control about 90 percent of hospital generic contracting,15 while three PBM-aligned distributors handle roughly 90 percent of retail generic purchases,16 giving a handful of intermediaries neartotal market power.
These middlemen now capture at least $64 of every $100 spent on generic drugs.17 Rather than passing savings from importing cheap drugs on to patients, these intermediaries use their market power to extract profits from both ends--forcing U.S. manufacturers to sell at ever-lower prices while inflating downstream markups to preserve their own margins. They pit domestic producers directly against imports, leveraging subsidized foreign bids to drive U.S. firms into unsustainable pricing. The result is a race to the bottom, in which production shifts to the lowest-cost, least-regulated source regardless of safety or reliability.
India and China's drug pricing playbook is elegantly simple, if devious. It begins with highly subsidized foreign manufacturers flooding the U.S. market with cheap drugs, allowing middlemen to leverage those low prices to force price concessions from U.S. producers. Of course, once U.S. producers are edged out of the market, foreign suppliers raise prices.
For small and midsize U.S. producers, this system is economically impossible to survive.
When subsidized foreign competitors undercut prices through government subsidization and shortcuts on quality, U.S. facilities close--and once that happens, domestic capacity and technical expertise disappear.
Oxford currently operates at 55-60% production capacity because import-dominated market conditions dominate the landscape. But with the right policy support and a relatively modest $17 million investment, we could quadruple output to 750 million doses per month and double employment. That production capability already exists within our facility. The missing piece is a stable home-market environment that values security and quality over the imagined benefits of global free trade and the short-term arbitrage of middlemen.
IV. Rebuilding U.S. Capacity: What the Industry Needs to Expand Production and Secure the Supply Chain
The collapse of America's generic pharmaceutical manufacturing base didn't happen overnight, and rebuilding will take some years. But we can and must start--and we must start now. Every month of delay means another factory closure, another skilled team lost, and deeper dependence on inferior imports.
For decades, federal policy on drug imports has been simple: keep the borders open and hope cheap imports don't destroy domestic capacity. That hasn't worked. For certain agricultural commodities like sugar and peanuts, U.S. policy has always favored a "managed trade" approach in which import volumes--actual outcomes--are capped through quotas. The U.S. generic pharmaceutical supply chain should be at least as secure as the U.S. peanut butter supply chain.
Oxford sees four immediate steps that Congress can take to rebuild capacity and restore a reliable supply of American-made medicine.
1. Affirm Generic Pharmaceuticals as a National Security Industry Under Section 232
We strongly support the Department of Commerce's Section 232 investigation into imports of generic pharmaceuticals and pharmaceutical ingredients. From our perspective on the ground, it is clear that imports of generic drugs are impairing U.S. national security.
The stakes are staggering. More than 133 million Americans, roughly 40 percent of the U.S. population, live with at least one chronic disease requiring daily medication.
Cardiovascular disease alone affects 127 million adults who depend on blood pressure and cholesterol medications. Another 38 million Americans manage diabetes with daily therapies. Mental health conditions requiring pharmaceutical treatment affect 57 million adults. If China or India restricted access to key starting materials, APIs, or finished dose generics, these Americans would face immediate treatment interruptions. Patients managing hypertension would risk stroke. Diabetics would face dangerous blood sugar swings. Heart disease patients could suffer cardiac events. Americans battling depression or anxiety would lose access to stabilizing therapies. The human cost would be catastrophic, measured not in dollars but in preventable deaths and suffering.
Once the Department of Commerce has made this finding, the President is delegated broad authority to adjust imports.
Simply deploying a sweeping ad valorem tariff of 25, 50, or even 100 percent will not work.
That's because most of the markup on generic drugs is in domestic distribution, intermediary margins, and retail. If the declared import value of a particular product is half a penny, a 100 percent tariff that adds another half a penny to the cost of a dose will not be sufficient for sourcing decisions. Foreign suppliers can easily absorb these kinds of changes.
Instead, we believe a quota system can simultaneously rebuild our domestic supply chain, one drug and API at a time, without disrupting domestic availability or inflating consumer prices.
Rather than across-the-board ad valorem tariffs, we propose "specific tariffs" applied against the actual measured export volume that shows up on a ship, not whatever price the importer claims they paid overseas.
Policymakers should pair these specific tariffs with a finite import quota limited to licensed importers and regularly adjust that based on forecasted domestic consumption and production at home and in import-concession countries. We guarantee market space for domestic producers and allow limited imports only for what's beyond current capacity.
Our business collaborated with the Coalition for a Prosperous America to sketch out how such a system could work, with real-world drug examples: See "To Restore Generic Drugs, Use Sugar's Sweet Model", October 22, 2025, available at https://prosperousamerica.org/toreshore-generic-drugs-use-sugars-sweet-model.
Our proposed quota system will not increase costs for U.S. patients or Medicare reimbursement expenses. Historically, changes in production costs have been absorbed by market intermediaries--wholesalers, pharmacy benefit managers (PBMs), and group purchasing organizations (GPOs)--who capture roughly 64 percent of the final drug cost.18 When these middlemen began sourcing cheaper imported drugs, production costs fell, yet patient prices and Medicare reimbursement amounts did not. The same logic applies in reverse: restricting imports will not raise prices--it will simply redirect profits away from intermediaries and toward sustainable domestic production. Under this proposal the Medicare reimbursement would remain flat.
Any price correction from a quota system would amount to pennies per dose, but it would finally allow U.S. manufacturers to compete in their own market on a sustainable footing and would encourage a wave of onshoring to meet national security objectives. It is essential that both finished generic drugs and active pharmaceutical ingredients (APIs) be included in the scope of the quota system, with product-specific quotas adjusted as domestic capacity ramps up for that product. A petitioning system modeled on the U.S. International Trade Commission's Miscellaneous Tariff Bill System, or more recently the U.S. Department of Commerce's Inclusion Rounds in the steel and aluminum Section 232 actions, would perfectly suit the proposed product-by-product reshoring. These systems give U.S. producers official, regular input in determining which products are covered and what tariff rates apply.
2. Reform Federal Procurement to Reward Quality and U.S. Production
U.S. manufacturers need a CHIPS-style approach to medicine production--one that treats generic pharmaceuticals as a strategic industry rather than a disposable commodity.
Federal purchasing power through the Department of Veterans Affairs, the Department of Defense, and Medicare can serve as a cornerstone of market stability and a strong signal for investment in domestic capacity.
The Department of Health and Human Services (including Medicare and Medicaid programs, plus BARDA and ASPR), the Department of Veterans Affairs, and the Pentagon collectively account for roughly 45 percent of all U.S. prescription-drug expenditures, giving the federal government unparalleled leverage over pricing and supply stability.19,20,21 That leverage should be used not just to help seniors and low-income Americans, but to reward and rebuild reliability, resilience, and safety through domestic manufacturing.
Long-term federal contracts for essential generics and active pharmaceutical ingredients can anchor demand for U.S. plants--ensuring steady production, higher quality, and preventing shortages driven by today's concentrated import reliance. Tools like the Strategic National Stockpile and the Defense Production Act can further help sustain a baseline of domestic essential medicine manufacturing. The cost of these reforms would be minimal--pennies per dose--but the benefits would be enormous: secure supply chains, consistent quality, and thousands of well-paying American jobs.
Domestic medicine production strengthens supply-chain reliability and upholds rigorous quality standards. That stability benefits both patients and manufacturers alike. The federal government can provide the demand signals we need to compete and scale.
3. Reshore and Vertically Integrate API Production
Every manufacturer knows that a supply chain is only as strong as its weakest link. For pharmaceuticals, that link is the active pharmaceutical ingredient. We cannot rebuild our pharmaceutical base without rebuilding ingredient production.
At Oxford, we currently import most of our APIs because virtually no U.S. suppliers remain. But we have both the land and the engineering capability to build a dedicated API plant on our Birmingham site. With predictable demand and the right policy support, companies like ours can bring API manufacturing back to U.S. soil.
Policies such as production and investment tax credits under the proposed PILLS Act would directly reduce the cost gap that has driven API and finished drug production overseas and jumpstart new U.S. capacity. A 35 percent production tax credit on U.S.-made ingredients, paired with a 25 percent investment tax credit for new or modernized facilities, would make domestic manufacturing economically viable again. Combined with long-term federal procurement contracts that provide a stable demand signal and a Section 232 framework that limits unfairly subsidized imports, these measures would give American firms the certainty needed to invest.
Building that capacity would mean traceability, quality, and reliability from molecule to medicine. It would make our supply chain safe and resilient against disruptions, whether from politics, pandemics, or natural disasters.
4. Restoring Geographic Transparency and Safety in the Medicine Supply Chain
Patients deserve to know where their medicines come from. Country-of-origin labeling should be required for both active pharmaceutical ingredients (APIs) and finished dosage forms. This simple step would introduce transparency, empower hospitals, federal procurers, and other buyers to choose safer sources, and reward companies that uphold the highest standards.
Even the FDA and the Department of Defense struggle to determine where the ingredients in essential medicines are originate.22 Roughly 22 percent of active pharmaceutical ingredients for the military's essential drugs lack a verifiable source country.23 This lack of visibility leaves federal buyers, hospitals, and pharmacies alike blind to risk, making it impossible to track vulnerabilities before they cause shortages or safety failures.
Congress should require full supply-chain disclosure:
* Country of origin listed on all drug labels for both API and real manufacturing drug labels.
* Public FDA database linking each finished product to its manufacturing and API sites.
* Mandatory reporting of production changes, site closures, and inspection outcomes.
Moreover, to secure a safe medicine supply, additional FDA reforms are essential-- including unannounced foreign inspections and tougher enforcement when violations occur, such as import bans. By closing the loopholes that let unsafe suppliers hide behind opaque distribution chains, we can protect American patients from risks that are too often discovered only after the medicine has been taken.
Ultimately, this reform is about restoring trust. Patients and hospitals should know whether their medicines were produced under U.S., European, or other trusted regulatory systems--or in a high-risk plant overseas that has not been inspected for years.
Transparency empowers accountability. It ensures that safety, reliability, and quality once again guide the U.S. medicine supply chain.
V. The Human Cost of Inaction
This issue affects American citizens every day. With the shuttering of the Shreveport facility, we lost more than a building. We lost skilled workers: chemists, operators, technicians who spent decades producing lifesaving medicines, only to see their plant close because they could no longer compete with subsidized imports.
