Permanently extending enhanced ACA subsidies would result in increased enrollment, CBO finds
Enrollment would increase by 4.8 million, but it would also increase federal deficits by $246.9 billion over a nine-year span.
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If the enhanced subsidies on the Affordable Care Act's exchanges were extended on a permanent basis, there would be just shy of 5 million new signups annually, according to a letter sent to the Senate Finance Committee by the Congressional Budget Office.
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.
The estimated increase in premium tax credits is the result of two factors. First, if the enhancements become permanent, most current enrollees would receive a larger subsidy that would lower their out-of-pocket costs for premiums.
The second effect is the estimated 4.8 million new enrollees who would be expected to sign up during that nine-year window. Those enrollees would account for $242.2 billion, or roughly three-quarters, of the estimated $305.5 billion increase in premium tax credits over the period.
CBO estimates, on average, the annual credit for a new marketplace enrollee would be $4,980 from 2023-2032. Among new enrollees, most of the increases in enrollment and the associated premium tax credits would be for people whose income is below 400% of the federal poverty level (FPL).
A majority of enrollees with incomes below 400% of the FPL would have incomes at or below 200% percent of the FPL, with a maximum required contribution ranging from 0%-2% of income if the enhanced subsidies were made permanent.
Also, about 2.2 million fewer people would be without health insurance. That decrease would be due to a combination of the 4.8 million net increase in enrollments; a 200,000 combined increase in enrollment in Medicaid and the Children's Health Insurance Program; a 500,000 decrease in non-group coverage purchased outside the marketplaces; and a 2.3 million decrease in enrollment in employment-based coverage.
In May, the CBO said premium tax credits have played a critical role in helping people afford coverage for ACA plans. These enhancements will expire at the end of the year unless Congress acts, causing people to lose their coverage or pay more for premiums in 2023.
WHAT'S THE IMPACT?
The CBO and the Joint Committee on Taxation (JCT) also analyzed the effects of a regulation proposed by the Department of the Treasury and the Internal Revenue Service. That regulation would change the current calculation used to determine whether the plan an employer offers is affordable, for the purpose of determining eligibility for marketplace subsidies.
In what is often called the "family glitch," the current calculation – which is based on the cost of an individual-only rather than a family plan – leaves some families ineligible for marketplace subsidies because the employee's contribution for individual coverage does not exceed the affordability standard, even though that employee's contribution for a family plan would do so.
Under the May 2022 baseline, CBO and JCT estimate that, if the proposed regulation is made final, the number of people enrolled in non-group coverage would increase, on average, by 900,000 in each year over the 2023-2032 period. That enrollment estimate is the net result of an estimated decrease of 600,000 people with employment-based coverage, a decrease of 400,000 people who are uninsured, and an increase of 100,000 people enrolled in Medicaid and CHIP.
The agencies estimate that those changes would increase the deficit by $33.6 billion over the period as a result of increased direct spending of $43.7 billion, primarily driven by an increase in premium tax credits for new people receiving them.
The increase in direct spending would be partially offset by increased revenues of $10.1 billion collected from people no longer receiving the tax exclusion for employment-based coverage.
THE LARGER TREND
A proposed rule from the Treasury Department and Internal Revenue Service would tweak the ACA's family glitch by creating a minimum value for family members of employees that can receive ACA tax credits. A recent Kaiser Family Foundation analysis found that about 5.1 million people fall into the ACA's family glitch, most of whom are enrolled in employer-based coverage but could pay lower premiums if allowed to buy subsidized marketplace coverage.
AHIP praised the proposed rule in June. The idea behind it is to ensure access to affordable coverage and financial assistance for dependents, and to determine whether a plan's contribution exceeds 9.5% of total household and family income.
An affordability test would provide significant relief for low- and middle-income families, AHIP claimed.
When the proposed rule was first issued in April, it garnered positive reaction from several groups.
Rick Pollack, president and CEO of the American Hospital Association, said, "Hospitals and health systems strongly support the Biden Administration's efforts to help more Americans secure affordable health insurance by proposing to eliminate the 'family glitch.'"
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
