KFF: Rolling back enhanced subsidies would raise premium payments

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Rolling back enhanced subsidies for Affordable Care Act plans would probably lead to a significant uptick in premium payments, as these subsidies have been instrumental in fueling enrollment growth, according to a new KFF analysis.

Temporary subsidies were originally passed as part of the American Rescue Plan Act (ARPA) in 2021, which included two years of enhanced subsidies, 2021 and 2022. The Inflation Reduction Act (IRA), which passed in 2022, extended these enhanced subsidies for an additional three years, ending after 2025.

The enhanced subsidies increase the amount of financial help available to those already eligible for assistance under the ACA, and also expand those subsidies to middle-income people (with incomes over four times the poverty level, $103,280 for a family of three in 2024), many of whom were previously priced out of coverage.

That, authors said, is what has contributed to record-high enrollment in ACA marketplaces, in addition to increased funding for outreach and marketing.

By the time these enhanced subsidies are currently set to expire at the end of next year, they will have been a part of the ACA Marketplaces for five years – nearly half as long as the marketplaces have existed. More people gained marketplace coverage since President Biden's 2021 inauguration than had signed up for the marketplace when it first launched in 2014.

Because of that, letting the enhanced subsidies expire would result in steep increases in premium payments in 2026 for almost all marketplace enrollees. But the flip side is that the subsidies come at a steep cost to taxpayers, with the Congressional Budget Office projecting that a permanent extension of the subsidies would cost $335 billion over the next 10 years.

WHAT'S THE IMPACT?

Since 2020, the year before the enhanced subsidies went into effect, the number of people with ACA Marketplace coverage has grown by 88%, from 11.4 million to 21.4 million.

The analysis found that the recent growth in ACA Marketplace plan enrollment has been driven primarily by low-income people, with sign-ups by people with incomes up to 2.5 times poverty growing 115% since 2020. Low-income enrollees have driven 83% of the enrollment growth in the ACA Marketplaces from 2020 to 2024, numbers showed.

Enhanced subsidies have cut premium payments by an estimated 44% ($705 annually) for enrollees receiving premium tax credits. Without these enhanced subsidies, premiums would double or more, on average, for subsidized enrollees in 12 states using Healthcare.gov, the data suggested.

All of the growth in marketplace enrollment in the last four years is among people receiving an advanced payment of the premium tax credit. Subsidized enrollment is up 106%, from 9.6 million (84% of marketplace enrollees) in 2020 to 19.7 million people (92% of the total number of marketplace enrollees).

If the Inflation Reduction Act's enhanced subsidies expire, the CBO expects ACA Marketplace enrollment to drop sharply, from an estimated 22.8 million in 2025 to 18.9 million the following year. CBO projects that enrollment would continue to fall in the subsequent years, reaching as low as 15.4 million in 2030.

Without enhanced subsidies, an enrollee making just above poverty would be required to pay around 2% of their income for a benchmark silver plan. With enhanced subsidies, however, most enrollees with incomes around the poverty level are eligible for zero-dollar benchmark silver plans.

Similarly, without enhanced subsidies, an enrollee with an income just above 400% of the poverty level would have to pay full price for their monthly premium, because they would be ineligible for financial assistance. But with the enhanced subsidies, they pay no more than 8.5% of their household income.

Low-income enrollees would experience the steepest percent increase in their annual premium payments if enhanced subsidies were unavailable. A 45-year-old enrollee making $25,000 (166% of poverty) would see their annual premium payments grow by an average of 573%, or $917, for a benchmark silver plan (an increase from $160 for the annual premium payment with enhanced subsidies to $1,077 without enhanced subsidies).

Prior to the enhanced subsidies, enrollees making above 400% of poverty were ineligible for premium assistance. Without enhanced subsidies, a 45-year-old individual making $65,000 (432% of poverty) would experience a premium increase of $941 annually from $5,525 to $6,466 – the full cost of the benchmark silver premium.

THE LARGER TREND

In a letter to the Senate Finance Committee in 2022, the CBO wrote that if the enhanced subsidies on the Affordable Care Act's exchanges were extended on a permanent basis, there would be just shy of five million new signups annually.

However, making the subsidies permanent would also increase federal deficits by $247.9 billion from 2023 to 2032 – a result of about $181.4 billion in increased direct spending and decreases in revenue of $66.5 billion over that time. 

These effects primarily reflect a $305.5 billion increase in premium tax credits, partially offset by higher revenues stemming from a shift in employees' compensation from tax-favored health insurance to taxable wages.
 

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.