Across the country, former pharmaceutical production-linked communities in New Jersey, Pennsylvania, Louisiana, and beyond are now home to idle or demolished facilities. These plants once supported thousands of good-paying, middle-class jobs and sustained local economies. The economic damage is long-lasting, and rebuilding those capabilities takes years. If we lose the remaining domestic producers, we lose not only capacity but an entire generation of expertise. At some time in the future our national security may require this workforce.
VI. Why This Matters for Seniors and Patients
The Committee on Aging is right to make this a priority. America's seniors are the largest users of generic medicine and the most at risk when shortages occur.24 Generic medicines serve as the foundation of treatment for roughly 90 percent of Americans taking prescription drugs. More than 270 million people in this country filled at least one prescription last year, and the vast majority of those prescriptions were generics.
When a foreign plant halts shipments or fails inspection, it's seniors who face delays, rationing, or sub-optimal treatment.25 Hospitals scramble to stretch limited supply, pharmacists search for less-than-ideal substitutes, and patients face higher costs and worse care.26 27 For vulnerable and elderly patients, drug shortages can be life-threatening. Delays or interruptions in treatment can worsen health outcomes and significantly increase the risk of serious illness or death.28
These crises result from a global race to the bottom, where foreign manufacturers cut corners and American producers are close amid unsustainable pricing. The real cost of cheap imports is an unstable drug supply that puts patients at risk.
The cost of rebuilding U.S. capacity is small compared to the cost of dependence. For Oxford's products, the difference between a sustainable domestic price and a foreign import price is often less than one cent per tablet. In return, Americans would gain a reliable supply, verified safety, and high-quality domestic manufacturing jobs.
VII. Oxford's Commitment and Readiness
Oxford stands ready to do its part. We have the workforce, the technology, and the physical capacity to expand immediately. With capital support and stable demand, we could:
* Quadruple monthly output from 180 million to 750 million doses.
* Employ 200+ people in skilled pharmaceutical manufacturing roles.
* Build an on-site API facility to vertically integrate our supply chain domestically and reduce foreign reliance.
Our experience proves that making medicines in America is possible. What's needed now is a framework that rewards companies for doing the right thing and allows the domestic industry to expand nationwide--producing safe, consistent, high-quality products under U.S. oversight.
VIII. Securing America's Medicines: The Path Forward
Rebuilding trust in our medicines starts with rebuilding the ability to make them.
Congress has recognized that industries like semiconductors, aluminum, rare earth minerals, and batteries represent national strategic assets. Generic pharmaceuticals deserve the same recognition. If we lose control of medicine production, we lose control of public health itself.
This is an issue we must confront--and we must begin now. The industry stands at a crossroads between continued collapse and lasting renewal. Rebuilding capacity becomes more challenging and costlier every year we delay.
Oxford urges Congress to:
1. Affirm generic domestic pharmaceutical manufacturing as a national security priority under Section 232.
2. Create procurement incentives and long-term contracts for U.S.-made medicines.
3. Support investment in domestic API production and vertical integration.
4. Require U.S.-level safety standards for all imported drugs and full transparency so patients and hospitals know where their medicines come from.
Protecting America's seniors means protecting America's medicine supply. At Oxford, we have the skill, the knowledge, and the determination to help rebuild our nation's generic pharmaceutical supply chain. What we need now is the will of the federal government to act.
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References:
1 Olin Business School, Washington University in St. Louis. (2021, August). U.S. Health Security at Risk Because of Medicine Manufacturing Limits. https://olin.washu.edu/about/news-andmedia/news/2021/08/study-us-health-security-at-risk-because-of-medicine-manufacturing-limits.php
2 Council on Strategic Risks. (2024). The National Security Rationale for Stockpiling Key Pharmaceutical Ingredients https://councilonstrategicrisks.org/2024/03/05/the-national-securityrationale-for-stockpiling-key-pharmaceutical-ingredients
3 Exiger. (2020). A Bitter Pill: America's Dependence on China-Made Pharmaceuticals. https://www.exiger.com/perspectives/a-bitter-pill-america-dependence-on-china-madepharmaceuticals/
4 Huang, M., et al. (2014). Key Drug Innovation Program in China: A Review of Policy and Outcomes. Health Research Policy and Systems, 12(27). https://health-policy-systems.biomedcentral.com/articles/10.1186/1478-4505-12-27
5 Stolberg, S. G. (2025, November 4). Trump's New Plan for Generic Drug Manufacturing Draws Mixed Reactions. The New York Times. https://www.nytimes.com/2025/11/04/health/generic-drugmanufacturing-trump.html
6 Ibid.
7 U.S. Government Accountability Office. (2024). FDA: Foreign Drug Manufacturing Inspections -- Challenges Persist (GAO-24-107359). https://www.gao.gov/products/gao-24-107359
8 White & Case LLP. (2025). FDA Foreign Inspections: Key Developments and Strategic Shifts. https://www.whitecase.com/insight-alert/fda-foreign-inspections-key-developments-and-strategicshifts
9 Kelley School of Business, Indiana University. (2025, February 19). All Generic Drugs Are Not Equal: Study Finds Generics Made in India Have More Severe Adverse Events. https://blog.kelley.iu.edu/2025/02/19/all-generic-drugs-are-not-equal-study-finds-generics-made-inindia-have-more-severe-adverse-events/
10 U.S. Food and Drug Administration. (2023). Inspection Report: Intas Pharmaceuticals Limited. https://www.fda.gov/media/164602/download
11 FiercePharma. (2024, October 3). Finding Birds, Lizards, and Cats -- FDA Says "Oh My!" in Scathing Hetero Form 483. https://www.fiercepharma.com/manufacturing/finding-birds-lizards-andcats-fda-says-oh-my-hetero-scathing-form-483
12 Ibid.
13 Ibid.
14 White & Case LLP. (2025). FDA Foreign Inspections: Key Developments and Strategic Shifts. Ibid. https://www.whitecase.com/insight-alert/fda-foreign-inspections-key-developments-and-strategicshifts
15 Association for Accessible Medicines. (2023, June 22). White Paper on Drug Shortages. https://accessiblemeds.org/wp-content/uploads/2024/11/AAM_White_Paper_on_Drug_Shortages-0622-2023.pdf
16 Ibid.
17 USC Schaeffer Center for Health Policy & Economics. (2017). The Flow of Money Through the Pharmaceutical Distribution System. https://schaeffer.usc.edu/research/flow-of-money-through-thepharmaceutical-distribution-system/
18 Ibid.
19 U.S. Department of Health and Human Services, Office of Inspector General. (2024). Drug Spending in Federal Programs. https://oig.hhs.gov/reports/featured/drug-spending/
20 U.S. Government Accountability Office. (2025). Prescription Drugs: Federal Spending and Oversight Gaps (GAO-25-107187). https://www.gao.gov/assets/gao-25-107187.pdf
21 U.S. Government Accountability Office. (2021). Prescription Drugs: Federal Purchasing and Contracting Trends (GAO-21-111). https://www.gao.gov/assets/gao-21-111.pdf
22 U.S. Government Accountability Office. (2020). Drug Supply Chain Security and FDA Oversight Gaps (GAO-20-718363). https://www.gao.gov/assets/720/718363.pdf
23 U.S. Senate. (2023). FY23 National Defense Authorization Act Section 860: Risk Management for DoD Pharmaceuticals. https://www.warren.senate.gov/imo/media/doc/FY23%20NDAA%20sec%20860%20Risk%20managem ent%20for%20DoD%20Pharmceuticals1.pdf
24 Association for Accessible Medicines. (2024, January). 2024 U.S. Generic and Biosimilar Medicines Savings Report. https://accessiblemeds.org/wp-content/uploads/2025/01/AAM-2024-GenericBiosimilar-Medicines-Savings-Report.pdf
25 Rowland, C. (2023, June 27). Cancer Drug Shortage Highlights Fragile Generics Supply Chain. The Washington Post. https://www.washingtonpost.com/business/2023/06/27/cancer-drug-shortagegenerics/
26 Owens, C. (2023, March 21). Drug Shortages Upend Cancer Treatments Across U.S. Axios. https://www.axios.com/2023/03/21/drug-shortages-upend-cancer-treatments
27 Johns Hopkins Bloomberg School of Public Health. (2023). Drug Shortages Are Affecting Cancer Treatments. https://publichealth.jhu.edu/2023/drug-shortages-are-affecting-cancer-treatments 28 National Center for Biotechnology Information. (2023). Drug Shortages and Their Impact on Patient Care. https://www.ncbi.nlm.nih.gov/books/NBK608930/
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Original text here: https://www.aging.senate.gov/imo/media/doc/54f2de22-d91a-d0f2-e680-172077039edd/Testimony_Neely%2011.19.25.pdf
German Marshall Fund Managing Director Glaser Testifies Before Senate Foreign Relations Committee
WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Bonnie S. Glaser, managing director of the Indo-Pacific Program at the German Marshall Fund of the U.S., from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation":* * *
Chairman Risch, Ranking Member Shaheen, distinguished members of the Committee, thank you very much for the opportunity to testify at today's hearing. The Taiwan Enhanced Resilience Act (TERA) was ground-breaking legislation and it is ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Bonnie S. Glaser, managing director of the Indo-Pacific Program at the German Marshall Fund of the U.S., from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation": * * * Chairman Risch, Ranking Member Shaheen, distinguished members of the Committee, thank you very much for the opportunity to testify at today's hearing. The Taiwan Enhanced Resilience Act (TERA) was ground-breaking legislation and it istimely and essential to review its implementation.
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Why Taiwan Matters to the United States
Public support in the United States for defending Taiwan has become stronger in recent years. A just-released Chicago Council survey found that 47% of Americans now support using the US Navy to break a blockade by the People's Republic of China (PRC) against the island (47% oppose), up 10 points from 2024. Support for sending US troops to Taiwan to help stop a PRC invasion is up 8 points over last year, from 35% to 43%, although 51% remain opposed. Positive views of Taiwan are bipartisan, with Democrats and Independents giving Taiwan an average favorability rating of 59 on a zero to 100 scale, and Republicans providing an average of 54.
And yet, many Americans admit to knowing little about Taiwan. A 2022 Morning Consult poll found that only 34% of respondents could correctly identify Taiwan's location on a map. Americans also remain uncertain about whether the United States should help protect Taiwan if attacked. In a 2023 survey conducted by The Economist and YouGov, a plurality (41%) said that they did not know enough to answer a question about whether the US military should defend Taiwan. (37% said that the United States should help protect Taiwan with military force, while 22% were opposed).
