For six weeks starting October 1, the federal government was shut down because of Democratic Party concerns that the ending of the temporary Affordable Care Act enhanced subsidies, enacted in 2021, would have a devastating impact on many Americans. In September, the Urban Institute had estimated that over 7 million households would no longer receive government subsidies, leading 4.8 million to lose health coverage. Ads began appearing showing older married couples whose premiums would more than quadruple.
Fast forward to January, the Democrats were again threatening a showdown, but it was no longer related to the Affordable Care Act. What changed? Before the 2021 enhancement of government health care subsidies, the Affordable Care Act went only to households with incomes no more than 4X the federal poverty rate (FPR). Those already covered received modest benefit increases. However, a large share of the enhanced benefits went to newly eligible households with incomes above 4X the FPR.
With the termination of those temporary ACA enhancements, eligibility returned to their previous cutoffs that are currently about $64,000, $80,000, $106,000, and $128,000, respectively, for one, two, three, and four-person households. For households under the cutoffs, the increases are modest: average annual premiums increase $750 for households with income less than 2.5X the FPR and $1250 for those with incomes between 2.5X and 4X the FPR. And a number of states will subsidize these increases. Thus, the added burden to these households is not likely to be onerous enough to cause a significant share to withdraw from coverage.
Among those whose incomes are now too high to qualify, the increases are more substantial. On average for this group, the annual increase will be just over $4,000. However, it is much greater for the oldest; an $18,000 annual increase for a 60-year-old married couple. However, only 7% of previously enrolled households had incomes above 4X the FPR, with almost half the group having incomes above 5X the FPR. As a result, enhanced benefits mostly went to a comfortable middle class; households that are not going to stop paying their premiums. This is why the actual enrollment decline was only 1.2 million, well below the Urban Institute forecast.
Critics correctly caution that many of those who have signed up may drop out during the year as the additional payments become too burdensome to continue coverage so that the actual decline might be substantially greater. Interestingly, the Urban Institute fears that the dropouts will be disproportionately among the 28% of enrollees who are 18 to 35 years old. These are individuals, who except for a catastrophic event, use few medical services. The problem is that these young healthy individuals pay premiums that help subsidize the medical expenses of the older less healthy individuals in the program. Hence, their exit will cause further premium increases.
Maintaining young health enrollees raises the perennial problem of Medicare as well: The need for younger households to subsidize the medical expenses of the elderly. A problem that worsens each year due to a falling birth rate and an increase in life expectancies. However, there is also the problem of what happens when you support temporary adjustments due to short-term circumstances.
The 2021 enhancements were justified by COVID’s short-term adverse impact on individual well-being. However, it is hard politically to withdraw them even if there are no longer the adverse circumstances that justified them.
A similar dynamic has occurred with the food-stamp program. The sharp spike in unemployment, after the 2008 economic struggles, justified enabling able-bodied adults with no dependent children to broadly qualify for benefits. However, long after the crisis was resolved, they remained a large share of food stamp recipients, now equaling the number of single-adult households with dependent children. And just as with the ACA, attempts to better target these benefits, by requiring this group to engage in modest work-related activities, have been fiercely criticized by Democrats.
Maybe we should find a way to ease the sharp increases in medical premiums some 60-year-old households just above the reinstituted cutoffs are experiencing; and find ways to keep young, healthy households enrolled in the ACA. But unless we find better policies to limit the healthcare costs to the elderly, we will continue to have to make unenviable health care decisions. And we should only in the most-dire circumstances enhance benefits to programs when we expect them to be temporary.
