5 Things for Advisors to Know About the Health Insurance Subsidy Rumble

Before 2021, the ACA provided premium subsidies only for exchange plan users with income under 400% of the federal poverty level. That's $62,600 for an individual this year in most of the country and $128,600 for a family of four.

After the American Rescue Plan Act became law, the richness of the subsidies increased, and the subsidies became available to almost any exchange plan buyers if the full cost of the premiums would exceed about 8.5% of their income. Congress later passed a bill that extended the ARPA subsidy boost. The boost extension is set to expire Dec. 31.

Here's a look at five thoughts about the subsidy boost expiration fight for financial professionals.

1. This could have a direct effect on your working-age clients.

Many big health policy fights in Washington have to do with Medicare, which mainly serves people ages 65 and older, or programs like Medicaid and the Children's Health Insurance Program, which mainly serve low-income people.

Many people who buy their own health coverage from the ACA public exchange system have a low income, but the exchange system also serves some self-employed people, including lawyers, doctors and financial professionals, and the Dec. 31 subsidy cliff could have the biggest impact on those relatively high-income exchange plan users.

Health insurers have predicted that all of the upheaval will lead to a 30% increase in the full cost of coverage in 2026.

Analysts at KFF, a health policy research organization, estimate that the average enrollee's share of the premiums for exchange plan premiums will double.

But, because of the way the subsidies and coverage pricing rules work, clients ages 50 through 64 who have annual household income from about $130,000 to $300,000 could take a much bigger hit, because premiums can be three times higher for older enrollees than younger enrollees, and those older, relatively high-income people could see their current subsidies vanish overnight.

Sen. Lisa Murkowski, R-Alaska, reported at a recent hearing organized by the Senate Health, Education, Labor and Pensions Committee that she talked to a friend who uses exchange coverage during the Senate's Thanksgiving break. The friend's annual cost is set to increase to about $36,000 in 2026, from about $6,000 this year.

2. Any big problems with the individual health insurance market could cause problems for all health insurance markets, and for the economy as a whole.

Heath care accounts for about 18% of U.S. gross domestic product, and health insurance company executives and the people who track health insurers look frightened right now when they talk about the recent wave of increases in spending at every type of U.S. health care finance program.

Health care providers look angry, and the payers look angry.

The lack of padding could mean that even relatively small disruptions in the individual health insurance market could add to stress for Medicare, Medicaid, employer-sponsored health plans, hospitals, physicians and the companies that have invested heavily in hospitals and physician practices in recent years.

3. Efforts by Congress to cope with the ACA subsidy boost cliff may be unpredictable.

The history of the Affordable Care Act is full of stories of legislative efforts that died, then somehow came back to life.

The most typical time for ACA-related legislation to pass seemed to be at 4 a.m. on a Saturday, or at 2 p.m. on Christmas Eve.

People who opened the PDF for the original Patient Protection and Affordable Care Act package — one of the two giant legislative packages that came together to form the ACA — sometimes scrolled to the end and discovered that one of the provisions that was supposed to help offset the cost of the ACA, a little, was a tax on tanning salons.

News organizations have run articles suggesting that the battle to cope with the ACA subsidy boost cliff is already dead, but members of Congress are still out there trying to round up support for a fix.

The current health package rumbling toward the House floor, Rep. Mariannete Miller-Meeks' Lower Health Care Premiums for All Americans Act, does not say anything about ACA premium subsidies; does include funding for a less expensive subsidy, the ACA cost-sharing reduction subsidy; and would make the dreams of many health benefits lobbyists come true, by, for example, making it easier for smaller employers to use "association health plans" to team up to buy coverage.

At press time, at least two of the amendments under consideration at the House Rules Committee — the powerful body that prepares legislation for floor action — would keep high levels of ACA premium subsidies in place for a year or more.

The committee streams video of its meetings on the web and posts recordings on its website.

Update: House Rules members voted 6-4 to send the health package to the House floor without the proposed amendments. The Republican lawmakers trying to keep ACA premium subsidies at a high level said they were continuing to try to use a petition process to get subsidy boost extension legislation onto the floor.

4. ACA subsidy boost cliff legislation could lead to efforts to impose seemingly unrelated taxes or cost control measures.

Congress has complicated rules intended to keep the federal budget deficit under control.

Analysts at the Congressional Budget Office come up with estimates of how much various proposals could affect federal spending and tax revenue.

The result is that lawmakers who are drafting boost cliff bills or amendments may include seemingly unrelated provisions, such as provisions regulating pharmacy benefit managers — companies that help health plans buy and manage prescription drug benefits — because the CBO thinks those provisions would make the federal budget deficit smaller and help pay for provisions that do things like increase subsidy payments.

Financial services groups will be watching carefully for any signs that lawmakers might want to take steps such as increasing the net investment income tax.

5. If the subsidy boost cliff persists, clients' coverage options may be unappealing.

Possible solutions could include:

◆ Keeping the current coverage in place and accepting higher costs.

◆ Shifting to lower-premium conventional coverage from the same ACA public exchange.

◆ Buying the kind of high-deductible health coverage that's compatible with a health savings account, opening an HSA, and using HSA cash to manage everyday care costs by paying for membership in a "direct primary care" practice, using new flexibility created by a provision in the One Big Beautiful Bill Act.

◆ Moving to a state where ordinary health coverage or HSA-compatible coverage is cheaper.

◆ Using one or more products outside of the jurisdiction of the ACA major medical insurance rules, such as short-term health insurance or health care cost-sharing ministries. Challenges may include low limits for benefits, for products such as short-term health insurance; lack of a clear regulatory framework, for arrangements such as health care cost-sharing ministries; and the reality that issuers of products sold outside the ACA major medical insurance framework can use medical underwriting and exclude applicants who already have health problems.