By Emma Walsh-Alker
President Biden released his Fiscal Year 2024 budget earlier this month, outlining the administration’s spending and policy priorities for a number of key programs, including the Affordable Care Act (ACA) Marketplaces. In addition to proposals pertaining to behavioral health care access, implementation of the No Surprises Act, and prescription drug affordability, the budget allocates funding to make enhanced premium subsidies—first established as a temporary pandemic relief measure—a permanent source of financial assistance for eligible low- and moderate-income consumers on the Marketplace. However, with a sharply divided Congress, Biden’s budget proposal has sparked a partisan spending debate. Now that Social Security and Medicare cuts are off the table, consumers who rely on Medicaid and the ACA’s Marketplaces are likely in the crosshairs of an upcoming spending showdown. Cuts to Medicaid could have devastating consequences for millions of low-income families, as described in this post from the Center on Budget & Policy Priorities. In this post we focus on the potential impact of cutbacks to the ACA’s Marketplace subsidies.
Background
The enhanced premium subsidies were initially introduced by the American Rescue Plan Act of 2021 (ARPA), and recently extended through 2025 under the Inflation Reduction Act (IRA). Over the last two years, more generous subsidies have significantly lowered cost of Marketplace coverage for low-income groups, as well as expanding financial assistance to moderate-income consumers previously ineligible for Marketplace financial assistance. The Biden administration has proposed to maintain and build on these policies by permanently eliminating required premium contributions for those with incomes between 100 and 150 percent of the federal poverty level (FPL), guaranteeing access to a free or nearly free plan option for this income group; capping maximum income contributions towards benchmark plans to 8.5 percent of household income; and permanently removing the 400 percent FPL income limit on premium subsidy eligibility (often referred to as a “subsidy cliff”), which previously left moderate-income Americans struggling to afford Marketplace coverage.
Enhanced Subsidies Have Increased Affordability and Driven Coverage Gains
Amidst rising health care costs, economic instability, and the pandemic, premium savings generated by enhanced subsidies tangibly benefited individuals and families across the country. Average monthly premiums for HealthCare.gov enrollees would have been 53 percent higher in 2022 without the enhanced subsidies. Enrollees on average enjoyed $800 in annual savings last year under the more generous tax credit structure. During the most recent open enrollment period, four out of five consumers returning to HealthCare.gov had access to plans costing $10 per month or less.
Increased affordability of plan offerings contributed to record Marketplace enrollment in the past two years. Of the more than 16.3 million Americans who signed up for Marketplace coverage during the 2023 open enrollment period, 3.6 million did so for the first time—a 21 percent increase in newcomers over the previous year. The overall uninsured rate in the United States reached an all-time low of 8 percent in 2022, and that number could be even lower thanks to expanded premium assistance: the Kaiser Family Foundation estimated that about 5 million people who are currently uninsured are eligible for a free or nearly free Marketplace plan due to the enhanced subsidies.
The GOP’s Alternative Vision Could Reverse Historic Gains, Hurting Low and Moderate-Income Consumers
Though the GOP’s expected counterproposals on health care spending have not been released, key congressional stakeholders, including the House Ways and Means Committee and House Budget Committee, have already pushed back on many of President Biden’s proposals. Additionally, budget analysis suggests that Medicaid, the Children’s Health Insurance Program (CHIP), and Marketplace funding would have to be cut by 70 percent in order to achieve the GOP’s stated goal of balancing the federal budget in 10 years without raising taxes or cutting Medicare, Social Security, or defense spending.
Against this backdrop, the enhanced subsidies are likely to be targeted for spending cuts. Such belt tightening would come at the expense of low- and moderate-income families. Eliminating the subsidy expansion would essentially reverse the affordability and coverage gains of the past two years: the Urban Institute has estimated that 3.1 million more people would be uninsured in 2023 without the enhanced subsidies in place. The largest coverage declines would occur among households with incomes between 138 and 400 percent FPL, with the number of uninsured people in this income bracket increasing by over 17 percent. Those that maintain coverage would see their premium payments rise sharply as their subsidies decrease or cease altogether. The U.S. Department of Health & Human Services (HHS) estimated that, if enhanced subsidies had expired before plan year 2023, 8.9 million Marketplace enrollees would have experienced an average subsidy reduction of $406 per person, while 1.5 million people would have lost their subsidies entirely—corresponding to an annual average loss of $3,277 in subsidies per person.
Residents of populous states with high Marketplace enrollment numbers—including California, Florida, Georgia, North Carolina, Pennsylvania, and Texas—would likely face the largest coverage losses and affordability reductions if the enhanced subsidies expire. Governors from these and other states have urged the federal government to make the enhanced subsidies permanent, underscoring the importance of continued financial assistance for their constituents.
Moreover, the unwinding of Medicaid’s continuous coverage requirement currently underway could result in roughly 18 million people being terminated from Medicaid and CHIP. The vast majority of these individuals are accustomed to paying $0 in premiums for their coverage, and many will be eligible for a Marketplace plan. Enhanced subsidies will help “soften the landing” for eligible individuals and families transitioning between Medicaid and Marketplace coverage, mitigating the risk of millions of Americans becoming uninsured. To this end, some states have developed innovative policies to prevent coverage gaps—such as auto-enrollment efforts—leveraging $0 Marketplace plans so that consumers losing Medicaid can maintain health coverage without facing increased monthly premium costs.
Takeaway
March marks the 13th anniversary of the Affordable Care Act. While the Biden administration has largely delivered on its promise to strengthen the landmark law, spending cuts would jeopardize this progress. As the budget debate heats up, Congress will be wielding significant power over the affordability of coverage for millions of people, and ultimately their access to health care.