It’s never been easy to report on how much money people will save on health insurance under the American Rescue Plan Act (ARPA), but it just got a lot more complicated last week.
According to a Commonwealth Fund research released on Oct. 6, previous estimates on how ARPA will affect household expenditure on health insurance understated the law’s consequences. If Congress implements the reforms currently being debated in budget deliberations, consumers will pay far less out of cash for copayments and deductibles. The additional savings are due to a recalculation of ARPA’s effects, according to the fund.
Despite the fact that the recalculation received little attention, this is a significant topic for journalists because the enhanced savings might be in the billions of dollars. Furthermore, according to the fund, the improvements suggested in Congress will reduce the number of Americans without health insurance by 7 million.
Researchers from the Urban Institute noted in a report published by the fund in September, “The Coverage and Cost Effects of Key Health Insurance Reforms Being Considered by Congress,” that members of Congress have proposed a budget this year that includes reforming the Affordable Care Act (ACA) in two ways. One reform would extend the ARPA enhanced premium subsidies, which would otherwise expire at the end of the year.
The other reform would close the Medicaid coverage gap by extending ACA marketplace subsidies to those earning less than 100 percent of the federal poverty level (FPL) in the 12 states that have not expanded Medicaid.
Adult Medicaid eligibility is highly limited in those 12 states (Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming). For a family of three, the median annual income limit is just 41% of the FPL, or $8,905. Adults without children are also ineligible.
As we documented in three previous blog posts: on March 16, April 2, and July 23, when Congress approved ARPA last spring, the bill temporarily enhanced the subsidies customers receive when purchasing ACA-compliant health insurance on healthcare.gov or their state’s exchange. The ACA’s existing subsidies were strengthened as a result of the additional subsidies, limiting how much consumers would pay on insurance premiums. This meant that low-income families would receive significantly greater financial support while purchasing health insurance and paying their copays and deductibles this year and throughout 2022.
What’s more, ARPA made ACA coverage more affordable for middle income families who previously found ACA coverage too high by limiting what marketplace consumers spend on insurance premiums to 8.5% of income. In other words, both low-income and middle-income families benefited under ARPA.
The issue with ARPA is that several of its improvements will expire at the end of 2022. According to KFF’s paper “How Marketplace Expenses and Premiums Will Change if Rescue Plan Subsidies Expire,” if Congress does not enact the measures being debated now, costs will rise in 2023.
Recognizing that insurance costs will rise in the future, members of Congress have proposed measures to make the insurance savings permanent, and these solutions have been included in the current budget deliberations.
According to the Urban Institute’s September report, making the ARPA premium subsidies permanent and closing the Medicaid coverage gap would make health insurance more affordable for nearly 7 million Americans next year, lowering the share of adults without health coverage by about 25%. According to the researchers, this would reduce the number of persons without health insurance in all states, particularly in the 12 non-expansion states. At the same time, prices for ACA-compliant coverage in the markets would drop by 18%, and membership in marketplace plans with subsidies would nearly double, according to the authors.
According to the researcher, these reforms would increase federal expenditure by $442 billion over ten years while increasing the federal debt by $333 billion.
While the improvements will be costly to taxpayers, they will improve household finances for those who purchase health insurance through the marketplaces. “Even as enrollment rises, we predict that household premium spending will reduce $8.8 billion in 2022,” according to the research. “Our estimates show that homeowners would save $8.2 billion overall.”
According to the research, the ARPA alone would reduce average home spending per enrollee by 23.1 percent. However, calculating the impact of the planned changes on the ordinary household would necessitate a separate analysis, according to Jessica Banthin, a senior scholar in the institute’s health policy unit. According to her, such an analysis is difficult because average family spending fluctuates greatly based on a family’s health state and how frequently they use the health system.
Sara R. Collins, Commonwealth Fund’s vice president for health care coverage and access, told AHCJ that the savings are significant.
“This recalculation demonstrates how beneficial cost-sharing reductions are for consumers who buy health insurance in the markets and are qualified for them,” she said. “The benefit of making this mistake is that you can observe the significant reduction in out-of-pocket spending that people with lower incomes experience when purchasing marketplace plans.”