Worse than forecast: Pending cost increases for ACA marketplace enrollees

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KFF data and analysis is essential to anyone seeking to understand the U.S. healthcare system. It’s copious, reliable, and clearly presented. But inevitably, it’s not always up to date.

In late 2024, KFF posted a calculator estimating how much more ACA marketplace enrollees at any income, income and family size would pay for coverage in 2026 if the subsidy enhancements created by the American Rescue Plan Act (ARPA) are allowed to expire (they are funded only through 2025). If the ARPA subsidy schedule expires, which appears near-certain at this point, the subsidy schedule will revert to the pre-ARPA formula used through OEP 2021, adjusted by an annual inflation factor.

When the calculator was created, the subsidy schedule for 2026 was unpublished, and KFF used estimates created by CBO and the JCT in June 2024 (see p. 9 here). Last month, the IRS published the subsidy schedule for 2026, and the CBO estimates turn out to have been quite low. At higher incomes, the actual percentage of income required to buy the benchmark (second cheapest silver) plan is more than a full percentage point higher than CBO estimated (e.g., 9.96% of income at an income of 300% of the Federal Poverty Level (FPL) vs. the CBO estimate of 8.65%).

Percentage of income required to purchase a benchmark silver plan at different income levels in Plan Year 2026: Actual vs. KFF/CBO 2024 estimate

Sources: IRS, KFF, CBO. See note at bottom for the ARPA enhanced subsidy schedule.

A caveat about curtailing short-term limited duration health plans

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It’s generally a good thing when the Biden administration repeals a Trump-era administrative rule. Under current ACA marketplace conditions, a rule proposed by HHS, Treasury and the Department of Labor to restore a three-month term limit on so-called Short Term, Limited Duration (STLD) health plans is a good thing. In a rule finalized in August 2018, the Trump administration extended the allowable duration of such plans to a year, renewable for up to three years, creating an alternative market to the ACA-compliant individual market.

STLD plans by legal definition are not insurance and not subject to regulation by the ACA, HIPAA, the No Surprises Act, or the law mandating parity between physical and mental health coverage (MHPAEA). STLD plans are medically underwritten, meaning that applicants with pre-existing conditions can be charged more, denied coverage altogether, or offered coverage with the pre-existing condition excluded. These plans do not have to cover the ACA’s Essential Health Benefits and often exclude drug coverage and mental health care. They often have no provider network - -instead, they set their own rates in payment to medical providers and thus leave enrollees subject to extensive balance billing — which is still possible, as these plans are not subject to the No Surprises Act, which began protecting people in ACA-compliant plans in 2022. (In many markets, however, United HealthCare does offer STLD plans that have a provider network.)

For the Trump administration, which inherited Republicans’ dead-end opposition to and demonization of everything ACA, STLD plans represented a kind of ideal, harking back to the Shangri-la of the pre-ACA individual market, in which plans without restrictive provider networks (and with coverage limitations similar to those of STLD plans) cost lucky, healthy enrollees considerably less than unsubsidized ACA-compliant plans would later cost. Seema Verma, Trump’s CMS director, lionized “choice” — a market teeming with lightly regulated options offering very partial coverage — and that is what the Trump administration created. Verma even floated ACA “waiver concepts” inviting the states to seek approval for providing federal subsidies for ACA-noncompliant plans.

Is the ACA marketplace catching a surge in entrepreneurship?

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The Wall Street Journal's Josh Mitchell and Kathryn Dill report that the pandemic has triggered a surge in self-employment and small business formation:

The number of unincorporated self-employed workers has risen by 500,000 since the start of the pandemic, Labor Department data show, to 9.44 million....Entrepreneurs applied for federal tax-identification numbers to register 4.54 million new businesses from January through October this year, up 56% from the same period of 2019, Census Bureau data show.

That surge underscores the value and good timing of the boosts to premium subsidies for plans sold in the ACA Health Insurance Marketplace provided by the American Rescue Plan Act, enacted in March 2021. Those subsidy increases brought the ACA much closer to fulfilling its promise of providing affordable insurance to those who lose or leave their jobs and so lose access to employer-sponsored plans, which insure the majority of working age Americans.

