President Trump Weighs In + Explaining the HSA Option

Last night, the House of Representatives voted to reopen the federal government, which has been shut down since October 1. That same day I wrote a newsletter entitled, “Doing Insurers’ Bidding and Shutting Down the Government.” This past weekend, President Trump came out firmly against additional taxpayer subsidies to health insurers. Soon after, eight Senate Democrats agreed to reopen the government without sending additional taxpayer dollars to insurers through already inflated Affordable Care Act (ACA) subsidies. As an early indication of the winners and losers of the deal to end the shutdown, health insurers stocks sharply declined on Monday while the overall market was up.

In today’s newsletter, I first review the HSA Option—a proposal that aligns with President Trump’s call to redirect subsidies away from insurers and toward people. I then lay out principles that should motivate reformers who are looking to improve health care quality and affordability. I conclude with a new report from the Joint Economic Committee (JEC) that shows how most of the cost of the ACA subsidies are captured by insurers and enrollment intermediaries and yet another data analysis that indicates large-scale phantom enrollment in the exchanges. In case you are interested, I testified before a Senate Committee last week in a hearing entitled, “Assessing the Damage Done by Obamacare,” and my testimony is here.

The HSA Option

In a Truth Social post on November 8, President Trump recommended “that the Hundreds of Billions of Dollars currently being sent to …Insurance Companies … BE SENT DIRECTLY TO THE PEOPLE SO THAT THEY CAN PURCHASE THEIR OWN, MUCH BETTER HEALTHCARE, AND HAVE MONEY LEFT OVER. In other words, take from the BIG, BAD Insurance Companies, give it to the people.”

In 2022, Paragon’s first major policy paper developed a proposal for moving a portion of ACA subsidies away from insurers to the people. The policy would result in lower premiums, lower federal deficits, and more patient control over their own health care—a rare trifecta of wins.

The proposal has two parts. First, Congress would appropriate the ACA’s cost-sharing reduction (CSR) program. Doing so would provide payments to insurers to reduce plan deductibles, copayments, and out-of-pocket limits. The CSR appropriation—by addressing silver-loading (see brief explanation here)—would reduce silver-plan premiums by about 12 percent and would lower the deficit by roughly $30 billion because subsidies are tied to those premiums.

Second, Congress would give lower-income exchange enrollees the option to take the CSR subsidy as an HSA contribution. Under the proposal, exchange enrollees who qualify for CSR subsidies would have the choice to receive the CSR funds as deposits into Health Savings Accounts (HSAs) rather than insurer-controlled reductions in out-of-pocket limits. The average HSA contribution would likely exceed $2,000 a year.

Enrollees would receive a funded debit card that they could only use for qualified health care expenses. This would empower patients to manage their health more effectively, promote market-based competition, and fix a central flaw in the ACA’s design—the concentration of subsidies and spending power in insurers’ hands rather than patients’. Our paper included a distributional analysis from the actuarial firm Milliman, which found that nearly seven-in-ten enrollees with income below twice the federal poverty level would benefit from selecting the HSA Option, with an average financial gain of around $1,500 per year.

Here would be some key benefits:

• Greater Flexibility: Enrollees can use funds for a wide range of health services, including dental, vision, and over-the-counter items.
• Savings Growth: HSA balances roll over year to year and can be invested tax-free, building resources for future health needs.
• Improved Access: HSA funds help patients navigate narrow ACA provider networks and pay for out-of-network care if needed.
• Improved Incentives: HSAs encourage providers to serve patients directly rather than insurers. Other markets are built on providers serving consumers because consumers are the ones with the money. In such markets, businesses must compete by either lowering prices, becoming more efficient, or increasing quality (often all three). Health care is different because the third-party payment system insulates consumers from the true cost of services. By giving patients more control to shop for care, the HSA Option would bring greater consumer involvement to the market, making health care more affordable and higher quality.

Principles for Reform

Given President Trump’s comments over the weekend opposing additional subsidies directly to insurers, there have been a variety of ideas floated for how to direct financial support from insurers to people. Here are some principles for evaluating any proposals.

1. The policy should not increase federal subsidies for health care or insurance beyond the current law baseline. Excessive subsidies are driving the health care unaffordability crisis.
2. The policy should improve incentives. Current government policy incentivizes spending with other people’s money and, as a result, drives wasteful spending.
3. The policy should redirect existing subsidies away from insurers to people, so the health care system is more responsive to people and best meets their preferences.
4. The policy should expand coverage options for families and small businesses, not limit choices to those preferred by central planners and insurers looking to restrict competition. We need innovation in health care financing approaches to improve incentives for health care providers to be more efficient.
5. The policy should ensure that Americans are able to use their own money on the health coverage and health care that works best for them.

More Evidence the COVID Credits Are Failing

New research continues to confirm past Paragon analysis: the COVID-era enhanced ACA subsidies are a policy failure—driving up costs, fueling fraud, and enriching insurers while making health care less affordable.

A new Joint Economic Committee (JEC) report finds that for every additional $1 on ACA subsidies, consumers received only 34 cents in real value. The remaining two-thirds are absorbed by insurers, brokers, and other intermediaries through higher premiums or are lost to inefficiencies. Liam Sigaud analyzed the JEC report in a new Prognosis.

The JEC analysis shows that since Congress enacted the COVID credits in 2021, total subsidy spending has approximately doubled and is projected to exceed $130 billion in 2025—roughly 60 percent higher than the CBO’s expectations when the pandemic-era subsidy began. The enhanced subsidies have removed incentives for price discipline: insurers know that taxpayers, not consumers, shoulder nearly the entire premium. JEC’s analysis also confirms Paragon’s research on the substantial amount of improper and zero-claim enrollees and the stunning increase in both with the COVID credits.

Meanwhile, yet another data study, this one from Jeremy Nighohossian at the Competitive Enterprise Institute, points to a staggering increase of phantom enrollment in the ACA exchanges in 2024. According to Jeremy’s review of federal data, twice as many people were enrolled in exchange plans in 2024 as reported having coverage, a much larger gap than in the years prior to the COVID credits.

CMS data shows that roughly 12 million people—or 35 percent of all exchange enrollees—filed no medical claims for the period that they were covered in 2024. And 40 percent of enrollees in fully subsidized plans filed no claims. In a typical private health insurance market, only about 15 percent of people do not make a claim.

In response to House Minority Leader Jeffries’s comments on Monday—where he expressed surprise about reports of phantom enrollees in the ACA—I posted a detailed 10-tweet thread on X outlining the evidence, including data, news reports, and recent Justice Department actions.

Wisdom from Brit Hume

From legendary news reporter and commentator Brit Hume from earlier in the week: “If we cannot as a nation decide not to continue a subsidy that was imposed, or was enacted, during a national health emergency and was designed to be temporary and that all the Democrats voted to have be temporary, if we can’t let that expire, what hope do we ever have of getting government spending under control?”