It is crucial that Americans have a deeper appreciation of why Taiwan is important to the United States. Robust public support for Taiwan can contribute to the important task of strengthening deterrence and help make possible US intervention if deterrence fails. In my view, Taiwan's significance to the United States and the free world is threefold: First, as George W. Bush stated during his presidency, Taiwan is a "beacon of democracy to Asia and the world." Taiwan's peaceful transformation from authoritarianism to a vibrant democracy is one of the 20th century's most impressive success stories. Taiwan serves as a powerful alternative to the Chinese Communist Party (CCP)-led party-state political system. The ability of Taiwan's democracy to produce effective policies that deliver positive outcomes for its citizens presents a potent example to the PRC and the rest of the world about the resilience of democratic values and practices.
Second, Taiwan is one of the world's leading producers of advanced information and communications technologies (ICT), including semiconductors. Taiwan manufactures over 60% of the world's total output of all semiconductors and more than 90% of the most advanced chips, which are essential for virtually all electronic devices including computers, cars, smartphones and military equipment. This dominance is largely due to Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer of legacy and cutting-edge semiconductors.
A disruption in Taiwan's chip production would severely impact the US and global economy. According to Bloomberg Economics, a war in the Taiwan Strait could reduce global GDP by approximately 10% or $10 trillion. Beyond its important role in ICT supply chains, Taiwan makes key contributions to the world in many other fields, such as global health, science and technology and cyber security. Taiwan is also a leading market for US agricultural and machinery exports. In 2024 it was the United States' seventh largest trading partner; bilateral trade totaled $158.8 billion that year.
Third, American support for Taiwan's security has become closely linked to US credibility among its allies. Failure to support Taiwan in the face of PRC coercion and aggression could prompt allies to doubt the reliability of US defense commitments to them. This is especially true for the Japanese, who worry that PRC occupation of Taiwan would put Tokyo's sea lanes at risk and hinder Japan's Self-Defense Forces from defending the country's southwest islands. Taiwan is located about 70 miles from Yonaguni Island, the westernmost inhabited island. Japanese Prime Minister Sanae Takaichi recently stated that potential PRC military action against Taiwan would likely constitute a "survival-threatening situation" for her country. A significant decline in US credibility could result in Japan's and South Korea's acquiring nuclear weapons and eventually the unravelling of a regional alliance system that has helped to preserve the Pacific Ocean as a barrier against threats to the US homeland.
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PRC Threats to Taiwan Are Increasing
Since the late 1990s, the PRC's People's Liberation Army (PLA) has been focused on developing a range of capabilities to coerce or seize control of Taiwan. These capabilities include amphibious assault; precision strikes; air and sea superiority; joint, multi-domain operations; and anti-access/area denial designed to deter US intervention. PRC leader Xi Jinping has instructed the PLA to acquire sufficient capability to take Taiwan by force by 2027. Numerous large-scale military drills over the past few years have simulated blockades and missile strikes on Taiwan, prompting Commander of United States US IndoPacific Command Samuel Paparo to describe them as rehearsals for a Taiwan invasion.
Although the risks of a full-scale PRC invasion or blockade are present, such scenarios are neither imminent nor inevitable. Xi must weigh the potential political gains from taking Taiwan by force against immense economic, military, social and geopolitical risks, making any major military action against Taiwan a high-stakes gamble. Beijing's preferred strategy is to coerce Taiwan to agree to unification without resorting to overt, kinetic warfare. The PRC seeks to achieve its goal by using gray zone tactics and psychological pressure to induce despair among Taiwan's people, erode their confidence in continued US support for Taiwan's security, and make unification appear as the best choice.
The PRC's strategy against Taiwan involves a multifaceted approach using military, paramilitary and civilian assets; economic pressure; information manipulation; legal, psychological and cyber warfare; and diplomatic isolation in ways that remain below the threshold of war.5 Richard Bush, a leading scholar on Taiwan, has dubbed this strategy "coercion without violence."
Since the August 2022 visit to Taiwan by former House Speaker Nancy Pelosi, the PRC has erased the median line in the Taiwan Strait and normalized the presence of PLA military assets, coast guard vessels and other PRC government boats around Taiwan and its outlying islands. PLA Navy ships operate close to and sometimes inside Taiwan's 24nm contiguous zone to intimidate Taiwan and to assert PRC claims over the island. Chinese Coast Guard (CCG) vessels regularly breach Taiwan's "restricted" and "prohibited" waters around the Kinmen and Pratas Islands in a show of PRC "law enforcement" aimed at eroding Taiwan's control over the waters under its jurisdiction and desensitizing Taiwan and the international community to such behavior.
State-backed maritime militia boats are conducting operations around Taiwan, blurring the lines between civilian and military activity by using civilian-disguised vessels for information collection and intimidation. They act as a low-cost and low-risk force multiplier for the PLA, supplementing the military with eyes and ears in the vast contested waters.
Their activities include intelligence gathering, reconnaissance missions, tracking the movements of Taiwan's coast guard, testing Taiwan's response times and readiness, and probing Taiwan's vulnerabilities. Maritime militia boats and large PRC fishing fleets also engage in swarming activity, sometimes around the median line, complicating Taiwan's law enforcement response.
State-owned PRC entities have placed oil and gas drilling platforms and associated vessels inside Taiwan's Exclusive Economic Zone (EEZ) without Taiwan's approval, challenging Taipei's ability to protect its economic resources.
The PRC is employing legal warfare against Taiwan by enacting domestic laws to create a veneer of legitimacy for asserting control over Taiwan-claimed waters and normalizing a continuous military and law enforcement presence around Taiwan. In 2021, for example, the PRC passed a Coast Guard Law that grants its maritime forces sweeping authority to regulate, control, and use force against foreign vessels in waters it claims as its own. The law permits the coast guard to use "all necessary means," including force, to implement its regulations. This provides a potential legal justification for aggressive actions such as establishing exclusion zones, quarantines, or blockades.
Beijing is also employing legal warfare in its efforts to isolate Taiwan diplomatically. By distorting UN General Assembly Resolution 2758, which transferred the "seat" in that body and in the Security Council from the Republic of China to the PRC and did not address Taiwan's sovereignty, Beijing is seeking to persuade the world that Taiwan's status as a part of China is a settled matter in international law and is binding on all nations. Beijing is using Resolution 2758 to prevent countries from pursuing their "One China" policies and instead compel them to accept its "One China Principle." Denying Taiwan a voice at the UN and in its affiliated agencies is a high PRC priority, as is persuading Taiwan's remaining 12 diplomatic allies to switch allegiance to Beijing.
Information manipulation and disinformation are a key part of the PRC's toolbox aimed at undermining public faith in Taiwan's democratic institutions and media and promoting positive views of the CCP and its model of governance. The PRC uses misinformation campaigns, sometimes with AI-generated content, to promote pro-China narratives and exacerbate internal divisions within Taiwan, and to influence election outcomes. Ahead of Taiwan's 2024 election, AI-generated disinformation, including deepfakes and synthetic narratives, surfaced. One example is a 2023 video of then-Vice President Lai Ching-te allegedly paying people $800 to attend his welcome party while transiting the United States. During the 2024 presidential campaign, another deepfake video showed Lai throwing his support to a combined Kuomintang-Taiwan People's Party (KMT-TPP) presidential ticket.
Subsea cables around Taiwan have reportedly been damaged at least 36 times between 2019 and 2023, with 12 of those occurring in 2023 alone. Proving intentional sabotage is challenging, but there is strong circumstantial evidence that PRC ships were involved in many of these incidents. Taiwan has detected a pattern of damage that coincides with the presence of PRC-linked vessels. By demonstrating the capacity to disrupt Taiwan's internet connectivity and global communications, Beijing seeks to demoralize Taiwan's population and prepare for potential conflict.
The PRC also uses economic pressure against Taiwan with the short-term goal of weakening domestic support in Taiwan for the ruling Democratic Progressive Party (DPP) and the long-term goal of compelling unification by creating economic interdependence.
Beijing's coercive economic tactics include efforts to exclude Taiwan from international trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, restrict PRC tour groups to Taiwan, levy selective bans and restrictions on imported goods from Taiwan, pursue arbitrary regulatory enforcement against select companies considered backers of Taiwan independence, and impose targeted sanctions on individuals and organizations. Beijing combines its economic coercion measures with economic enticements to select Taiwanese companies. These enticements include granting preferential market access, promoting investment in specific sectors, and offering incentives to individuals from Taiwan to work or start businesses in the PRC.
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Perceptions in the PRC of US Policy Toward Taiwan
The PRC is closely following developments in US policy toward Taiwan. In general, experts and officials view President Donald Trump as prioritizing relations with Beijing over Taipei and exercising caution in his policy toward Taiwan so as not to undermine prospects for reaching deals with Beijing. PRC scholars observe that there are numerous areas in which the United States has reduced support for Taiwan. Below are some observations and perceptions of PRC experts and officials that I have gleaned from private conversations and published articles by PRC scholars.
* Trump has emphasized interests over values in the US relationship with Taiwan and has rarely criticized PLA activity against Taiwan. He has compared the United States to an insurance company," saying that Taiwan should pay Washington for its protection.
* Whereas President Joe Biden repeatedly declared that he would defend Taiwan militarily, Trump has maintained strategic ambiguity about American action if Taiwan is attacked. Trump has demanded that Taiwan increase its defense budget to 10% of its GDP.
* US arms sales to Taiwan in Trump's first term in office reached a record $18.33 billion, but so far in his second term there has only been one notification to Congress of a potential arms sale for $330 million. The announcement of that package was delayed until after Trump's meeting with Xi on the margins of APEC.
* "Internationalization of Taiwan" was a key policy of the Biden administration but is now being accorded lower priority. The United States no longer coordinates closely with its allies on Taiwan-related issues. This will provide opportunities for Beijing to consolidate international support for its "One China Principle."
* During the Biden administration, the US Agency for International Development (USAID) helped Taiwan maintain its network of diplomatic allies through financial grants and regional cooperation activities focused on economic development. The shuttering of USAID by the second Trump administration has hampered Taiwan's ability to preserve support from its remaining allies and will further restrict Taiwan's ability to participate in international organizations.
* US concerns about Taiwan President Lai Ching-te's pro-independence leanings and Taipei's worries that Trump will use Taiwan as a bargaining chip in negotiations with Xi have increased distrust in US-Taiwan relations.
* Fewer Taiwan-related legislative actions have been taken in the 119th US Congress so far compared to the prior two Congresses. There were 196 Taiwan-related legislative proposals (including bills, amendments, and resolutions) in the 117th Congress and 191 in the 118th Congress, while there have only been 30 Taiwanrelated legislative actions since Trump's second term began.
* Fewer Congressional delegations have visited Taiwan in 2025 than in recent years.
Visits that have occurred have focused on trade and economic issues rather than political and security issues. There have been four visits to Taiwan by US lawmakers so far in 2025.
The PRC's deterrence calculus is shaped heavily by its assessment of Washington's support for Taiwan and its willingness to intervene to defend it. If it concludes that US support for Taiwan is waning, Beijing is likely to adopt a more coercive, risk-tolerant strategy across political, military, and gray-zone domains. The PRC would use all possible means to press Taiwan to negotiate terms of unification, which would undeniably be unfavorable to the Taiwan people.
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Growing "US Skepticism" in Taiwan
The Taiwan public's historically favorable view of the United States is declining, and doubts about American dependability to defend Taiwan if attacked is growing. There are several causes of the "US skepticism" (yimei lun) trend in Taiwan. One factor is PRC information operations that persistently aim to undermine Taiwan's confidence in the United States by amplifying narratives that Washington is unreliable and ultimately unwilling to defend Taiwan in a crisis. Beijing's state media, proxy influencers, social-media networks, and covert online assets push storylines suggesting the United States will "abandon Taiwan" to avoid war with the PRC, that Washington treats Taiwan as a bargaining chip in great-power negotiations, and that US arms sales are meant primarily to profit the American defense industry rather than ensure Taiwan's security.
A second reason for waning confidence in the United States is the limited American response to Russia's full-scale invasion of Ukraine in 2022 which sparked worries among the Taiwan people about counting on US support if the PRC attacked them. A third driver of Taiwan's misgivings about Washington's recent policy decisions regarding Taiwan. Although not an exhaustive list, these include:
* the initial "reciprocal tariff" rate of 32% for Taiwan's products, which was subsequently provisionally lowered to 20%, but remains higher than the 15% imposed on goods from US allies Japan and South Korea
* pressure on TSMC to expand facilities to the United States, which is perceived as endangering Taiwan's strategic importance by damaging its "silicon shield"
* a decline in visible signs of support for Taiwan such as visits by US officials, senior Members of Congress, and arms sales to Taiwan
* the US decision in July to reject Taipei's request for Lai Ching-te to transit through New York en route to South America
* the recent spate of articles published by US scholars advocating that Washington rule out direct American military intervention in defense of Taiwan.
Multiple public opinion polls confirm the Taiwan public's growing negativity toward and distrust of the United States. Correspondingly, confidence in American support in the event of a Taiwan Strait conflict has also dropped.
A March 2025 survey by Academia Sinica, Taiwan's top research institution, found that 59.6% of respondents do not consider the United States to be trustworthy, a near percentage point increase from the previous year. In addition, more than 40% of respondents said they believe that the United States is unlikely to intervene or definitely will not intervene if war breaks out in the Taiwan Strait. A poll released on June 3 by the KMT-affiliated Democratic Education and Culture Foundation showed that 66.2% of respondents believed that Trump would "sell out" Taiwan for US interests and 67% of respondents believed that the United States would use Taiwan as a bargaining chip in its confrontation with the PRC.
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In a more recent October 2025 Taiwanese Public Opinion Foundation poll, 44.8% said they do not believe Trump is willing to prevent a PRC military invasion of Taiwan, while 34.3% believe he is. Interestingly, 45.3% of respondents said they believe Trump could prevent an invasion (versus 42% who believe Trump could not), which suggests that the Taiwan public has greater confidence in the capability of the United States to protect Taiwan, yet they are skeptical about Washington's willingness to defend them./17
Growing doubts in Taiwan about US commitment to the island's security and willingness to defend it if attacked could result in despair about Taiwan's future, providing the PRC with an opportunity to advance its strategy of convincing Taiwan citizens that their best and perhaps only option in unification on Beijing's terms. The rising skepticism of the United States may also embolden the PRC to undertake riskier actions to compel unification, such as challenging Taiwan's jurisdiction over nearby waters, implementing a quarantine or a blockade, or seizing one of Taiwan's outlying islands.
Relatedly, pessimism about US willingness to support and defend Taiwan is likely to weaken resolve among the island's citizens to resist a takeover by the PRC. Academic research attests that "will to fight" increases significantly when accompanied by a belief that external military assistance is forthcoming./18
Polls in Taiwan have identified this correlation with a potential US defense of the island./19
Public skepticism of American assistance could also erode support for a larger defense budget, military training, or civil defense measures.
* * *
Moreover, other regional partners, including Japan, the Philippines, and Australia closely monitor US reliability regarding Taiwan. Many people in those allied countries see it as a barometer of Washington's security commitments to their own countries. If Taiwan's public loses faith in the United States, US allies may also begin to doubt American steadfastness.
The PRC could amplify such disillusionment through domestic and global propaganda, reinforcing its narrative of Washington's declining power and unwillingness or inability to defend its friends.
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Policy Recommendations
Defense and Security
* Ensure that Foreign Military Sales to Taiwan, especially asymmetric systems and munitions, are approved and delivered in an expeditious manner. Encourage the executive branch to continue using Presidential Drawdown Authority and Foreign Military Financing for Taiwan to equip Taiwan's reserves as well as active-duty forces.
* Explore ways for international partners to provide equipment to the US that could then be passed along to Taiwan.
* Require the Department of Defense to prioritize Taiwan in production queues for systems already under contract such as HIMARS, Coastal Defense Cruise Missiles, and Stingers. Consider ways that Congress could incentivize defense industry to increase production of weapons that are in short supply.
* Create a statutory requirement that the Secretary of Defense in coordination with the Commander of INDOPACOM report annually on Taiwan's progress in distributed defense, reserve mobilization, and civil defense.
* Support joint programs to harden power grids, undersea cables, 5G networks, transportation and medical systems, and encourage US allies to contribute expertise.
* Mandate US-Taiwan planning for supply chain emergency rerouting (especially semiconductors), and maritime trade continuity.
* Strengthen cooperation among the United States, Taiwan, Japan, and the Philippines to counter the PRC's gray zone threats. Enhance information and realtime intelligence sharing. Authorize joint exercises with regional partners that include Taiwan participation in non-kinetic domains, including cyber, maritime domain awareness, humanitarian assistance/disaster relief (HA/DR), and medical logistics.
* Realize the Taiwan Enhanced Resilience Act's (TERA) provision for the establishment of a "regional contingency" defense article stockpile for the purposes of supporting Taiwan's defense. Prepositioned stockpiles of munitions, fuel, and critical supplies should be created in Taiwan and elsewhere in the region specifically for a Taiwan contingency.
* Create a platform for discussion and implementation of US-Taiwan co-production and co-development of weapons. This could be modeled after the June 2025 USAustralia memorandum of understanding to establish a cooperative program for the Precision Strike Missile, including its production, sustainment, and future development.
* Send more Congressional member delegations to Taiwan to ensure up-to-date understanding of Taiwan's evolving security needs and domestic dynamics, and to reaffirm the United States' commitment to Taiwan's democracy, prosperity, and security. Engaging with opposition parties in Taiwan should be a priority. Increase appropriations for AIT staffing and authorize additional interagency detailees to AIT to support visits by CODELs, STAFFDELs, US officials and other visitors.
* Monitor closely the readiness of Taiwan's forces and ensure there is adequate funding to support training.
* Put Taiwan's security on the agenda when CODELs have engagements with their counterparts in allied and partner countries in Europe and the Indo-Pacific.
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Diplomacy and Economics
* Require the Department of State to develop and submit a recurring annual report to Congress on its annual strategy for supporting Taiwan's participation in international organizations to include the World Health Assembly/World Health Organization, INTERPOL, the International Maritime Organization, the International Civil Aviation Organization (for which a reporting requirement is included in TERA), and the United Nations Framework Convention on Climate Change (side events). The report should include PRC pressure tactics and identify opportunities for making progress.
* Mandate the Department of State to counter the PRC's distortion of UN General Assembly Resolution 2758 which Beijing uses to embed its "One China Principle" in the international community and block Taiwan's participation in UN-affiliated agencies.
* Pass the Taiwan Allies Fund Act (S.1216) which includes provisions to support Taiwan's participation in international organizations and provide support to countries that have been subject to PRC coercion or pressure due to their engagement with Taiwan.
* Require Department of State bureaus to conduct regular bilateral consultations with Taiwan, including the Economic Prosperity Partnership Dialogue, the US-Taiwan Working Group on International Organizations, and the Science and Technology Cooperation Dialogue.
* Require the Department of State to coordinate closely with allies such as Japan, Australia, and the EU and promote cooperation with those allies on specific functional areas (e.g. cyber, public health, and supply chains) to assist Taiwan.
* Instruct the US Trade Representative to finalize the US-Taiwan Initiative on 21st Century Trade. An initial agreement on five areas entered into force in December 2024. A second agreement, which has yet to be reached, would cover labor rights, environmental protections, and agriculture. Mandate annual senior-level economic and trade dialogues under the US-Taiwan Initiative on 21st-Century Trade.
* Approve, by the US Senate, the US-Taiwan Expedited Double-Tax Relief Act and the US-Taiwan Tax Agreement Authorization Act (H.R. 33/ S.199) to address the double taxation of cross-border investments and encourage Taiwan investment in the United States.
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Original text here: https://www.foreign.senate.gov/imo/media/doc/fb1a509d-ac0d-14d4-4f14-6e4cef72102e/112025_Glaser_Testimony1.pdf
Ex-Senior Advisor for Taiwan Dickey Testifies Before Senate Foreign Relations Committee
WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Lauren Dickey, former senior advisor for Taiwan at the War Department, from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation":* * *
Chairman Risch, Ranking Member Shaheen, and distinguished members of the Committee: Thank you for the opportunity to testify on the implementation of the Taiwan Enhanced Resilience Act (TERA) and future opportunities for U.S.-Taiwan cooperation. For more than four decades, ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Lauren Dickey, former senior advisor for Taiwan at the War Department, from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation": * * * Chairman Risch, Ranking Member Shaheen, and distinguished members of the Committee: Thank you for the opportunity to testify on the implementation of the Taiwan Enhanced Resilience Act (TERA) and future opportunities for U.S.-Taiwan cooperation. For more than four decades,support for peace and stability in the Taiwan Strait has remained one of America's most durable bipartisan commitments. Since Congress passed the Taiwan Relations Act (TRA) in 1979, successive administrations and Congresses have recognized a core truth: Taiwan's security is essential to U.S. interests, values, and the stability of the Indo-Pacific. At stake are nothing less than global supply chains, the digital economy, and the prosperity of U.S. industries and workers.