Planning a two-step retirement, because health insurance

My last post looked at the various ways that self-employed people in particular can limit their taxable income to stay on the right side of the ACA subsidy cliff, which has reached untenable heights for people in their late 50s and early 60s. We're at the point where getting on the wrong side of the subsidy-eligible line can mean $10,000-plus in extra health insurance costs for older shoppers in the individual market for health insurance.

The situation reflects broader societal dysfunction. We have a gaping hole in the safety net patched by an insanely diverse panoply of tax-sheltered accounts -- which some lucky and nimble affluent-but-not-rich people may hopscotch across to safety.

Take the case of a couple of 58 year-olds in a northeast city where the cost of living is high -- their modest dwelling is worth over $600k and taxed accordingly. The wife, Samara, is a hospital nurse, and the husband, Aman, is a solo consultant of some kind. Both have earnings in the $75k range. Thanks to assiduous feeding of their 401k retirement accounts (they've saved a bit over $1 million between them), their Adjusted Gross Income (AGI) is about $110,000 -- far below their gross, but far above the ACA's subsidy eligibility threshold of $64,960. That's not an issue for now, because they get good insurance through Samara's hospital job.

But what if Samara is hoping by age 62 or so to...not retire, but work per diem, or try an encore career? An unsubsidized ACA-compliant two-person bronze plan with per person deductibles in the $6-7000 range  might cost them $1500 or $2000 a month by age 62.  Can the couple get below the subsidy line without a radical cut in income? Can Samara escape health insurance-induced job lock?

Steering clear of the subsidy cliff in the ACA marketplace

It's plain this year that the individual market for health insurance is unaffordable for many of the unsubsidized, particularly those in their late fifties or early sixties. The subsidy cliff has reached a fatal height for many.

This week Kaiser Health News reporter Rachel Bluth spotlighted a stark example: A 62 year-old woman in Chattanooga, Tennessee who earned $80,000 working for a consultancy deliberately cut her hours, reducing her income by a third to get herself and her husband below the subsidy line ($64,080 for a two-person household in 2017). The total household income was $92,000.  The woman, Anne Cornwell, cut her income by $24,000 -- and her insurance bill by $27,000.

This drastic solution set me thinking about ways to keep on the right side of the subsidy cliff, i.e., 400% of the Federal Poverty Level. In 2018, that's a  Modified Adjusted Gross Income (MAGI)  of $48,240 for an individual, $64,960 for a couple, and $98,400 for a family of four.

Many but not all resources for reducing MAGI are available only to the self-employed. They include the following.

Fleshing out a (real) ACA hardship story in the WSJ

It's inevitable that reporters' vignettes about ACA shoppers will often lack context or essential details. Print space is limited, readers' attention is limited,  reporters' time is limited, and protagonists' grasp of their own experience may even be limited.

Still, the back stories are often worth probing (3, 2, 1. 0). Here's one from today's Wall Street Journal, with Louise Radnofsky, Stephanie Armour, and Anna Wilde Mathews reporting on the first day of Open Season II. There's no inaccuracy, but the rate-shock subplot in this brief account does leave a question mark:

Near ACA subsidy cliff? Covered California spox suggests calling an accountant

I have noted on several occasions that health insurance shoppers near the edge of the ACA subsidy cliff should see an accountant:

The premium subsidy cliff for older exchange buyers is more serious, especially if there are two of them in a household.   To return to an example I cited previously, take a pair of 55 year-olds with a 23 year-old son or daughter. For them, the cheapest silver plan in Essex County New Jersey is $1,357 per month.  If the family income is $63,000, the monthly subsidy is $876, their monthly payment to $481.  At $79,119 (299% FPL), the subsidy has dropped modestly, to $756. At $79,121, it's -- zero.

In this case, some serious money is at stake at the cliff. But it seems to me that the likeliest reaction is not to reduce hours or income but to manipulate MAGI -- especially since the stakes are higher as you go up the income scale, and so those at the steeper cliff's edge are likely to be more sophisticated. In fact, they're likely to be self-employed -- i.e., earning a relatively decent income while lacking access to employer-sponsored insurance. And as I've noted before, the taxable income of the self-employed is notoriously malleable at the margins. Sticking another thousand or two in an individual 401k or buying yourself a new computer at Christmas may put you a few inches back from the subsidy cliff.

