Enhance the Subsidies and Let the Insurance Industry Feed at the Federal Trough?

It’s helpful to think of the U.S. health care system like a pie made up of different slices (Figure). The largest (blue) slice is employer health insurance, which covers 160 million workers and their dependents; individual non-group insurance (in orange) provides 24 million individuals and their families with patchy insurance (including the enhanced subsidies); Medicaid (in yellow) covers 65 million poor and low-income adults, children, and seniors; Medicare (in red) pays for medical care for 60 million seniors and people with disabilities; the Veteran’s Health Administration (in bright green) provides the best socialized medicine in the nation to 9.1 million qualifying veterans; and that leaves the rest, approximately 28 million Americans, in the (purple) slice of the uninsured. It’s a patchwork arrangement that keeps Americans sliding from one slice to another their entire life until they turn 65, when they finally land on Medicare.

Figure: The U.S. patchwork health care arrangement

One thing about a pie chart, it’s simple geometry. If you make one slice bigger, by definition, you make another slice smaller.

Simple geometry was what President Obama had in mind, when he signed the Patient Protection and Affordable Care Act (ACA) into law in 2010. Despite the name, President Obama and Senator Max Baucus, then chair of the powerful Senate Finance Committee tasked with developing the legislation, gave up on making health care affordable (which would have required the elimination of health insurance companies) and instead concentrated on increasing the number of individuals with health insurance. It attempted, quite successfully, to shrink the slice of the uninsured.

To do this, the ACA included an employer mandate, expanding the slice of individuals covered by their employer, an individual mandate, increasing the slice of the non-group market, the expansion of Medicaid, which enlarged the slice of individuals who qualified, kept the Medicare and VA slices the same size, and presto! The slice of the uninsured shrank. As if by a miracle, the number of uninsured dropped from 50 million to 25 million almost (OK, it took four years to get through the courts) overnight. It was nothing more than simple geometry.

The non-group market

To understand the government shutdown, it’s important to delve deeper into the non-group, private health insurance (orange) slice of the health care pie, where 24 million individuals now get their health insurance.

The slice didn’t start out that large. Before the ACA, only 8 million individuals purchased private health insurance on their own. Unlike individuals who receive their private health insurance from their employer, who typically pays a significant chunk of the monthly premiums, leaving the employee to cover a smaller share of the premium, individuals in the non-group market paid the entire share of the monthly premiums on their own. In 2010, before the passage of the ACA, the average annual cost for health insurance for a family in the individual, non-group market according to America’s Health Insurance Plans, was almost $12,000 for premiums plus their deductible.

For the average worker, making a little over $49,000 in 2010, paying for health insurance meant spending 25% of their income on health insurance premiums (not including the yearly deductible). Expensive health insurance was then, and remains today, the major driver of uninsurance.

Enter the ACA and the individual mandate, which required everyone to have health insurance (either public or private) or be faced with a hefty fine.

The architects of the ACA recognized that the government could not possibly mandate the average worker to spend 25% of their income on health insurance, or worse yet, a worker making minimum wage (those least likely to be covered by their employer), making $15,000 annually in 2010, to spend practically their entire income on health insurance.

To get around this inconvenient reality, low-income individuals outside of the group market would now be able to purchase their private health insurance through a “Marketplace” where the government would (like the employer in the group market) pay a share of the monthly premium. The government share, based on the individual’s income, became known as the “subsidy” or a premium tax credit, a complicated system of advanced premium tax credits (APTCs) based on estimated income which must be accounted for when individuals file their federal income taxes. If the APTC was less than the estimated income, the difference is received as a tax credit used to lower the amount of taxes owed. If the advanced payments were greater than the final income received that year, some or all of the excess would need to be repaid.

The lower low-income workers would receive a larger subsidy from the government, while higher low-income workers (up to 400% of the federal poverty level), would receive a smaller federal subsidy to cover their health insurance premiums. Individuals and their families could choose coverage from “metal tiers” that went from crappy (Bronze, low premiums, high deductible) to good (Platinum, high premiums and lowish deductible).

While the government paid the subsidy to make the premiums cost no more than 8% of the worker’s paycheck, the government did a little something about the deductible, which could be thousands of dollars every year, and had to be met before the insurance company would start paying claims.

The “little something” could lower the cost of variable costs when using health insurance (the whole point of having health insurance) such as a deductible. It applied only to individuals and their families with annual incomes between 100-250% of the federal poverty level and only for a Silver plan. This created a high-stakes decision for very low-income families. Do they go for the Bronze plan with low monthly premiums but very high deductible, gambling they will not need health care that year, or go for the Silver plan with the higher monthly premiums but reduced deductible?

