For millions of Americans, Jan. 1 won’t be an occasion to celebrate the coming of the new year. It will be an occasion for dread.
The reason is the impending termination of crucial premium subsidies for Affordable Care Act health plans. Without a last-minute agreement between congressional Democrats and Republicans, the subsidy structure that has been in place since 2021 will revert to the original arrangement written into the act in 2010.
Millions of Americans dependent on the ACA will face potentially ruinous increases in coverage costs. Many will have to drop their coverage. That process will leave those with the most urgent and costly treatments in the ACA, and those who think they can get away with dropping insurance — or simply can’t afford it — on the outs. The result will be a sicker coverage cohort, which will raise prices for everybody.
The current stalemate is the offspring of the GOP’s 15-year campaign to undermine — really, to kill — Obamacare.
Republicans have dressed up their attack on the ACA with reams of empty rhetoric. They habitually call the ACA a “disaster,” without offering a cogent explanation of why.
Plainly, they see Obamacare as a nice, juicy partisan target, but they’re not reading the room. The ACA’s popularity has steadily increased since mid-2016; in KFF’s most recent tracking poll, taken in September, favorable opinion swamped unfavorable opinion 64% to 35%.
Americans have voted for the ACA with their feet. Since 2018, enrollment in Obamacare planshas more than doubled, from 11.4 million to 24.3 million this year, with a notable enrollment increase starting in 2021, when the premium subsidy structure was improved. That’s the change due to expire on Dec. 31 (Republicans, please note). The enrollment figure doesn’t include the 16.7 million Americans enrolled in Medicaid under ACA expansion rules — a provision still rejected by benighted political leaders in 10 red states.
They blame the ACA for higher healthcare costs. A few things about this: Yes, healthcare costs have continued to rise since its enactment. But they’ve risen at a much slower rate than before. Out-of-pocket per capita healthcare spending rose at a rate of 3.4% a year from 2000 to 2018, often exceeding the general inflation rate, but by only 1.9% a year since then.
That increase isn’t driven by the ACA. It’s the result of several factors, including the general aging of the U.S. population and a sharp increase in pharmaceutical costs, due in part to the advent of high-priced specialty prescription drugs.
The GOP has amended its attack on the ACA in recent months, as the clamor to extend the premium subsidies has intensified. Republicans are now decrying the ACA as a haven for fraud — “a broken system fueled by fraud,” says House Speaker Mike Johnson (R-La.). Johnson drew his conclusion from a report by the Government Accountability Office published earlier this month.
Johnson may have been hoping that no one would actually go and read that report. I did so, only to find that it doesn’t say what he claims it did. The GAO tested ACA enrollment controls on the federal marketplace — did enrollees accurately estimate their income and submit accurate Social Security numbers? Its test involved submitting applications from 20 fictitious individuals, of whom 18 were approved.
Is this an adequate sample? The GAO itself says it isn’t. The results, it says, “cannot be generalized to the overall enrollment population.” In some test cases, the applications included false Social Security numbers, which are used to verify income claims. But the GAO says that in the real world, absence of verified Social Security numbers “does not necessarily represent overpayments.”
Are these findings cause for concern? Sure, even though the GAO provided no findings about how widespread these flaws may be. In any case, there’s no evidence here that “the ACA marketplace is a magnet for fraud,” as Johnson called it, suggesting that thousands or millions of applicants are lined up for some healthcare gravy train. And it’s certainly no reason to kill the subsidies.
The other linchpin of the GOP attack on the Affordable Care Act is heavy breathing over how the ACA premium subsidies are paid directly to insurance carriers, rather than as cash to households. This idea trickles down from President Trump but has been embraced by Republicans in Congress. So it deserves a very close look.
Here’s Trump last week: “I want to see the billions of dollars go to the people, not to the insurance companies and I want to see the people to go out and buy themselves great healthcare. Much better healthcare at very little cost.” This has been an enduring promise from Trump, who never bothers to explain how the nirvana of great healthcare at little cost can be achieved.
Here’s Sen. Bill Cassidy (R-La.), a physician who cast the final vote to confirm Robert F. Kennedy Jr. as Health and Human Services Secretary, a vote that has left him humiliated over and over by Kennedy: “Republicans absolutely want to help the American people with the affordability of their out-of-pocket [spending]. We want to put money in their pocket to pay the out-of-pocket.”