That bipartisan support matters more than ever today as Taiwan faces growing military, economic, and political pressure from the People's Republic of China (PRC). Congress has responded by expanding the tools available to the Executive Branch, including through TERA.
These authorities help ensure that U.S. policy remains credible and aligned with the scale and urgency of the challenge posed by Beijing.
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Taiwan's Strategic Importance to U.S. Interests
Taiwan's value to U.S. strategic interests lies in both its identity as a vibrant, self-governing democracy that stands in stark contrast to the PRC's authoritarian model and its role in shaping the regional security order. How the United States engages Taiwan is viewed across the IndoPacific as a direct measure of American reliability.
Economically, Taiwan anchors the world's most advanced semiconductor supply chain, producing the overwhelming majority of leading-edge chips, which power U.S. defense systems, cloud computing, artificial intelligence, medical devices, and automobiles. Taiwanese firms are deeply integrated with American companies, supporting U.S. jobs nationwide. A conflict or blockade in the Taiwan Strait would ripple across global markets, disrupt U.S. military readiness, and increase costs for American households and businesses. Taiwan's ability to credibly deter aggression reduces the likelihood of a major regional conflict, but it does not remove entirely the risks of continued gray zone coercion from China.
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Implementing the Taiwan Enhanced Resilience Act (TERA)
The inclusion of TERA in the Fiscal Year 2023 National Defense Authorization Act (NDAA) laid critical groundwork for the Taiwan Security Cooperation Initiative (TSCI) subsequently enacted in the Fiscal Year 2025 NDAA. TERA and TSCI are complementary; together they provide the full range of authorities necessary to meaningfully advance the U.S.-Taiwan defense relationship and buy down the risk of a cross-Strait conflict to U.S. forces. However, several critical challenges remain in fully implementing TERA.
* Presidential Drawdown Authority (PDA): Congressional authorization of PDA for Taiwan has helped diversify the tools available to support Taiwan's defensive needs and prioritize more urgent capabilities. Despite Congressional support, PDA has not delivered the scale or speed of capability that the situation requires. During my time in the Department of Defense (DoD), DoD moved slowly on implementing PDA for Taiwan for two reasons: (1) the war in Ukraine took precedence, and (2) Services held concerns about whether the defense industrial base would be able to sufficiently backfill their stocks. While we have since seen multiple tranches of PDA proceed, Taiwan still lacks enough asymmetric capabilities to deter Chinese actions; without these capabilities, U.S. forces will face higher operational risks in a crisis or conflict.
* Regional Contingency Stockpile: TERA authorized DoD to establish a regional contingency stockpile for Taiwan comprised of forward-positioned munitions and other appropriate defense articles, but specific funding for this activity is lacking. Furthermore, during my time in the Department there were questions about whether DoD or Taiwan could build the storage facilities for these munitions and whether the operation of any such stockpile needed to resemble the Israel model of a war reserves stock for allies (e.g., WRSA-I). Without forward-positioned munitions and sustainment, or clarity on how stockpiles would be managed in crisis, U.S. and/or allied forces would be forced to fight from a position of delay, thereby increasing risk to our servicemembers and decreasing the likelihood that deterrence will hold. Dedicated DoD appropriations - likely via Military Construction (MILCON) or Operations and Maintenance (O&M) budget lines - and statutory flexibility to facilitate partner contributions to overseas construction are still needed to meet Congressional intent of building a regional contingency stockpile.
* Prioritizing foreign military sales (FMS) requests: TERA directed State and DoD to expedite FMS requests from Taiwan. Despite efforts by State and DoD, bottlenecks in the defense industrial base and complex bureaucratic processes routinely put many FMS cases behind schedule and/or over budget. FMS delays undercut Executive Branch efforts to encourage Taiwan to enact critical reforms and sustain defense spending growth - including using special budgets - and offer an easy justification for Taiwan's legislature to avoid support for President Lai's defense agenda. For the U.S., FMS delays ultimately increase the risk U.S. forces would face if deterrence fails.
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Role of the Department of State and the American Institute in Taiwan (AIT)
The Department of State plays a central role in implementing U.S. Taiwan policy. However, the TRA authorities delegated to State by Executive Order 13014 have not been updated since 1996./1
As a result, the Department's authorities and processes no longer match the scale, tempo, or complexity of the modern U.S.-Taiwan relationship.
* Inconsistent Criteria for Permitted Defense Engagements: The State Department's criteria for approving Taiwan-related defense engagements are opaque, frequently inconsistent, and subject to late revisions. This can create operational uncertainty for DoD, undermine long-term bilateral engagements, and result in missed opportunities to strengthen Taiwan's defensive readiness.
* AIT Capacity Limitations: AIT manages one of the most consequential and operationally demanding portfolios of any U.S. mission, yet its staffing levels and facility capacity have not grown in line with the expanding security agenda. AIT-Taipei faces space constraints that limit its ability to host additional personnel. Similarly, the absence of a Senate-confirmed AIT Director in Taipei and an AIT Chairperson in Washington risks misalignment between AIT operations and broader U.S. policy.
Modernizing the State Department's delegated authorities and ensuring AIT is properly resourced are both long overdue steps toward advancing U.S.-Taiwan defense cooperation.
* * *
Recommendations for Congress
I offer the following recommendations to accelerate U.S. security cooperation with Taiwan:
* Accelerate initiatives to strengthen Taiwan's self-defense.
* Continue to fully resource all security assistance authorities relevant to Taiwan's selfdefense (i.e., FMS, DCS, FMF, and PDA) and ensure that these tools are clearly linked to a multi-year DoD plan to meet Taiwan's defensive requirements.
* Direct DoD, in partnership with State, to provide Congress with a quarterly report on security assistance - including procurement timelines, contracting milestones, and delivery forecasts for systems provisioned under each type of authority.
* Continue to accelerate the delivery of FMS capabilities to Taiwan by directing DoD and State to create a "fast lane" list of platforms, munitions, and other capabilities that are pre-approved for export, technology release, and accelerated contracting processes.
* Provide DoD with sufficient appropriations and authority to use either MILCON or O&M funds for the construction and sustainment of a regional contingency stockpile, including storage depots and the materiel necessary to fill them.
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1 William J. Clinton, "Maintaining Unofficial Relations with the People on Taiwan," Federal Register, 19 August 1996, https://www.govinfo.gov/content/pkg/FR-1996-08-19/pdf/96-13014.pdf.
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* Modernize the State Department's oversight of Taiwan policy.
* Conduct a 120-day review of the TRA authorities delegated through Executive Order 13014 and direct State to identify common-sense updates to modernize routine
Executive Branch business with Taiwan.
* Require State to record, track, and annually report to Congress all Taiwan-related engagements submitted by the Executive Branch that State disapproves, including rationale for disapproval and operational impact.
* Reassess AIT's footprint and resourcing strategy.
* Direct State to review AIT's facility and staffing requirements to ensure it can support the expanded tempo of security cooperation activities. This should include a review of staffing (e.g., NSDD-38 processes)/2 and consideration of additional facility requirements.
* Require Senate confirmation of the AIT-Taipei Director and mandate the appointment of an AIT Chairperson to ensure accountability and alignment with broader U.S. policy.
* Deepen Congressional engagement with Taiwan's legislature.
* Strengthen interparliamentary ties with Taiwan's Legislative Yuan.
* Encourage sustained annual defense budget increases, robust use of the special budget for priority defense investments, and bipartisan U.S. support for the reforms necessary to strengthen Taiwan's deterrence posture.
Conclusion
The United States has long recognized that a secure and confident Taiwan is vital to peace and stability in the Indo-Pacific. TERA, and subsequently, TSCI, provide Congress and the Executive Branch with powerful tools to strengthen deterrence. Ensuring these authorities deliver meaningful results will also require process modernization, adequate resourcing, and sustained bipartisan commitment.
Taiwan's future will shape the region's future. Ensuring Taiwan's security is central to protecting economic prosperity, regional security, and the credibility of America's commitment to the IndoPacific. I thank the Committee for its continued leadership on this important issue, and I look forward to your questions.
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2 The NSDD-38 process is the procedure for managing staffing at diplomatic missions overseas. Executive Branch agencies must seek Chief of Mission approval before making staffing changes; requests are managed via the Department of State.
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Dr. Lauren Dickey served from 2020-2024 as the senior advisor and acting director for Taiwan policy in the U.S. Department of Defense. Before her position in DoD, Lauren was a research scientist focused on Chinese military issues at the Center for Naval Analyses (CNA). Lauren earned a Ph.D. in War Studies from King's College London, an M.A. in International Studies and Diplomacy from the School of Oriental and African Studies, and a B.A. in Asian Studies and Chinese from the University of Oregon. The views represented herein are her own.
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Original text here: https://www.foreign.senate.gov/imo/media/doc/fb1a509d-ac0d-14d4-4f14-6e4cef72102e/112025_Dickey_Testimony.pdf
Council on Foreign Relations Senior Fellow for Asia Doshi Testifies Before Senate Foreign Relations Committee
WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Rush Doshi, a senior fellow for Asia at the Council on Foreign Relations, from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation":* * *
Chairman Risch, Ranking Member Shaheen, and distinguished Members of the Committee, thank you for the opportunity to testify on the implementation of the Taiwan Enhanced Resilience Act (TERA) and the future of U.S.Taiwan cooperation.
I previously served on the National ... Show Full Article WASHINGTON, Dec. 5 -- The Senate Foreign Relations Committee released the following testimony by Rush Doshi, a senior fellow for Asia at the Council on Foreign Relations, from a Nov. 20, 2025, hearing entitled "Reviewing Implementation of the Taiwan Enhanced Resilience Act and Future Opportunities for U.S.-Taiwan Cooperation": * * * Chairman Risch, Ranking Member Shaheen, and distinguished Members of the Committee, thank you for the opportunity to testify on the implementation of the Taiwan Enhanced Resilience Act (TERA) and the future of U.S.Taiwan cooperation. I previously served on the NationalSecurity Council in the Biden Administration, where I developed and coordinated U.S. government policy on cross-Strait issues, among other issues. I am currently the C.V. Starr Senior Fellow for Asia at the Council on Foreign Relations and an Assistant Professor at Georgetown University.
My testimony is divided into four parts. First, I will discuss the core pillars of the U.S. "one China" policy at a time when there is debate about changing it. Second, I will cover why Taiwan matters, particularly for American prosperity, technological leadership, and reindustrialization. Third, I will turn to the changing strategic landscape, including the PRC's evolving coercive approach and grey zone activity as well as Taiwan's response to these 2
developments. Fourth, I will discuss the progress made under the Taiwan Enhanced Resilience Act and highlight proposals where further work might help maintain deterrence.
I. The Core Pillars of the U.S. One China Policy
At a time when there is ample speculation that the executive branch is considering alterations to the U.S. One China Policy, I'd like to begin by considering its foundational elements.
U.S. policy on Taiwan has been consistent across decades and administrations, with strong bipartisan input and support from Congress. The United States has long been committed to its "one China" policy, which is guided by the Taiwan Relations Act, the three U.S.-China Joint Communiques, and the Six Assurances. U.S. Taiwan policy is some of the most sensitive and carefully worded language in American foreign policy given the stakes involved. During the Biden administration, the National Security Council standardized language across departments and agencies regarding the One China policy and Taiwan policy more broadly to reduce the risk of accidental policy improvisation by departments agencies.1
Multiple administrations have consistently reiterated the following elements of U.S. Taiwan policy, key features of which are included below. The United States:
* has an abiding interest in the maintenance of peace and stability across the Taiwan Strait;
* opposes any unilateral changes to the status quo from either side;
* does not support Taiwan independence;
* expects cross-strait differences to be resolved by peaceful means;
* has commitments under the Taiwan Relations Act to assist Taiwan in maintaining a sufficient self-defense capability;
* has commitments under the Taiwan Relations Act to "maintain our capacity to resist any resort to force or other forms of coercion that would jeopardize the security or the social or economic system, of Taiwan";
* will maintain a strong, unofficial relationship with Taiwan consistent with our "one China" policy; and - will not play a mediation role between Beijing and Taipei, but of course may engage both on cross-Strait issues in the interest of peace and stability, including encouraging cross-Strait dialogue.
This list is not exhaustive, but it does capture the core tenets of the U.S. One China policy. Stability in the Taiwan Strait is a careful balancing act that involves Washington, Beijing, and Taipei. Although the United States sometimes frames its objective as maintaining the status quo, it would be more accurate to say the overarching objective of U.S. policy is to maintain peace and stability in the Taiwan Strait, especially since the status quo is not fixed the elements that define it are often debatable. Indeed, the reason Taiwan policy language has remained consistent is to maintain peace and stability. In short, U.S. language is intended to reassure China that the United States does not support Taiwan independence, to persuade Taiwan to refrain from certain actions that might be destabilizing, to deter China from military action against Taiwan, and to enable Taiwan to take its own security seriously in order to maintain deterrence. Accordingly, symbolic provocations that alarm Beijing but do not advance Taiwan's security are not necessarily in the American interest. Across Taiwan policy language, a critical aim is to fight the emergence of fatalistic thinking by any party that could lead to a vicious spiral. Of particular importance is the fact that the United States takes no position on the resolution of cross-Strait differences, including unification, but takes a position on how those differences are resolved.2 Additional recommendations on Taiwan-related policy language are provided in the final section of this testimony.
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1 This comprehensive language, and the most authoritative statement of the U.S. policy on cross-Strait issues, was then included in this speech by Secretary of State Antony Blinken: Antony Blinken, "The Administration's Approach to the People's Republic of China," May 27, 2022, George Washington University, transcript, https://au.usembassy.gov/secretary-blinkenspeech-the-administrations-approach-to-the-peoples-republic-of-china/.
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II. Why Taiwan Matters
The way in which cross-Strait differences are resolved has enormous consequences for the United States and the world, which is why the United States has consistently opposed China's threats to use force to compel unification. A PRC seizure of Taiwan--whether through an invasion or through blockade and quarantine scenarios--would likely be the most consequential strategic reversal for the United States in decades, fundamentally altering global politics.
It would likely ensure China's domination of Asia, seriously erode the U.S. geopolitical position and its economic and technological prosperity, disrupt global supply chains in ways that could trigger a global great depression, and extinguish a vibrant democracy.
The Risk of PRC Hegemony in Asia
As former Deputy Secretary of State Kurt Campbell and I argued in 2021, the Indo-Pacific is a region that risks drifting into imbalance, if not Chinese hegemony, absent U.S. involvement.3 Militarily, the PRC spends more on defense than the rest of the region combined, fields the world's largest navy, boasts leadership in hypersonic weapons and conventional missile technology, and is pursuing the fastest nuclear buildup in history.4 Economically, China's GDP is more than the rest of Asia's combined.5 Industrially, China's control over critical supply chains from rare earth minerals to batteries and pharmaceuticals gives Beijing enormous leverage over its neighbors. Technologically, China is a leader in many of the sectors its neighbors hope to master, from electric vehicles to consumer electronics.6 The PRC's economic might and technological leadership create powerful incentives for states to accommodate themselves to Chinese power. Those incentives have so far been checked by the desire of Asian states to maintain their hard-won sovereignty and territorial integrity, their doubts that China will accommodate their own prosperity, and of course their faith in the United States as the external security partner of choice. But if the United States failed to deter China's use of force against Taiwan, it would demonstrate that Washington is unwilling or unable to play a balancing role. In such a situation, the regional balance would tilt decisively towards Chinese hegemony, and the structure of deterrence that has preserved peace for decades would be fundamentally weakened. Asian states and even some U.S. allies might choose to "bandwagon" with China rather than balance against it. In practical terms, this means they would accept a subordinate position to China within the region and defer to its preferences as the region's leader. The U.S. position in Asia would weaken dramatically.
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2 For a useful primer on the one-China policy, see Richard Bush, "A One-China Policy Primer," East Asia Policy Paper 10, March 2017, https://www.brookings.edu/wp-content/uploads/2017/03/one-china-policy-primer-web-final.pdf.
3 Kurt M. Campbell and Rush Doshi, "How America Can Shore Up Asia Order," Foreign Affairs, January 12, 2021, https://www.foreignaffairs.com/articles/united-states/2021-01-12/how-america-can-shore-asian-order?check_logged_in=1.
4 For a conservative estimate of this imbalance, see "Unprecedented rise in global military expenditure as European and Middle East spending surges," Press Release, Stockholm International Peace Research Institute, April 2, 2025, https://www.sipri.org/media/press-release/2025/unprecedented-rise-global-military-expenditure-european-and-middleeast-spending-surges.
5 The World Bank estimates China's 2024 GDP (current USD) as $18.74 trillion with the rest of East Asia and the Pacific at $13.14 trillion: Country official statistics, National Statistical Organizations and/or Central Banks; National Accounts data files, Organization for Economic Co-operation and Development ( OECD ); Staff estimates, World Bank ( WB ), https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=CN-Z4.
6 Kurt M. Campbell and Rush Doshi, "Underestimating China," Foreign Affairs 104, no. 3 (May/June 2025): 66-81, https://www.foreignaffairs.com/china/underestimating-china.
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The Risk to American Reindustrialization and Technology Leadership
If China were to achieve hegemony in Asia, the impact would be direct for Americans. For nearly two centuries, American policy towards the Indo-Pacific has sought to maintain a balance of power in Asia and prevent the emergence of a regional hegemon--whether that power was Japan, the Soviet Union, or now China. But that imperative is even more critical today.
The United States needs to reindustrialize for the sake of American prosperity, sovereignty, and technological leadership. Over the last several decades, however, the United States has offshored much of its manufacturing capability to Asia. In a Taiwan invasion scenario, that manufacturing capability would fall under China's geopolitical influence, creating even more dependency on China and those states that choose to accommodate its power. For example, if the PRC gained control over Taiwan's semiconductor industry and extended its control over Asia's supply chains, the United States could be locked out of the world's most dynamic economic region whose production networks are at the center of the American technology sector. If Beijing exercised veto power over those supply chains, or over the allies and partners that the Trump administration has rightly identified as critical partners in U.S. reindustrialization--what the United States has lost would be even more difficult to bring back. It is not an exaggeration to suggest this would be an existential problem for U.S. economic security and for the reshoring, diversification, and technological renewal that Congress has rightly sought to advance. If Beijing sets the rules in the Indo-Pacific, manages the access, and shapes the flows of innovation, capital, and talent in the world's most dynamic region to Washington's detriment, the impact will be significant.
The Risk of a Global Great Depression
Chinese hegemony aside, conflict itself would be ruinous. In the most rigorous analysis of its kind, Bloomberg Research estimated that the cost of a war in the Taiwan Strait would be $10 trillion of global GDP--about 10 percent of the global economy--while a sustained blockade might cost $5 trillion of GDP.7 This suggests an economic shock even greater than the Great Depression. Taiwan is a top-twenty-five global economy, and although Taiwan's economy is roughly $900 billion--or nearly 1% of the world's GDP--the world is dependent on the role Taiwan plays in global supply chains.8 Taiwan's semiconductor industry lies at the center of global innovation and advanced manufacturing and produces more than half of the world's chips and nearly all of its most advanced semiconductors.9 These semiconductors power the artificial intelligence boom sustaining American growth, the defense industry, and the auto industry, among countless other sectors. A disruption to this production would cause immediate global shock. Moreover, the Taiwan Strait itself is one of the world's busiest and most economically significant waterways.10 Disruption there would reverberate globally and immediately.
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7 Jennifer Welch, Jenny Leonard, Maeva Cousin, Gerard DiPippo, and Tom Orlik, "Xi, Biden and the $10 Trillion Cost of War Over Taiwan," Bloomberg, January 8, 2024, https://www.bloomberg.com/news/features/2024-01-09/if-china-invades-taiwan-itwould-cost-world-economy-10-trillion.
8 "Taiwan Province of China," IMF Data Mapper, International Monetary Fund, last updated October 2025, accessed November 17, 2025, https://www.imf.org/external/datamapper/profile/TWN.
9 "Taiwan's Dominance of the Chip Industry Makes it More Important," Economist, March 6, 2023, https://www.economist.com/special-report/2023/03/06/taiwans-dominance-of-the-chip-industry-makes-it-moreimportant.
10 "Crossroads of Commerce: How the Taiwan Strait Propels the Global Economy," ChinaPower Series, Center for Strategic and International Studies, October 10, 2024, https://features.csis.org/chinapower/china-taiwan-strait-trade/.