The size of the slice grew from 8 million to 11 million individuals and their families.

When President Trump came into office the first time, he and Congress eliminated the individual mandate, but did nothing to make health care more affordable. Now it was legal to be uninsured again.

While people struggled to pay their medical bills, one sector of the economy that was not struggling was the insurance industry, which was collecting the subsidies every year from Uncle Sam, plus the premiums that individuals and their families paid every month, plus the yearly deductibles. Health insurance companies collected billions before they ever had to pay out one penny for medical claims.

Then came the pandemic.

COVID and the enhanced subsidies

In March 2021, the Democrats pushed through a two-year expansion of the Affordable Care Act in the COVID-19 relief bill. The bill enhanced the Marketplace subsidies, meaning the federal government would now pick up a greater share of the monthly premium. Suddenly, people found themselves paying $0 monthly premiums. Even workers who had traditionally been closed out of the Marketplace because they “made too much money” (i.e., above 400 percent of the federal poverty level, which in 2021, for a couple, was a little over $69,000 per year) now qualified for cheap health insurance plans with “enhanced subsidies.”

There were just three caveats.

One: Annual deductibles continued to be extraordinarily high, as high as $14,700 for a family of four whose income was at 250% of the federal poverty level. So yes, while people had “health insurance” on paper, it left people in medical debt if they sought medical care or the option to avoid care altogether, even as they and the federal government continued to pay the premiums.

Two: The legislation directed some $20 billion more to health insurance companies by making enhanced premium subsidies for more consumers who now qualified for plans.

Three: The enhanced subsidies would expire December 2025.

Even if substandard, these plans did mean a lifeline to millions of Americans who lost their jobs during the pandemic and found themselves without health insurance. The enhanced subsidies expanded the non-group market to 24 million Americans and kept the uninsured slice from ballooning out of control (as did continuous enrollment in Medicaid, but that’s another story).

Unfortunately, instead of using a once-in-a-lifetime pandemic to ensure health care as a human right to everyone and expand Medicare to all, Congress worked double duty to expand Medicaid, enhance the subsidies and keep the private health insurance industry feeding at the federal trough.

While the government was paying larger shares of health insurance premiums for more people, health insurance premiums continued to rise without pause. The federal government could have mandated price controls on the subsidies they were paying, but of course, nothing of the sort happened. From 2014 (when the Marketplace was launched) to 2025, health insurance premiums increased 60%, with the federal government subsidizing the growth. Today, gross margins per enrollee in the Marketplace are 15% higher than in the group, employer market.

Little wonder that the Congressional Budget Office recently predicted that expanding the enhanced subsidies in the Marketplace will cost $350 billion over the next 10 years.

If enhanced subsidies expire, Marketplace enrollees (making 100-400% of the federal poverty level) will continue to qualify for a pre-pandemic subsidy, while others will lose eligibility altogether. Because health insurance has been rising (costs that individuals in the Marketplace might not have been aware of), and because insurers in the Marketplace are proposing to raise their rates by a median of 18% next year, millions will be hit with a “double whammy” of losing subsidies and being on the hook for rising premiums.

The government shutdown

Democrats, saying they are fighting to protect health care for Americans, refuse to pass a budget bill that does not expand enhanced subsidies permanently. They are joined by a bevy of predictable allies, including the American Health Insurance Association, the Federation of American Hospitals, and AARP, which sells Medicare Advantage plans.

Republicans, seeking a bill to temporarily extend federal spending at current levels without any add-ons (after slashing $1 trillion from the social safety net to pay for billionaire tax cuts), say the Democrats want to spend billions of federal dollars on undocumented immigrants, even though federal law prohibits Marketplace subsidies from being used by undocumented immigrants (see the amount of paperwork required above).

As a result of the intransigence in both parties, the federal government shut down in the early morning of October 1 after Congress failed to pass funding for federal programs and services.

Instead of shutting down the government and demanding real health reform, Democrats are quibbling over subsidies that keep Americans underinsured and in medical debt and importantly, continue pouring billions into the till of the health insurance industry.

Between a rock and a hard place

Should single payer activists support Democrats, and allow 24 million people to pay for some form of health insurance but enrich the very corporations we are fighting? Or do we turn our back on millions of Americans and deny a predatory, rapacious industry another penny?

The lesser of the two evils is to support a temporary extension of the enhanced subsidies and place strict price controls on what insurance companies can charge the government. If every crisis presents an opportunity, let’s use this one to pass a national, single payer health care system that guarantees health care to everyone and removes all profit from health care. Nothing short of this can heal this nation.

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