GOP Budget Cuts and Health Insurance Subsidies
House Republicans recently passed a budget proposal calling for substantial spending cuts over the next decade. The goal is to reduce the national debt, currently at $35 trillion. The plan targets health insurance subsidies as a prime area for cuts.
The specific details of the cuts are still being worked out. However, the focus will likely be on reducing the additional subsidies for health insurance premiums that were expanded during the COVID-19 pandemic. These subsidies are set to expire at the end of this year.
Democrats have expressed strong opposition to this plan. Republicans argue that ending these enhanced subsidies provides an opportunity to create more affordable and less wasteful health coverage options.
The Affordable Care Act and Subsidies
When the Affordable Care Act (ACA) was enacted in 2010, it stipulated that most Americans must have health insurance. The law provided subsidies in the form of tax credits to help individuals afford premiums. While Congress effectively removed penalties for not having health insurance in 2019, it simultaneously expanded these tax credits.
In 2022, these enhanced subsidies were extended for an additional three years. The Congressional Budget Office (CBO) estimates that making these enhanced subsidies permanent would increase the federal budget deficit by $335 billion over the next ten years.
The Impact of Enhanced Subsidies
These enhanced subsidies have lessened the perceived cost of health care coverage for many. People who purchase insurance through government exchanges can have their premiums capped at 8.5% of their income. As a result, even some families with high incomes are eligible for government financial aid.
Critics argue that the current system incentivizes insurance companies to raise prices and attract more customers. Some also point to an increased risk of fraud stemming from the involvement of brokers and middlemen who may exploit information gaps.
Between January and August 2024, the Centers for Medicare and Medicaid Services received over 180,000 complaints about consumers being enrolled in health plans without their consent.
Returning to Pre-Pandemic Status Quo
Before the enhanced subsidies, those earning just above the federal poverty line would pay around 2% of their income for a benchmark silver plan. Now, they may pay nothing. Those making over 400% of the poverty level previously paid full price, while now, these upper middle-class income levels can have their premiums capped. Some households earning up to $600,000 qualify for government subsidies.
If the subsidies expire, the exchanges will revert to their pre-pandemic status. Democrats suggest that at least 7 million people would lose their exchange coverage. However, the CBO estimates at least half of those individuals would qualify for job-based coverage.
Potential Solutions
Critics argue that the underlying cause of high health insurance costs includes the creation of Obamacare and its mandates. Republicans may consider additional measures to make insurance more affordable.
One proposed solution, suggested by Vice President JD Vance, involves allowing states to separate patients into different insurance risk pools. Individuals with preexisting conditions would be placed in high-risk pools with premium subsidies. The majority of the population, with conventional risk profiles, could remain in a separate pool with potentially lower premiums.
Minnesota implemented this approach in 2017, and premiums in the state marketplace decreased by 20% over four years.
Expanding access to short-term health insurance plans, which generally have lower premiums, could present another viable solution. The federal government could extend the duration of these plans, as happened during the Trump administration.
Ending the enhanced subsidies will not necessarily leave low-income Americans without affordable insurance options. With the right policies, the rest of the country can also gain access to more affordable healthcare. For example, the GOP could focus more attention on the rising cost of pharmaceuticals.
