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Escalating Cost of Obamacare Subsidies: Projected Ten-Year Cost Up $336 Billion

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Drew Gonshorowski
Senior Research FellowatParagon Health Institute

Drew Gonshorowski is a Senior Research Fellow at Paragon Health Institute. He brings a decade of experience conducting quantitative research and building models examining health policy and entitlement programs.

Brian Blase
PresidentatParagon 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.

Premium subsidies received by insurers offering Affordable Care Act (ACA) exchange plans are escalating in cost. Both legislative changes and Biden administration regulatory actions, many legally dubious, increased the size of subsidies and extended eligibility for them. This week’s Paragon Pic shows the escalating cost, comparing the Congressional Budget Office’s (CBO) most recent estimates with its projections in September 2020 prior to several policies that inflated the subsidies. CBO expects that the cost of the ACA subsidies from 2021-2030 will be $336 billion more, or 53 percent higher, than it projected in 2020 before all the subsidy expansions.

The American Rescue Plan Act of 2021 increased subsidies for everyone already receiving one and expanded subsidy eligibility to people in households with income above 400 percent of the federal poverty level (FPL). This policy change made fully-subsidized plans with minimal cost-sharing available for individuals with income between 100-150 percent of FPL. The Inflation Reduction Act then extended the increased subsidies through 2025. Driven by these higher subsidies, exchange enrollment has surged, particularly for people below 150 percent of FPL, who are now nearly half of all enrollees.

According to CBO, 4 million additional enrollees were added in 2023 because of the higher subsidies. CBO highlights that the increased subsidies have led to less employer coverage: “Part of the growth from 2023 to 2025 stems from an increasing awareness of the policy that leads fewer employers to offer health insurance and, therefore, to higher enrollment in the [exchanges].”

Once the increased subsidies expire, CBO still expects a much higher subsidy cost than CBO projected in 2020. By 2030, CBO now projects that ACA insurance subsidies will cost $27 billion more than in its 2020 projection. This cost growth is largely because of three Biden Administration unilateral actions to pump up enrollment by directing more money to insurers.

  • The legally dubious “family glitch” fix significantly increased the subsidy cost. The so-called family glitch occurred because the ACA based a key affordability standard on the cost of self-only coverage. If an employer’s offer to an employee for self-only coverage was considered affordable, the employee and any dependents were not eligible for a subsidy. The “fix” ignored the clear statutory language and changed the affordability standard to the cost of the family premium. The result is that more employer offers are considered unaffordable, and more people become eligible for subsidies. The main effect is to largely replace private spending with government spending as dependents shift from employer coverage to subsidized exchange coverage. Based on CBO’s estimates, the additional subsidy cost from this policy will be roughly $6 billion in 2027, a cost which will likely grow as more employers stop offering dependent coverage as a result.
  • Beginning in 2022, the Biden administration created a special enrollment period allowing enrollees with income below 150 percent of FPL — who happen to now be eligible for fully subsidized premiums — to enroll year-round. This year the Biden administration made this perpetual enrollment policy Since nearly half of all exchange enrollees have income below 150 percent of FPL, this policy is likely very costly for taxpayers.
  • The Biden administration loosened income verification requirements starting in 2021. Under current regulations, if someone claims to have income above 100 percent of FPL, they would still be allowed to enroll in subsidized coverage even if administrative data suggest their income is too low to qualify. This policy encourages improper enrollment in subsidies given that the federal government is prohibited from recovering the vast majority of the subsidy cost for low-income enrollees who improperly enroll in the exchanges with a subsidy.

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