Uninsurance May Drop 14% If ACA Subsidy Increases Are Solidified

If Congress made permanent the American Rescue Plan’s Affordable Care Act subsidy increases, then uninsurance might drop, marketplace enrollment could rise, and non-group premiums could decline when the changes are fully adopted, according to a recent Urban Institute report.

The researchers the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM) in order to assess the impacts of a long-term subsidy hike.

Uninsurance could fall by nearly 14 percent (4.2 million beneficiaries). The researchers also predicted that approximately 317,000 individuals would change from plans that do not comply with the Affordable Care Act to compliant health plans.

Those who are uninsured in the income brackets under 400 percent of the federal poverty level would benefit the most from standardizing the marketplace subsidies, with the income bracket of 200 to 400 percent of the federal poverty level seeing 31 percent lower uninsurance.

Approximately 475,000 individuals would switch out of employer-sponsored insurance plans if the higher subsidies were made permanent. Many would migrate to the Affordable Care Act marketplace—specifically the individual health insurance market—due to lower costs.

However, families that have the option of an affordable employer-sponsored health plan would remain ineligible for subsidized marketplace plans, potentially perpetuating the family glitch.

“Since the ACA was first proposed, some policymakers have worried the subsidies available in the nongroup market would encourage employers to stop offering ESI,” the researchers acknowledged.

“However, research shows most employers responded to the ACA by increasing the rates at which they offer insurance to their employees, and total ESI coverage increased in the years following implementation of the marketplace in 2014. Our analysis of the ARPA’s expanded marketplace subsidy schedule is consistent with the latest research on employers, and we estimate very few employers currently offering insurance to their workers would find it advantageous to stop offering coverage.”

Less than 10,000 people would become uninsured due to these changes. Most of the newly uninsured would be able to enroll in Medicaid or subsidized Affordable Care Act marketplace plans, but would choose not to do so.

Enrollment in Medicaid and Children’s Health Insurance Program (CHIP) would rise by approximately 366,000 beneficiaries.

By attracting a larger population of healthy individuals, premiums on the marketplace could drop approximately 15 percent on average.

Beneficiary healthcare spending in the individual health insurance market would decrease significantly. Average healthcare spending on both premiums and out-of-pocket costs would decline 23 percent for the entire individual health insurance market with notable variations based on income bracket.

In contrast, federal spending would increase with this plan. Permanently subsidizing Affordable Care Act marketplace plans would boost federal spending by around $17.6 billion.

The results of this report differed from the Congressional Budget Office’s (CBO's) analysis of the American Rescue Plan Act legislation, which found that federal deficits would increase by $34.2 billion from 2021 to 2030, marketplace enrollment would rise by 1.7 million enrollees, and uninsurance would fall by 1.3 million individuals.

The distinction derives from different assumptions that researchers made about how fully the change was adopted in the model for the Urban Institute report and impacts of the current timeline on the CBO's analysis, among other factors.

Historically, the Affordable Care Act subsidies have produced some results since they were first enacted. They may have decreased out-of-pocket healthcare spending by 17 percent and catastrophic spending by almost 30 percent, according to a Health Affairs study.

However, middle-income enrollees still experience challenges in finding affordable plans on the Affordable Care Act markeplace even with the subsidies. Average out-of-pocket healthcare spending dropped by $38 and catastrophic spending fell 0.8 percent after the Affordable Care Act’s implementation.

In fact, a separate study found that price could be the key factor deterring eligible individuals from taking advantage of subsidized Affordable Care Act plans during the special enrollment period. Specifically for bronze plans, deductibles as high as $7,000 may be a significant barrier to uptake.