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The Risk of Extinguishing a Leading Asian Democracy
Taiwan's political system amplifies its strategic and economic importance. For U.S. partners and allies, Taiwan's democratic endurance under pressure provides a model in a period of authoritarian advance. For Beijing, Taipei's democratic success represents a challenge to its narrative of governance. The PRC seeks not only to alter Taiwan's status but also to undermine its confidence and cohesion through political warfare, disinformation, and economic coercion. If Beijing succeeds, other authoritarian states will conclude that coercion is a viable tool for territorial revision or political domination.
III. The PRC's Evolving Strategy Toward Taiwan
The People's Republic of China has embarked on a comprehensive pressure campaign designed to undermine Taiwan's confidence, degrade its resilience, and erode deterrence--while staying just below the threshold of open conflict.
Gray-Zone and Coercive Pressure
Beijing has dramatically increased its air and naval presence around Taiwan. In the air domain, PLA Air Force and Navy aircraft are operating in Taiwan's Air Defense Identification Zone (ADIZ) at an unprecedented pace. In 2021, Taiwan's Ministry of National Defense recorded 972 PLA aircraft entering Taiwan's ADIZ.11 That number climbed to over 3,000 last year and may exceed 4,000 this year. Median line crossings--a violation of longstanding crossStrait norms that neither side should cross the invisible middle line in the Strait--also increased from virtually none in 2020 to over 3,000 by 2024./12 At sea, the PRC now maintains a near-continuous presence around Taiwan including naval vessels, coast guard vessels, and even maritime militia vessels. Taken together, these steps are intended to create fatigue and doubt in Taiwan as well as normalize the PLA's operational presence. In addition, they can support a number of "gray-zone" contingencies short of war that are intended to further erode Taiwan's resolve. These might include:
* Persistent operation within Taiwan's 24-nautical-mile contiguous zone;
* Regular overflights of Taiwan's offshore islands or its main island via drones or manned aircraft, having already overflown islands like Kinmen with drones beginning in 2022;
* Seizure of one of Taiwan's offshore islands, possibly an uninhabited island but also inhabited ones like Kinmen, home to over 100,000 residents;
* Declaration of a quarantine or inspection regime around Taiwan enforced by coast guard or provincial law enforcement vessels for brief periods.
At the same time, the PLA is engaging in "out of area" operations relevant for Taiwan contingencies, particularly east of Taiwan in the Philippine Sea. In recent years, China has sent aircraft carriers into the Philippine Sea, often with multiple guided-missile destroyers, a frigate, and an oiler, practicing operations designed to envelop Taiwan from multiple axes and to hold U.S. and Japanese forces at risk.13
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11 Gerald C. Brown and Ben Lewis, Taiwan ADIZ Violations, ChinaPower Project, Center for Strategic International Studies, last updated November 12, 2025, accessed November 17, 2025, https://chinapower.csis.org/data/taiwan-adiz-violations/.
12 Cheng-kun Ma and K. Tristan Tang, "Military Implications of PLA Aircraft Incursions in Taiwan's Airspace 2024," China Brief 25, no. 1, https://jamestown.org/military-implications-of-pla-aircraft-incursions-in-taiwans-airspace-2024/.
13 Dzirhan Mahadzir, "Chinese Carrier Strike Group Operating in South China Sea After Drills Surrounding Taiwan," USNI News, October 15, 2025, https://news.usni.org/2024/10/15/chinese-carrier-strike-group-operating-in-south-china-sea-after-drillssurrounding-taiwan.
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Military Modernization and 2027 Readiness
China is pursuing a military buildup that is arguably the greatest in modern history. Its aim is to field a military capable of seizing Taiwan even against intervention by the United States by 2027. First, with respect to the PLA Navy (PLAN), the PRC now fields the largest navy by surface combatants, and it is is on track to boast 435 vessels by 2030, making it 50% larger than the U.S. Navy.14 The PLAN has three aircraft carriers, including the recentlylaunched Fujian which is equipped with electromagnetic catapults, and even a new "Type 076" class amphibious assault vessel that also has catapults and can function as light carrier.15 Second, the PLA Air Force (PLAARF) is the region's largest and is rapidly modernizing with advanced fourth- and fifth-generation fighters, long-range bombers, and uncrewed systems. Third, China is pursuing the largest nuclear buildup in modern history, rapidly expanding and diversifying its nuclear forces from a few hundred a decade ago to more than 1,500 by 2035 if current trends continue.16 Fourth, the PLA Rocket Force fields the world's largest inventory of conventional ballistic and cruise missiles capable of striking Taiwan and U.S. bases in the region, including anti-ship ballistic missiles focused on American aircraft carriers.
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Political Warfare, Cyber Attacks, and Influence Operations
China's military buildup is accompanied by efforts to destabilize Taiwan internally. These include economic coercion aimed at Taiwan's key companies, cyber intrusions into Taiwan's critical infrastructure, and a sustained human espionage campaign including in Taiwan's government and military. In addition, China is pursuing intensive political-warfare--not only by co-opting political leaders, local officials, media figures, business elites, and civil-society groups but also through disinformation campaigns. These are intended to inflame social divisions, undermine trust in Taiwan's democratic processes, and amplify narratives of inevitability about unification and futility about resistance. Meanwhile, PRC security services and PRC-linked front organizations engage in transnational repression of Taiwan's citizen and supporters abroad, seeking to intimidate them and limit Taipei's ability to mobilize international support. Together, these efforts are intended to generate fatigue in Taiwan and increase the probability of eventual capitulation.
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Taiwan's Response
Taiwan has much to do given the magnitude of threat it faces. But an inaccurate and somewhat dangerous narrative has emerged that Taiwan is standing still. In fact, Taiwan has launched several efforts under the Tsai and now Lai administrations to strengthen its ability to withstand growing PRC military pressure, gray-zone coercion, cyber intrusions, and political warfare. First, Taiwan is working to expand its defense budget from roughly 2.5 percent of GDP in 2024 to more than 3 percent of GDP in 2026, representing one of the largest defense increases in Asia and demonstrating sustained political commitment to national defense.17 With its planned special budget, Taiwan's spending may rise to 5% of GDP. Already, over the last ten years, Taiwan's defense budget has doubled in absolute terms.
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14 U.S. Library of Congress, Congressional Research Service, China Naval Modernization: Implications for U.S. Navy Capabilities, by Ronald O'Rourke, RL33153 (2025), https://www.congress.gov/crs-product/RL33153.
15 Huizhong Wu, China Launches Amphibious Assault Ship that Can Launch Fighter Jets," AP, December 26, 2024, https://apnews.com/article/china-new-amphibious-ship-596a481b3bc3b808947080005ab433c7.
16 Philip Patton Schell and Hans M. Kristensen in SIPRI Yearbook 2015: Armaments, Disarmament and International Security, ed. Shannon N. Kile And Hans M. Kristensen (2015), https://www.sipri.org/sites/default/files/SIPRIYB15c11sV.pdf.; U.S. Department of Defense, 2024 Annual Report to Congress: Military and Security Developments Involving the People's Republic of China, 2024, https://media.defense.gov/2024/Dec/18/2003615520/-1/-1/0/MILITARY-AND-SECURITY-DEVELOPMENTSINVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA-2024.PDF.
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Notably, Taiwan uses much stricter definitions for defense spending than NATO countries, but if Taiwan were to adopt NATO standards, its defense spending may be even higher. Both budgets, however, need approval by from the legislature. Second, Taiwan has extended mandatory conscription from four months to one year, beginning in 2024, to address manpower shortages and improve readiness and reserve training.18 Relatedly, Taiwan has also reformed its reserve and mobilization systems, increasing training tempo and restructuring reserve brigades to improve wartime mobilization--efforts highlighted by U.S. defense analysts for years.
Admittedly, much more needs to be done, but Taiwan is moving. Third, Taiwan is accelerating procurement of asymmetric capabilities, including mobile coastal-defense cruise missiles, expanded stocks of munitions, additional air-defense platforms, and unmanned systems--defense priorities repeatedly underscored across administrations by U.S. officials all of which are consistent with a denial strategy. Where it cannot procure denial capabilities, it is building them. These efforts include a new industrial park for drone manufacturing that leverages Taiwan's supply chain advantages and takes inspiration from Ukraine's ability to mass produce drones. Fourth, Taiwan has stood up new and useful commands for cross-Strait contingencies. This includes a new Littoral Combat Command in 2026, which will integrate fast-attack craft, shore-based missile units, and unmanned maritime systems to strengthen coastal defense and counter PRC blockade or landing scenarios.19 This is exactly the kind of organizational step U.S. officials have long encouraged. Fifth, to counter persistent gray-zone pressure, Taiwan has invested in maritime domain awareness, hardened key facilities, and adapted to near-daily PLA incursions by modernizing joint response procedures. Sixth, in the cyber domain, Taiwan has created a National Cyber Security Command, adopted zero-trust architectures, strengthened cooperation with U.S. Cyber Command and CISA, and bolstered defenses against tens of millions of monthly hostile cyberattacks. Seventh, to counter political warfare, Taiwan has expanded fact-checking organizations, deployed rapid-response "Civic Integrity Teams," and established a Cognitive Warfare Research Center to identify and disrupt CCP influence operations. Eighth, economically, it has endeavored to reduce dependence on the PRC by diversifying trade through its New Southbound Policy, lowering the share of outbound investment going to China, with mixed results. Ninth, Taiwan has invested heavily in what some call "whole-of-society" resilience, which convenes regularly with President Lai himself, and prepares Taiwan's people for high-end contingencies. This group just issued a handbook to each household in Taiwan with detailed instructions on how citizens can prepare for PRC invasion and blockade scenarios. Taken together, these steps--spanning military modernization, reserve reform, cyber defense, information integrity, and economic diversification--demonstrate that Taiwan is actively strengthening its resilience as Beijing intensifies its campaign of military, economic, and political coercion.
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17 U.S. Library of Congress, Congressional Research Service, Taiwan: Defense and Military Issues, by Caitlin Campbell, IF12481 (2025), https://www.congress.gov/crs-product/IF12481; Teng Pei-ju, "Taiwan Defense Spending to Reach 3.32% of GDP in 2026: Premier," Focus Taiwan, August 21, 2025, https://focustaiwan.tw/politics/202508210007.
18 Yimou Lee and Ann Wang, "Taiwan to Extend Conscription to One Year, Citing Rising China Threat," Reuters, December 27, 2022 https://www.reuters.com/world/asia-pacific/taiwan-extend-compulsory-military-service-official-media-2022-12-27/.
