The coming ACA expansion will be permanent

The COVID-19 response bill moving briskly through Congress contains the largest expansion of the Affordable Care Act (ACA) since the law was enacted eleven years ago. In fact, the increased subsidies for insurance enrollment are more consequential, and costly, than has been advertised to date because, once in place, they are unlikely to get rolled back.

President Biden established the financial parameters of the current bill by calling for a $1.9 trillion COVID-19 response plan. The measure is wide-ranging, with provisions focused on vaccines, testing, and public health, as well as unemployment and economic support. To relieve some of the pressure on families struggling financially, the president wants to increase ACA subsidization of their health insurance premiums. Because the legislation is advertised as an emergency measure, most of the provisions suggested by the president are billed as temporary, including the expanded ACA subsidies.

 

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The House-passed version of the plan conforms to the president’s suggested outline. The Congressional Budget Office (CBO) has estimated its ten-year cost at $1.9 trillion. It would remove the current income limit on ACA premium subsidization — set at 400 percent of the federal poverty line (FPL) — and increase support for households with incomes below that threshold too. Families with incomes above 100 but below 150 percent of the FPL would get coverage with no premium requirement (an increase from the 138 percent of the FPL threshold in effect today). Above 400 percent of the FPL, families would pay no more than 8.5 percent of their annual income in premiums. The bill’s more generous schedule of ACA subsidies would remain in effect only through 2022.

CBO estimates these provisions would cost about $44 billion over the full ten years covered by its analysis, but the added spending from the higher subsidies is concentrated in the first three years (some of the cost would be recorded in 2023 due to tax filings for the previous year). The implied annual cost is about $22 billion, as the added subsidies are in effect only for 2021 and 2022.

The bill also includes a new incentive for states to expand their Medicaid programs as authorized by the ACA. Thirty-seven states (plus D.C.) already have adopted the expansion. The new lure — a two-year bump in federal matching payments of 5 percentage points — is aimed at encouraging the hold-outs to drop their opposition. CBO estimates this provision would cost another $16 billion over ten years because it would accelerate adoption by a certain number of states

As Robert Laszewski has noted, and history confirms, the political pressure to extend the added ACA subsidies beyond 2022 will be immense. Without an extension, many families with incomes above 400 percent of the FPL would see large premium increases in January 2023, as would all households with incomes between 100 and 400 percent of the FPL. The number of people affected could approach 10 million or more.

Republicans in Congress are opposed to the current pandemic response bill in part because of its expense, but that does not mean they will fight an extension of the ACA subsidies when the time comes. The iron law of American politics — that voters are never more enraged as when existing benefits are threatened — will scare them off from taking such a position. Even if a first extension is only for a year or two, the political momentum toward permanence will be clear, and unstoppable.

Current budget rules encourage Congress to create temporary benefits. The reconciliation process, which allows budget bills to pass in the Senate with simple majorities, does not accommodate deficit increases beyond the ten-year budget window. So, spending provisions, or tax cuts, that otherwise would increase long-term deficits are regularly sunsetted to avoid a challenge. Many tax cuts enacted in 2001 and 2003 were temporary at first but eventually became permanent for the same reason the ACA subsidies in the current bill will get extended beyond 2022.

President Biden said during his campaign that he wanted to build on the ACA rather than initiate an entirely new plan, such as Medicare for All. The bill now working its way through Congress is consistent with that pledge. It does not remake American health care. It simply increases the generosity of the ACA subsidies, initially as a way to relieve the financial pressure of the pandemic. Once in place, the new subsidies will become a permanent floor of support.

In 2010, when the ACA was enacted, the bill was said to reduce long-term deficits because its new spending was more than offset by tax hikes and spending cuts. In the intervening years, many of the law’s cost-reducing provisions were repealed (such as the “Cadillac” tax), and now its subsidy structure is expanding. The initial interest in ensuring the law would reduce long-term deficits has given way to other considerations.

James C. Capretta is a columnist for State of Reform and is a resident fellow at the American Enterprise Institute.