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Grading the Affordable Care Act

President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Today, Paragon released an important new study, The Shortcomings of the ACA Exchanges: Far Less Enrollment at a Much Higher Cost. This study was authored by two health actuaries, Daniel Cruz and Greg Fann, and analyzed the efficiency of the Affordable Care Act’s individual market changes as well as the efficiency of premium subsidy expansions that occurred during both the Trump and Biden administrations.
 
Here are the main findings:

  • The ACA individual market policies have produced far less enrollment at a much higher cost than projected. Federal spending on the ACA exchanges, totaling $60 billion in 2021, resulted in a total increase of 1.6 million Americans covered under private insurance.
  • The cost to taxpayers has been $36,798 per additional private insurance enrollee which is more than triple CBO’s original projections of $10,538.
  • Stopping cost-sharing reduction payments led insurers to raise silver premiums, resulting in an increase of federal subsidies that increased enrollment at a cost of $16,928 per additional subsidized enrollee.
  • The American Rescue Plan Act (ARPA) reduced required income-based premium contributions for subsidized enrollees and expanded eligibility for the subsidies. As a result, federal subsidies increased by $8,712 per additional subsidized enrollee.
  • Some state regulators took recent action to adjust insurance premium relationships to align with the ACA’s single risk pool requirement, resulting in higher silver premiums, higher subsidies (available to enrollees regardless of metal tier plan), and lower net premiums for other metal levels.
  • Of the 19 million additional Americans with health coverage after the ACA was implemented, 17.4 million were covered under the newly eligible Medicaid expansion group.

Why it matters: The enhanced federal subsidies created by the ARPA, and extended by the Inflation Reduction Act, are set to expire at the end of 2025. This will provide an opportunity for Congress to evaluate the effectiveness of the ACA’s private market policies in light of the implementation of the original law and the subsequent changes. Evidence thus far suggests public resources could be expended in much better ways.
 
Cruz and Fann have a National Review piece that summarizes their findings. Here are two key paragraphs, which include their policy recommendations:

Instead of increasing coverage, the ACA exchanges have effectively fostered a winners-and-losers demographic shift that attracts a different group of people — primarily older, sicker, and lower-income households eligible for large subsidies. Meanwhile, the negative impact of higher premiums has hurt Americans who do not qualify for subsidies and are increasingly unwilling to purchase health insurance in the individual market. Only 21 percent of individual-market enrollees in 2022 paid the premium without taxpayer help. In 2013, the individual market was entirely unsubsidized.

Rather than perpetuate the approach of infusing more taxpayer funds into an inefficient program, Congress should pursue three meaningful reforms. First, leverage new actuarial analyses to better allocate federal subsidies. Second, recognize that ACA plans are unattractive to many Americans and permit people greater freedom to select plans not subject to inflated premiums. Third, reverse the decline in small employers offering health benefits by enacting policies that help small employers offer coverage to their employees.

Paragon’s senior research fellow Theo Merkel has a helpful Twitter thread that contains several of the key figures from the new study. At 2pm EDT on October 5th, Paragon will host a virtual briefing with the paper’s authors where they will discuss their findings and take questions.

All the best,
 
Brian Blase
President
Paragon Health Institute

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