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Millions of people have lost employment-based health insurance as a result of COVID-19. In response, the House Ways and Means Committee recently proposed several insurance reforms in its COVID-19 emergency relief plan. These reforms include increasing the amount of government subsidies for policies purchased in the Affordable Care Act (ACA) markets and extending these subsidies to people with higher incomes.
A pre-pandemic analysis I conducted with Jodi Liu suggests that these are effective approaches to attracting more people to the insurance market. Here, I review the Ways and Means proposal and our previous research on the likely impact of such an approach on federal coverage and spending. I also explain why the proposed combined approach is a much more efficient way to cover uninsured Americans than increasing grants only for those who are currently eligible.
What is the use of the proposed ways and means?
The ACA’s complex grant formula limits grants to people with incomes between 100% and 400% of the federal poverty line and who have no other source of affordable coverage, such as insurance based on the ACA. use. It also caps the percentage of income a registrant must spend on a “benchmark” plan based on what they earn. For example, a family of four with a family income of $ 106,000 (400% of the federal poverty line) must contribute 9.83% of that amount – or $ 10,420 – for a referral plan. Costs above these are covered by the federal grant if the family enrolls in the referral option.
Congress proposes to lower the cap to 8.5% of income for 2021 and 2022. This would save the family in this case about $ 1,400 per year. Low income families have lower limits. Under the proposed legislation, those with incomes below 150% of the poverty line would see their premiums drop to zero.
In addition, the legislation would add subsidies to higher income earners for 2021 and 2022. While subsidizing higher income earners may seem counterintuitive, those who are just above the 400% poverty line may seem counterintuitive. face unaffordable premiums. This particularly affects the elderly. (Younger people and those with very high incomes usually have premiums below the maximum contribution percentage.)
In previous work, we have found that the extension of subsidies as proposed by Congress mainly benefits people aged 50 to 64 with incomes between 400 and 700% of poverty. For example, a 60-year-old who earns $ 50,000 a year – just above the current subsidy threshold of 400% poverty – pays about $ 8,500 a year for a rudimentary bronze plan, or more than 15 % of that individual’s income. Under the new proposal, that same person would pay $ 4,250 for a benchmark plan.
The advantages of the combined approach
In pre-pandemic conditions, we estimated that extending grant eligibility to people with incomes above 400% of poverty while making the grants more generous could secure an additional 2.4 million people. The federal cost would average $ 7,723 per newly insured person, for a total of $ 18.8 billion. Today, given the needs of the pandemic, the number of additional insureds could be higher.
This combined approach of increased grants and extended eligibility has proven to be significantly more effective than focusing only on the low-income population already eligible for grants. We estimated that improving grants for those who are currently eligible, without further changes, would add only about 400,000 people to insurance roles, at a federal cost of almost $ 15,000 per newly insured. In most cases, this is more than the cost of an individual insurance plan.
The blended approach is more effective than increasing grants alone, because those who are currently eligible for ACA grants already have an incentive to obtain coverage, even without increasing federal grants. Those who are currently eligible for grants already have costs capped between 2.07 and 9.83% of income if they choose a referral plan, and many can sign up for a simple plan for free.
The fact that some people are still uninsured suggests that the barriers may be non-financial. They may not know they are eligible for a subsidized plan. Or they may give coverage a low priority. The Biden administration is set to expand awareness and assistance with insurance enrollment, which may address the lack of awareness. But, for those with incomes above 400% of poverty, the cost of unsubsidized insurance can be simply prohibitive, especially for the elderly who may have to pay well over 8.5% of their income. to be covered.
Fill in the gaps in the proposal
The approach proposed by the Ways and Means Committee still has significant shortcomings. For example, the plan does not provide assistance to adults with incomes below the poverty line who live in states that have chosen not to expand access to Medicaid. About 2.2 million people fall into this coverage gap. Another part of the COVID relief plan, proposed by the House Energy and Commerce Committee, would push states to expand their Medicaid programs by improving federal matching rates, although it is not clear how many states will respond to this option. .
Moreover, while federal aid makes health insurance cheaper for some registrants, it does not fundamentally affect the cost of health care. This means that taxpayers, who end up footing the bill for improved subsidies, continue to pay high costs. However, our analysis suggests that these policies are likely to have a significant effect on the number of people who are able to afford insurance coverage.
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