The 2021 American Rescue Plan Act – which was sold as temporary help during the challenges of COVID-19 – expanded Affordable Care Act subsidies in a way that reshaped who the program serves and who profits from it.
New enrollments were concentrated in states that had previously declined the federal government’s offer to expand Medicaid, fearing the costs would be unsustainable once they had to pick up more of the tab. Most beneficiaries were working poor and lower middle-class adults – including many young, healthy individuals. These were people who had been priced out of purchasing care and coverage due to the absence of price transparency, the lack of which prevents choice, competition, and accountability from making health care affordable and accessible.
ARPA expanded Obamacare subsidies, lowered premium contributions and allowed higher income families to qualify. Under the new formula, a family at the federal poverty level (FPL, $26,500 in 2021) would pay nothing, while the premium for a family making four times that amount ($106,000) would be capped at 8.5% of their income, which also would be the same rate paid by a family earning twice that. But the full cost was nowhere near as low as what the family was paying: money from these subsidies went directly to insurance companies. Enrollment in states that had declined the ACA Medicaid expansion grew by 188% compared with 65% elsewhere.
The ARPA changes were promised to be temporary and were set to expire at the end of 2025. This is the debate we are having today. There has been much discussion about what rate hikes might look like if the 2021 subsidies are allowed to lapse. For most participants, increases will be real, but modest. Higher income families who previously had not been eligible for subsidies will see the biggest jump, as they will go back to paying market rates. This small number of outliers skews the average and becomes the basis for exaggerated claims that “most families” will face steep hikes. That said, for those families looking at steep out of pocket price increases, knowing that they aren’t the average will be little comfort.
The most important question, though, is one most aren’t asking. Why are insurance premiums so high in the first place, and why have they gone up rather than down as promised?
It’s a problem that affects every family, not just those on the exchanges, and every business too. Some of this should have been foreseeable. The ACA forced expansive coverage as the default option and outlawed more affordable catastrophic plans, the exact instruments that would best align with the needs of many of the newest members. In addition, the competitive landscape that CBO envisioned at the onset of Obamacare failed to materialize. Instead, there has been market consolidation that most certainly has played a role.
Insurers claim that rate hikes – which have been nearly twice the rate of inflation – are justified because the ACA has forced them to bring sicker people into the fold. For the first few years of the ACA exchanges, from 2014-17, there was evidence to support that position. New enrollees included people who previously had been denied coverage due to pre-existing conditions. This is no longer the case. Analyses in 2017-2018 by the Congressional Budget Office and Kaiser Family Foundation found that increases in premiums were independent of patient acuity, a divergence that became more pronounced with the ARPA expansion.
The real problem is the lack of price transparency. Hospital and health insurance prices are still generally hidden from patients. Health claims data is obscured from employers. Without prices, consumers can’t protect themselves from overcharges and medical debt. They can’t spot wide price variations of ten times or more for the same care. They can’t shop for the best quality care at the lowest possible price. And they can’t benefit from competition, which keeps prices affordable in every other economic sector. As a result, they face runaway prices and depend on subsidies – not market and consumer forces – to access care and coverage.
Systemwide price transparency, including the robust enforcement of federal rules and laws to give patients and employers access to upfront prices and claims data, is a far better long-term solution than extending expanded subsidies. Without reform – transparency, accountability, and competition that includes multiple insurers in each market, as well as basic coverage options which provide alternatives to the ACA – we are only going to see greater and greater increases in premiums. Extending the subsidies without addressing transparency would be a wasted opportunity, and a solution that is no solution at all.