19 Tso-Juei Hsu, "Taiwan to Establish Littoral Combat Command in 2026," Naval News, April 18, 2024, https://www.navalnews.com/naval-news/2024/04/taiwan-to-establish-littoral-combat-command-in-2026/.
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IV. Policy Proposals and Implementation of the Taiwan Enhanced Resilience Act (TERA)
TERA as Landmark Legislation
The Taiwan Enhanced Resilience Act (TERA) is one of the most significant steps Congress has taken in decades to strengthen deterrence in the Taiwan Strait. First, TERA created new tools for security assistance for Taiwan, including authorizing up to $2 billion annually in Foreign Military Financing (for grants and loans) and establishing a $1 billion Presidential Drawdown Authority to move equipment directly from U.S. stockpiles, overcoming yearslong delays in the traditional Foreign Military Sales system. Second, TERA directed the Department of Defense to deepen joint training, planning, and exercises and to report regularly to Congress, supporting efforts the executive branch had undertaken in this respect. Third, TERA reinforced Taiwan's own defense reforms and helped Taipei move more confidently with changes it had already initiated--encouraging improvements to its reserve and mobilization systems, investments in asymmetric capabilities, and the strengthening of critical stockpiles. In part due to shared support from Congress and the executive, Taiwan increased defense spending, extended conscription to one year, and prioritized asymmetric denial-focused capabilities.20 Above all, the demonstration was a bipartisan signal that the United States is resolved to strengthen cross-Strait deterrence at a moment of growing risk.
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Key Gaps and Recommendations
Several obstacles continue to undermine effective deterrence. Congress might consider the following steps.
1. U.S. Political Signaling and a Taiwan Tax Treaty: Taiwan is an isolated democracy, and political shows of support for Taiwan can provide morale boosts that make its defense reform efforts more successful.
Ideally, these should be calibrated in a way to avoid undue provocation to the PRC; signaling that provokes the PRC but does not materially advance Taiwan's security and is contrary to U.S. interest. Currently, the balance between these goals is shifting towards avoiding provocation and away from supporting Taiwan's democracy, which risk emboldening Beijing while discouraging Taiwan from engaging in key reforms.
Several steps can help address this challenge without setting cycles of escalation. First, at a time when even low-level executive branch travel to Taiwan is likely to be severely limited, Congressional delegations are more critical than in the past. Although certain delegations may be regarded as provocative by the PRC, the vast majority are consistent with longstanding precedent and are critical shows of support for Taiwan's people. Second, given that the executive branch is considering altering Taiwan policy language--moving, for example, from "not supporting" to "opposing" Taiwan independence and even potentially negotiating Taiwan's status with the PRC--Congress may consider expressing support for the Six Assurances and accompanying "Reagan Memorandum" to remind the executive of its own commitments and Congressional prerogatives in this matter. Third, in general, Congress and the administration should emphasize U.S. objectives as maintaining "peace and stability" in the Taiwan Strait rather than upholding the status quo, particularly since the latter is ill-defined and because the former is the overwhelming preference of the international community, as statements by U.S. allies and partners attest. Fourth, Congress should support Taiwan's efforts to increase its defense spending and criticize those political groups that oppose those efforts. Presently, some in Taiwan's legislature seek to stall efforts to increase Taiwan's defense spending.
Fifth, the United States should move to complete a treaty with Taiwan to eliminate double taxation, which would not only increase Taiwan's investment in the United States, and bolster its support for U.S. reindustrialization, but also provide a powerful statement of support for Taiwan's people.
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20 Congress.gov, "Text - H.R.7776 - 117th Congress (2021-2022): James M. Inhofe National Defense Authorization Act for Fiscal Year 2023," December 23, 2022, https://www.congress.gov/bill/117th-congress/house-bill/7776/text.
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2. Security Assistance: Taiwan still faces multi-year delays in Foreign Military Sales worth more than $20 billion. For example, the 66 F-16V Block 70 fighters, originally expected by 2026, have slipped to 2027- 2028 due to production-line relocation and supply-chain delays.21 Taiwan's AGM-154C Joint Standoff
Weapons, first notified in 2017, were not contracted until 2024 and now face delivery in 2027-2028.22 And the Harpoon Coastal Defense System, approved in 2020 and of critical importance against PLA surface vessels, had its first deliveries this year and will not complete delivery until 2028./23 To address this Congress could should consider efforts to (1) put Taiwan in a position as "first in line" for scarce funds and weapons sales; (2) work around FMS bottlenecks where applicable by using a range of instruments including FMF, Presidential Drawdown Authority, third-party procurement for capabilities that the United States cannot manufacture in a timely fashion, and pre-positioned stocks; (3) reduce some export controls on Taiwan that might inhibit the flow of cutting edge asymmetric denial weaponry; and (4) maintain Congressional oversight and even pressure to ensure key agencies like the Departments of State and Defense executive accordingly.
3. Stockpiling: Taiwan's limited stockpiles and its geography heighten the risk that military resupply during a conflict would be extraordinarily difficult, unlike for Ukraine. Accordingly, the United States and Taiwan should make pre-war stockpiling a priority by establishing a War Reserve Stocks-Taiwan (WRSA-T) program--modeled on programs in Israel and Korea--to pre-position anti-ship, anti-armor, air-defense munitions, medical supplies, and other essentials on or near the island, because such items cannot be surged once a blockade begins. This could also include critical parts and industrial components. In addition, efforts to bolster co-production or indigenization of these capabilities will be valuable so Taiwan can build its own materiel.
4. Defense Cooperation: While U.S.-Taiwan defense cooperation has deepened, joint planning and exercises still fall short of the operational integration that deterrence requires, in part due to longstanding political sensitivities. The United States can work to close gaps in joint planning and operational integration, though both Washington and Taipei should ensure classification and limited public discussion of these efforts.
5. Contingency Planning: Congress should consider requiring the administration to undertake intensive, scenario-specific interagency planning for grey-zone and high-end scenarios, ensuring that U.S. responses are credible and detailed rather than improvised at the last minute during a crisis. Congress should require classified briefings of these contingency planning efforts. Additionally, allies such as Japan, Australia, the Philippines, and key European partners must be more fully integrated into contingency planning, signaling, and crisis response if the United States is to credibly deter aggression in the Taiwan Strait.
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21 Matt Yu and Sean Lin, "U.S. Contractor Working to Speed Up F-16V Delivery to Taiwan: Ministry," Focus Taiwan, November 2, 2025, https://focustaiwan.tw/politics/202511020011.
22 Eric Gomez, "Delays Mount for F-16s, Torpedoes," Taiwan Arms Sale Backlog October 2025 Update, Taiwan Security Monitor, https://tsm.schar.gmu.edu/taiwan-arms-sale-backlog-october-2025-update.
23 Matt Yu and Sean Lin, "Taiwan to Receive 1st Harpoon Missile Defense Systems Around New Year," Focus Taiwan, October 20, 2025, https://focustaiwan.tw/politics/202510200015.
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6. Energy Resilience and Maritime Insurance: One of Taiwan's great vulnerabilities is its energy sector, which is 98 percent import-dependent and may have less than two weeks of LNG storage.24 The United States can bolster Taiwan's energy resilience and complicate PRC blockade or quarantine campaigns. Efforts could include U.S. support for energy diversification within Taiwan, increased storage capacity, long-term LNG contracts (including with U.S. suppliers), and diplomatic engagement with key producers to assure supply in crisis scenarios. Of particular importance would be efforts to ensure maritime trade continues flowing in a crisis, during which insurance rates for shippers may become catastrophically high, reducing energy flows to Taiwan. Accordingly, Congress could expand MARAD's war-risk insurance authority so that coverage can be extended to foreign-flagged vessels--not just U.S. vessels--that are carrying critical energy supplies to Taiwan when commercial insurers withdraw under pressure. Enabling the United States to underwrite or even reflag critical shipments would meaningfully strengthen Taiwan's resilience and complicate PRC coercion.
7. Cyber Resilience: Taiwan is a victim of a massive PRC campaign to preposition on its critical infrastructure.
The United States should expand U.S. support for Taiwan's cyber defenses through capacity-building, "hunt forward" operations to detect vulnerabilities in Taiwan, and regularized cooperation between Taiwan's digital agencies and relevant U.S. agencies. In addition, the United States can work with Taiwan on resilience communications, including efforts to move from subsea cables to satellite constellations for crisis scenarios.
8. Allied Engagement: Congress can also play a critical role in encouraging greater allied and partner coordination on Taiwan. Under the Biden Administration, U.S. allies in Europe and the Indo-Pacific took unprecedented steps to affirm--often in joint statements with the United States--the importance of peace and stability in the Taiwan Strait. In the face of PRC provocations in the Strait, they also increasingly aligned publicly with the United States on cross-Strait issues. But more coordination is needed to translate these greater political alignments into an integrated diplomatic, economic, and military framework for deterring PRC coercion. Congress can encourage joint planning with key allies such as Japan, Australia, the Philippines, and European partners; support and resource multilateral mechanisms in the region that the U.S. has launched to coordinate intelligence, posture, and contingency planning; and directly engage with allies. For example, China is currently targeting Japan with military and economic threats following remarks by Japan's prime minister on the ways in which Taiwan contingencies might affect Japan's own security. China's threats are so flagrant, including an online post by a senior Chinese diplomat that Japan's prime minister should be beheaded, that a failure to rhetorically and substantively support Japan in this matter is likely to prove to Beijing coercion of U.S. allies and partners on Taiwan-related matters will be successful.
9. Economic Deterrence: The United States currently lacks an executive order that would allow the U.S. government to respond to PRC grey zone provocations or high-end contingencies with economic retaliation against the PRC, even in a limited and proportional fashion. Congress could create such an authority that would provide the United States more options on the economic escalation ladder than it presently has.
Moreover, Congress can push the United States to consider multilateral economic response options--such as a so-called "Economic Article V" --in which U.S. allies and partners would jointly respond to coercion against any one of them with a collective response.
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24 Craig Singleton, Mark Montgomery, and Benjamin Jensen, "Chinese Coercion of Taiwan's Energy Lifelines: A Contest Taiwan and the West Can't Afford to Lose," Memo, Foundational for Defense of Democracies, November 17, 2025, https://www.fdd.org/analysis/2025/11/17/chinese-coercion-of-taiwans-energy-lifelines-a-contest-taiwan-and-the-westcant-afford-to-lose/.
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Original text here: https://www.foreign.senate.gov/imo/media/doc/fb1a509d-ac0d-14d4-4f14-6e4cef72102e/112025_Doshi_Testimony1.pdf