Before delving deeper into this issue, a few words about the existing ACA premium subsidies.
The original ACA subsidies capped premiums on a sliding scale ranging from 2.07% of income for those earning 138% of the federal poverty line to 9.83% of income for those at 400% of the poverty line. This year, 138% of the poverty level for a family of four is $44,367, and 400% is $128,600.
The ACA’s architects knew these subsidies were inadequate. Especially troubling was the sharp cutoff of any subsidies for families earning even a dime more than 400% of the poverty level. This became known as the “subsidy cliff.” But it was an artifact of political compromise; the expectation was that Congress would get around to fixing the cheeseparing subsidy schedule at a later date.
In the pandemic-driven American Rescue Plan Act of 2021, Congress refashioned the subsidies so families with incomes up to 150% of the poverty level ($56,475 for a family of four this year) could find decent Obamacare plans for free. For those above that level and up to 400%, the subsidies were significantly increased. That’s the change set to expire Dec. 31.
It’s true that eligibility for these subsidies is technically unlimited, but the conservative trope that they benefit “millionaires” is nonsense. As I reported earlier this year, the new structure means technically that someone earning $1 million a year would have to pay no more than $85,000 per person for an ACA plan.
Is this a handout? ACA expert Charles Gaba tested the claim by hunting for a benchmark Silver ACA plan, on which the subsidies are based, costing that much anywhere in the U.S. The highest-cost plans he found anywhere are in four counties of West Virginia, where a Silver plan for a 64-year-old couple tops out at $63,100 a year — in a state with the highest ACA premiums in the nation.
Cassidy’s proposal is essentially to replace the existing subsidy enhancements with health savings accounts, which must be paired with high-deductible health plans, and to seed them with $1,000 a year per adult ages 18 to 49 and $1,500 for those 50 and up. Households with income up to 700% of the federal poverty level would be eligible — that’s about $225,000 for a family of four.
Let’s start with the plain arithmetic of this proposal. The accounts must be paired with a bronze-level ACA plan. Those plans cover only about 60% of average healthcare costs. Deductibles are high — at Covered California, the state’s ACA marketplace, the bronze plan deductible is $5,800 per person and $11,600 for a family. Out-of-pocket maximums are also high — $10,600 per individual and $21,200 for a family.
So right from the outset, the Cassidy proposal would leave families facing serious medical expenses out in the cold.
The HSA idea is part of a GOP argument that giving families cash to spend on healthcare gives them “skin in the game” — that by forking over dollars, they’ll be more sensitive to the cost of medical care and therefore seek out or negotiate lower prices.
Two of the argument’s leading academic promoters, Liran Einav of Stanford and Amy Finkelstein of MIT, wrote in a 2023 book lauding deductibles and co-pays that “patients must pay something for their care, otherwise they’ll rush to the doctor every time they sneeze.” More recently, as the facts have come in, they’ve said: “We take it back.”
The truth is that there’s no evidence that higher financial obstacles to healthcare produce better outcomes. They do discourage unnecessary treatments, as a seminal Rand Corp. study found in 1981. But they also discourage necessary treatments.
The idea that deductibles and co-pays will prompt the average person to seek out low-cost providers is a fantasy. People typically seek out medical care in an atmosphere of urgency. They don’t take the time to compare prices as if they’re buying a car; they go to the doctor and follow his or her instructions, including prescribed procedures and diagnostic tests. (Sometimes they do price shop, but generally for treatments that can be deferred and are medically routine and elective — one study showing cost savings from price shopping focused on hip and knee replacements, for instance).
As for the claims of Trump and other Republicans that Americans, armed with cash in their pocket, can use it to negotiate medical care — who has the time, energy or bargaining skill to do that?
In any case, the HSA is mischaracterized as a healthcare provision. It’s not; it’s a tax break in disguise, useful for higher-income taxpayers who can afford to cover the high deductibles themselves while pocketing a tax deduction. It’s especially appealing for those who are in good health and expect to stay so — they proceed on the assumption that they probably won’t have a serious (and expensive) medical issue.
The bottom line is that the Republican Party is out of healthcare ideas. They’ve had 15 years to conjure up a better program than the Affordable Care Act, and have nothing to show us except proposals that won’t work for the average family. They’re up against a wall of their own making, and are pretending that they have something better. They don’t, and you and I will be paying the price of their failure.
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