Will the ACA boost retirement savings?

The CBO's new projection that the Affordable Care Act would lead to a labor force reduction equivalent to 2.3 million jobs by 2021 stems in part from an assumption that some people will be reluctant to boost their income because doing so may reduce or eliminate their ACA subsidies.

Perhaps. The ACA includes some subsidy cliffs -- break points at which reporting an extra dollar of income will sharply increase the cost of insurance.  But besides earning less, there are other ways to reduce one's taxable income that should be available even to many lower-income workers.

The health insurance "who pays?" tug-of-war

If you're going to cut a string to a certain length, whichever end you cut, you'll still have the same length.

The first substantive "repeal and replace" legislative proposal offered by Republicans since the ACA passed, unveiled in outline on January 27 by Republican Sens. Tom Coburn (OK), Richard Burr (NC), and Orrin Hatch (UT), illustrates that basic principle on multiple fronts. That's because its core provisions are to greater or lesser degrees cousins of their counterparts in the ACA.

As Don Taylor has been pointing out for a week, the rollout of the Coburn-Burr-Hatch  proposal last Monday highlights the fact that any real attempt to replace the ACA while at least roughly matching its coverage goals will expose the GOP to the same kinds of attacks -- perhaps more from their right wing than from the Democrats -- as they've been leveling at Democrats since the ACA took shape in 2009. 

In some cases, the choices advanced in Coburn et al's so-called Patient CARE Act (following Taylor, I'll call it PCARE) may represent improvements over parallel provisions in the ACA. But all such choices involve tradeoffs -- alternate plans will have, to varying degree different winners and losers  (high taxpayers vs. subsidized insureds; young vs. old; employer-insured vs. individual market-insured; healthy vs. sick).  Many if not most of us will be on different sides of each of these divides at different points.

One feature of PCARE, or rather two interrelating features, throw the nature of these tradeoffs into relief. For years, Republicans have been screaming that the ACA forces young adults in the individual market to subsidize older participants. That's because the ACA limits the allowable extent to which the oldest participants can be charged more than the youngest to a 3-to-1 ratio, whereas pre-ACA, most states allowed ratios of  5-to-1 or more (42 states, according to AHIP). That alleged bilking of the young was at the heart of the case against the ACA's constitutionality argued in the Supreme Court in March 2012 and fueled all the cries of "rate shock" from conservative critics of the ACA in 2013. According to the Kaiser Family Foundation, the impact of the narrower age banding on young adults' premiums is pretty modest, but never mind.

What subsidy cliff? Jared Bernstein and Dean Baker defend the Affordable Care Act

I spent my last post peering over the edge at various points of the Affordable Care Act's subsidy cliff -- the income cutoff beyond which shoppers for health insurance are ineligible for subsidies.  I was prompted by a New York Times article spotlighting  who stand to lose most by this cutoff: middle aged and older, with incomes just over the line. In brief: if you're 27 and single, premium subsidies fade out gradually. If you earn one dollar more than the subsidizable limit, it may cost you $100 per year. If you're 55 and looking to cover a family of four, however, that extra dollar may cost you almost $9000 in subsidies.

While I had a couple of quibbles with the Times article, I thought it was fair.  The subsidy cliff is a real design flaw. A pair of 55 year-olds covering a 23 year-old son or daughter in New Jersey with an income of $79k shouldn't have to pay $1300/month for rather crappy insurance, which is what they would pay in Essex County, NJ.

I was somewhat taken aback, then, to discover that the fiery Dean Baker and the more mild-mannered Jared Bernstein both took rather furious issue with the Times article (by Katie Thomas, Reed Abelson, and Jo Craven McGinty). Baker's rhetoric is harsher than Bernstein's, but I think he does have a point. Bernstein's rebuttal strikes me as more of a reflex partisan pushback.* Take his opening salvo: