Reed Saxon/AP Photo
Getting rid of the ACA’s ‘subsidy cliff’ can open the door to a whole spectrum of progressive reforms to state health insurance programs.
One part of the Democrats’ massive COVID relief bill, which is likely to pass out of Congress today, is possibly the most important philosophical change in American health care ever. It’s the first actual attempt at near-universal health insurance ever passed into law. While the bill is full of significant changes, the health insurance sections alone are almost a bigger deal than the Affordable Care Act.
The American Rescue Plan contained three major insurance provisions. The first includes more money to entice states to expand Medicaid. In a sane political system, this would result in immediate take-up of the Medicaid expansion across the country, but Republican opposition in the remaining states is not driven by budget concerns but by ideological desire to deny low-income people help. Once this fails, Democrats will need to eventually federalize Medicaid.
The second provision is a large subsidy for people to temporarily keep their employer-provided health insurance if they lose their job. While doing this through the expensive COBRA system is not exactly optimal, if you are going to build a system on employer coverage and have narrow networks and large annual deductibles, it is at least a good idea to not make people also change plans midyear.
The most important provision, though, involves making people eligible for ACA subsidies, regardless of income.
The ACA Was Never Universal Health Care; Bidencare Is
When it passed in 2010, Democrats tried to claim the ACA as universal health insurance. But it wasn’t, in either practice or philosophy. It established no right or guarantee of insurance. It ultimately was just a large, means-tested program to help some people. The ACA provided subsidies only to individuals making less than $51,000 a year; middle-class people were still left vulnerable to the whims of the market. In some parts of the country, a 60-year-old making $52,000 would have to spend 20 percent or more of their income just to afford a high-deductible plan. For millions who are too old or live in a high-cost area, the market has been free to price them out of insurance.
The designers of the ACA knew this could happen. That is why the individual mandate specifically had a “hardship exemption” if premiums for an individual cost more than 8 percent of their income. But that just relieved people from a penalty rather than providing affordable insurance. In effect, the government wanted to require people to buy coverage, but still refused to promise people they could afford to do so.
The American Rescue Plan not only increases ACA subsidies for low-income people but finally ends the income cap on subsidies. This means regardless of income, age, or location, a person will not be required to pay more than 8.5 percent of their income to afford insurance on the exchanges, as the chart below shows.
In practical terms, this will mean thousands of dollars in help for some older Americans. But the ideological change is even more important. The government is finally trying to promise all Americans access to “affordable” insurance. People will no longer be at the mercy of the market. Premiums on the exchanges will now be structured like a de facto progressive income tax.
There are still some administrative hurdles to deal with and regulatory changes needed, and of course we’re still faced with state Republicans’ nihilistic refusal to expand Medicaid. People will also obviously debate if 8.5 percent of income for a high-deductible plan is truly affordable or valuable enough, or if the premium support and out-of-pocket limits should be changed, or if the distribution of the money is fair and cost-effective. But that is all along the lines of a more normal fiscal discussion that you see in other countries. In an act of party unity, Democrats settled the core moral question of whether the government should promise all American citizens that it will help them get affordable insurance (or at least, they settled it for the next two years, as I’ll explain later).
The ACA Subsidies Structure Has Been a Straitjacket for the States
A second reason the American Rescue Plan is a truly significant piece of health care legislation has to do with state reform efforts.
In the ten years since the ACA was adopted, Democratic states have done very little to improve on the law. Some of this can be attributed to opposition from powerful industry stakeholders, but a much larger factor is that the ACA subsidy cliff made almost all reform ideas unworkable.
A person’s ACA subsidies are calculated based on the second-lowest-cost “silver” plan, which provides a middle tier of benefits in between lower-quality “bronze” and higher-level “gold” plans. As those silver-plan premiums increased, low-income people’s share of payments after their subsidies are applied actually went down. But individuals making over $51,000 needed to pay more, because of the subsidy cliff.
This created two very different markets with two very different, inseparably linked groups. It meant basically every state plan to reduce premiums for people who didn’t qualify for subsidies made care more expensive for low-income people, and visa versa. Adding a public option, like Los Angeles County did, helps some middle-class people but could cost low-income people millions. Ending a local insurer’s monopoly on the exchanges can bring down prices for middle-class people but would make insurance worse and more expensive for low-income people. Most state plans to make health care less expensive would just save the federal government money, while making the state worse off.
This was a fundamental problem baked into the ACA’s design. It’s why one of the only steps Democratic-controlled states have taken to improve their systems is to add their own subsidies. Having worked on state reform efforts, the subsidy cliff felt like an inescapable policy straitjacket where the more you struggle the tighter it gets.
Getting rid of it ends this problem by putting everyone in a single, subsidized market. It can open the door to a whole spectrum of progressive state reform programs which were forced to be shelved by the old ACA subsidy structure. It can allow for truly transformative state efforts.
But this is why the American Rescue Plan is just almost, to quote Joe Biden, a big f*cking deal. The subsidies in the bill only last for two years, although Biden wants to eventually make them permanent. Just as the original design of the ACA subsidies has left Democratic states with few options to move forward, not knowing when or if these new subsidies will be made permanent is likely again going to make it impossible for states to work on new, more progressive plans until they get certainty on the future of the program.
Democrats have finally chosen to make the United States government responsible for providing all Americans access to affordable health insurance. On a philosophical level, this is a far bigger deal than the ACA. They have also cracked the door open for blue states to make this decade about exploring sweeping reforms, testing the designs and effectiveness of truly progressive health care programs. Now Democrats just need to make the change permanent, before something happens to their razor-thin majority in the Senate.
