Cementing ARPA Enhanced Subsidies May Boost Deficit, Lower Uninsurance

Making the American Rescue Plan Act of 2021’s enhanced subsidies permanent would increase the federal deficit by over $247 billion over nearly a decade, according to a letter from the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).

The CBO and JCT used the May 2022 baseline to make their calculations in response to the senators’ requests. The “Budget and Economic Outlook: 2022 to 2032” projected that the average annual shortfall between 2023 and 2032 would be $1.6 trillion.

With this context in mind, CBO and JCT projected that making the American Rescue Plan Act permanent would increase the federal deficit by $246.9 billion over the next nine years, from 2023 to 2032. 

Premium tax credits would cost an additional $305.5 billion during that period. However, revenues would receive a boost from “a shift in employees’ compensation from tax-favored health insurance to taxable wages,” which could offset the spike in premium tax credit spending, the letter explained.

Affordable Care Act marketplace enrollment would receive a boost due to the enhanced premium tax credits. Most new enrollees would have incomes under 400 percent of the federal poverty level. Most enrollees in that income bracket would have incomes at or below 200 percent of the federal poverty level.

Most of the enrollees with incomes below 400 percent of the federal poverty level would be individuals who were already eligible for premium tax credits.

This enrollment boost would accompany a decrease in uninsurance. CBO and JCT estimated that the uninsurance rate would decrease by 2.2 million people over nine years as 4.8 million individuals enroll in Affordable Care Act marketplace plans and another 200,000 join Medicaid or the Children’s Health Insurance Program (CHIP). 

Decreases in nongroup, off-marketplace coverage and employer-sponsored health plan coverage would also contribute to the enrollment shifts. Nongroup, off-marketplace coverage would drop by 500,000 individuals and employer-sponsored health plan enrollment would decline by 2.3 million.

“The estimated effect on the number of people with employment-based coverage is larger for a permanent extension than is the case for the enhanced subsidies in place for 2021 and 2022 because the agencies estimate that few employers changed their decision to offer health insurance given the temporary nature of the enhanced subsidy,” the letter explained.

The average credit cost per enrollee would be $4,980 across nine years. Out-of-pocket spending on premiums would drop for enrollees.

Overall, federal spending would increase by $181.4 billion. Meanwhile, federal revenues would drop by $66.5 billion.

The senators had requested information on various factors related to making the American Rescue Plan Act permanent.

They asked what financial impact the law would have on federal deficits and healthcare coverage, the distribution of high-income enrollees on the Affordable Care Act marketplace, the costs for federal subsidies to cover higher income enrollees, the average federal subsidy if the Act were made permanent, and the average federal subsidy of individuals who would forego employer-sponsored health plan coverage in favor of subsidized marketplace coverage.

The senators responded to the CBO and JCT’s report by emphasizing the high costs of making permanent the American Rescue Plan Act’s enhanced subsidies.