The Affordable Care Act enhanced subsidies, which began in 2021, are due to expire at the end of 2025. That means middle class Americans who earn more than 400% of the federal poverty level will see their premiums skyrocket. More than 24 million people have an ACA Marketplace plan in 2025, compared to less than 12 million ten years ago and eight million in 2014. The number of people with ACA Marketplace plans hardly changed throughout the years, hovering around 12 million from 2015 to 2021. In 2022 14.5 million enrolled in ACA Marketplace plans, 16.4 million in 2023, 21.4 million in 2024 and about 24 million in 2025. Enhanced subsidies made Obamacare cheaper, which encouraged millions of Americans to enroll in coverage they were not willing to purchase on their own.
Obamacare plans are a poor value. In 2022 I qualified for an enhanced subsidy of about $450 a month. I lost my subsidy in 2023, 2024 and 2025. My most recent deductible was about $9,000 annually, with 40% cost-sharing. My premiums before subsidy were between $700 to $750 a month in 2022, 2023 and 2024. If I choose to enroll my premiums will likely be $10,000 in 2026 with a plan deductible of a similar amount and 40% cost sharing. After spending $10,000 on premiums, I would need to spend another $10,000 on medical care before my insurance would pay a dime of my care. I am unlikely to need $20,000 in care, or even $10,000 or $5,000 for that matter. Indeed, I do not really expect to spend more than $1,000. Although I used medical care in 2022, 2023 and 2024 I never filed a claim on any of my ACA plans. I am not alone. Just under one-quarter (23%) of ACA plan members did not file a claim in 2019 (before enhanced subsidies). By 2024 that proportion had jumped to 35%. The reasons why members may not file a claim in any given year range from good health to high cost-sharing. Regardless of the reasons it represents a huge waste of taxpayers’ money.
Enhanced subsidies are expensive. The Committee for a Responsible Federal Budget claims the enhanced subsidies will cost taxpayers $380 billion over 10 years. Simple math suggests the enhanced subsidies are a $130+ billion giveaway to health insurers for care not provided. Giving middle-class Americans a $5,000 a year subsidy to buy health insurance they hardly utilize would seem a huge waste of money on people who are not poor. Think about this: 80% of people account for only about 20% of medical expenditures. Although not a precise estimate, that suggests that more than 80% of Obamacare enrollees will never even surpass a deductible similar to bronze plans. Again, not a precise estimate but it is reasonable to conclude that a similar proportion of ACA enrollees would be financially no worse off by going without insurance. What this basically means is that Obamacare is a huge transfer of wealth from healthiest 80% to the sickest 20%. Obamacare in general (and enhanced subsidies in particular) are also an inefficient way for government to subsidize the sickest Americans.
What would work better than enhanced subsidies? Plans with annual limits on benefits of, say, $100,000 would cost far less than current ACA plans but would provide medical care greater than 95% of the population uses annually. About 20 years ago, Tennessee Medicaid (called TennCare) got permission to offer low-cost, limited benefit plans to people too well off to qualify for Medicaid. Programs like this were outlawed by Obamacare. At the time actuarial analysis found that more than 98% of enrollees did not surpass the $25,000 maximum annual benefit.
Conclusion. The Trump Administration would be wise to allow the enhanced subsidies to expire and authorize limited benefit plans with a donut hole plan design like the original Medicare Part D (drug plans). An example of how this could work are plans with a $250 deductible, with 20% cost-sharing for the next $1,000 in medical spending. Plan members would then face a donut hole of $3,750 and 10% cost sharing thereafter up to a maximum benefit of $100,000 in medical spending. Such a plan would cost far less than the $10,000 Obamacare premiums will cost me in 2026. It would also be sufficient coverage for 99% of enrollees. Furthermore, it would not require $380 billion in enhanced subsidies over the next decade.
The left-leaning Commonwealth Fund estimates that 90% of ACA Marketplace plan enrollees do not meet their deductibles in any given year. Yet, their conclusion (presumably), and that of most Democrats, is that the federal government should extend the enhanced subsidies at a cost of $380 billion over 10 years. When Obamacare is expensive and 90% don’t get benefit out of it that suggests there is a cheaper way to subsidize sick people.
Thanks for staying with the blog. I have doing other writing but I want to catch up!
In the examples you pose above, I love the intent but the numbers are a little confusing, i.e.:
In the ACA plan, the insurer collects about $9,000 in annual premiums. If the insured has a hospital event costing $40,000, then the insurance company collects a $10,000 deductible and 40% cost sharing on a remainder of $30,000.
The insurance company actually pays out $18,000 at the time of claim, and it has collected $9000 in subsiidized premiums. What a deal.
Now we look at your non-ACA donut hole plan. On a $40,000 event, the insurance company actually pays out about $35,000 all-in.
The donut hole non-ACA company goes broke if it has the same number of large claims as the ACA carrier. The donut hole company has to underwrite, I believe.
Which is not the end of the world. but you have to factor that in with your proposals.
I was an actuarial student years ago incidentally.