As part of the Inflation Reduction Act, the Senate recently passed a three-year extension (through 2025) of increased subsidies for people who buy their own health coverage in the Affordable Care Act’s marketplaces. These temporary grants were originally planned to last for two years (2021 and 2022) and were passed as part of the American Rescue Plan Act (ARPA). The increased subsidies increase the amount of financial aid available to those already eligible, and also recently expanded subsidies to middle-income earners, many of whom were previously priced out of range.
Here’s what you need to know about the likely renewal of these subsidies:
If signed into law, the Inflation Reduction Act would prevent a sharp increase in Marketplace premium payments
If Congress extends the temporary subsidies, as seems likely, premium payments in 2023 will remain largely unchanged for Marketplace enrollees because premium tax credits protect enrollees from base premium increases. Passage of the Inflation Reduction Act would extend temporary subsidies, preventing out-of-pocket premium payments from rising next year for nearly all 13 million subsidized enrollees. In the 33 states using HealthCare.gov, premium payments in 2022 would have been 53% higher on average (more than $700 per year more) if not for these increased subsidies. The same applies to countries that operate their own stock exchanges. Exactly how much of a premium increase enrollees would have seen in the absence of the Inflation Reduction Act would have depended on enrollees’ income, age and premiums where they live.
For example, using our subsidy calculator, you can see that with ARPA, a 40-year-old couple making $25,000 a year currently pays $0 for a silver plan premium with greatly reduced out-of-pocket costs. This will continue to be true under the Inflation Reduction Act, which continues ARPA grants without interruption for another three years. Using a new version of our subsidy calculator that shows what premium payments in each zip code would be if ARPA had no passed, you can see that the same couple would pay $76 per month (or $915 in 2022) without ARPA. With the Inflation Reduction Act, however, this low-income couple would save $915 per year.
Here’s another example using the new calculator: Absent these increased subsidies, a 60-year-old couple with an income of $70,000 would have to pay $1,859 per month (or $22,307 through 2022) for a full-price silver plan. Now compare that to our 2022 calculator, which shows what they’re currently paying under ARPA: the same couple currently pays $496 per month (or $5,950 over the year) and will continue to pay a similar amount under the Inflation Reduction Act. Instead of being expected to pay about 32% of their income for insurance, which would likely be prohibitive, the couple pays 8.5% of their income with increased subsidies. So if Congress passes the Inflation Reduction Act, this older, middle-income couple will save over $16,000 a year.
Related: See how 2022 premium payments will increase without ARPA’s increased tax credits for COVID-19 relief. Click on the images below to access two versions of the calculator.
The double whammy: How 2023 premium increases and subsidy expiration would affect some enrollees
The renewal of these increased subsidies from the Inflation Reduction Act would also prevent some enrollees from experiencing two types of premium increases at once. If Congress had allowed the increased subsidies to expire, the subsidy scale would have reverted, meaning people with incomes above four times the poverty level (or about $51,520 for a single person) would have lost subsidy eligibility entirely. So without the Inflation Reduction Act, those enrollees would not only pay the increase due to the loss of subsidies, but also any increase in the base premium.
Our early look at premiums for 2023 shows premiums rising by about 10%, with most rate increases falling between about 5% and 14%. That’s more than in recent years, partly due to inflation and recovery in usage. These rates are still proposed and will be finalized this month.
The figure below shows a hypothetical scale of the subsidy if premiums did rise by 10%. For example, a 60-year-old living just over four times the poverty level ($51,521) in 2022 pays 8.5% of income on a silver plan with increased subsidies, but would pay an average of 22% of income in 2022. without these subsidies in the U.S. If it weren’t for the Inflation Reduction Act and if premiums rose 10% in 2023, that person would pay 24% of their income in 2023.
In states where premiums are currently the highest, people losing subsidies would see the steepest increases without the Inflation Reduction Act continuing those increased subsidies. For example, a 60-year-old making just over four times the poverty level ($51,521) in 2022 would pay more than a third of his income on a silver plan without subsidies in West Virginia and Wyoming; and in New Hampshire the person would pay 15% of their unsubsidized income.
The ticking clock: Why time matters
The timing of passage of the Inflation Reduction Act is significant for insurers, regulators, and state and federal marketplace administrators. Insurers are now in the process of finalizing premiums for 2023, and some are already considering additional premium increases as they expect ARPA subsidies to expire.
The National Association of Insurance Commissioners (NAIC) wrote to Congress asking it to extend those subsidies through July to provide more certainty as insurers set premiums for next year.
States and the federal government, which runs HealthCare.gov, will have to reprogram their enrollment websites and train user support staff about policy changes months before open enrollment this fall.
The end of the public health emergency: How improved market subsidies could reduce the loss of coverage
The end of the public health emergency, and with it the requirement for continuous Medicaid enrollment, is expected to result in significant coverage losses. So far, the number of uninsured has not increased during the pandemic and the resulting economic crisis. However, ironically, we could see a spike in the uninsured rate as the public health emergency ends if people disenrolled from Medicaid do not find alternative coverage.
With the passage of the Inflation Reduction Act, enhanced Marketplace subsidies can act as a bridge between Medicaid and the ACA Marketplaces when the public health emergency ends. If the enhanced Marketplace subsidies are still available when Medicaid maintenance of eligibility (MOE) ends, many people disenrolled from Medicaid could find similarly low-cost coverage in the ACA Marketplaces. If eligible for Marketplace subsidies, people who lose Medicaid coverage can find Marketplace plans that, like Medicaid, have zero (or nearly zero) monthly premium requirements.
Spending: What it means for the federal budget
Although the Congressional Budget Office (CBO) has not yet released a final outcome of the Inflation Reduction Act, an early CBO estimate put the cost of permanently extending the increased subsidies at about $25 billion annually. The Inflation Reduction Act extends these subsidies for three years (through 2025)—not permanently—although average annual costs are likely to be similar. Much of the projected cost is due to CBO’s expectation that millions more people will enroll in the ACA Marketplaces than if the enhanced subsidies were not extended. The actual cost will depend on how many people sign up and how much premiums rise in the coming years.
Inflation in the healthcare sector, increasing utilization and other factors could cause premiums to increase in 2023 by more than in recent years. However, as we’ve written before, Congressional action to extend ARPA subsidies through the Inflation Reduction Act will have an even greater impact on how much subsidized ACA Marketplace participants pay out-of-pocket for their premiums than market-driven factors , which affect the basic premium.
Whether the subsidies expire at the end of this year or in two or three years, their expiration will result in the sharpest increase in out-of-pocket premium payments that most participants in this market have seen. Because the Inflation Reduction Act extends the expanded subsidies for three years rather than permanently, future Marketplace participants may see a sharp increase in premiums when the subsidies eventually expire.