Abstract: The Trump administration’s tax and spending proposals will increase the number of Americans without health insurance coverage. A failure to renew the expanded premium tax credits for state exchange health insurance is likely to have a larger impact on the number of uninsured Americans than explicit changes to Medicaid and state exchange policies in the big, beautiful bill.
The CBO projects the big, beautiful bill will lead to an increase of around 16 million Americans without health insurance coverage. The increase in the number of uninsured stems both from explicit changes to Medicaid and state exchange insurance in the bill and the omission of a provision renewing the expanded premium tax credit. The case could be made that the failure to renew the expanded premium tax credit will have a larger adverse impact on the number of uninsured than the explicit changes in the bill.
The expanded premium tax credit enacted in 2021 under the American Rescue Plan and extended until 2025 under the Inflation Reduction Act coincided with a doubling in the number of people obtaining health insurance through state exchanges. The number of people enrolled in state exchange health insurance went for 11.4 million prior to the American Rescue Plan to 24.3 million in 2025.
The expanded premium tax credit on state exchange health insurance will automatically expire at the end of 2025 leaving open the possibility of a contraction of state exchanges to the level which existed in 2021.
Prior to the expanded premium tax credit, an increase in income above 400 percent of the federal poverty line ($62,600 for a family of 1 and $128,600 for a family of four) would result in the loss of all tax subsidies for state exchange health insurance.
The expanded premium tax credit set the maximum amount a household would have to pay for state exchange health insurance at 8.5 percent of household income, regardless of income. This provision prevented households who earned slightly more than 400 percent FPL from losing their entire premium tax credit.
The loss of the entire premium subsidy for households with income greater than 400 percent of the federal poverty line will have the most severe impact on older households because state-exchange health insurance premiums are age rated. The Kaiser Family Foundation Health Insurance Marketplace Calculator can be used to estimate the impact of the loss of the health insurance premium from household income exceeding 400 percent FPL level under current law.
The loss of subsidy is $14 per month for a 30-year old single household person and $134 per month for a 45 year-old single household person.
Interested readers should use the KFF calculator to estimate the loss of premium subsidy for older and larger households.
The loss of a health insurance subsidy for people with household income slightly over 400 percent FPL could increase demand for short-term health plans. These plans provide inadequate coverage and can result in large out-of-pocket expenses leading to bankruptcy.
The elimination of the expanded premium tax credit increases the household’s share of premiums from 8.5 percent of income to 9.83 percent of income for a household with income equal to 400 percent of the FPL.
The Commonwealth fund reveals that the elimination of the expanded tax credit will lead to higher state-exchange premiums at all levels of household income.
In some cases, state-exchange health insurance may become unaffordable, and the affected people will seek Medicaid. The Commonwealth fund projects that the elimination of the expanded premium tax credit will have the largest impact on the number of uninsured in five southern states – Texas, South Carolina, Mississippi, Tennessee, and Georgia – which have not expanded Medicaid.
Several provisions of the big, beautiful bill will reduce access to Medicaid in all states. The bill includes funding reduction to both Medicaid and Snap. The bill limits eligibility for Medicaid through new work work requirements.
One of the ironies pertaining to work requirements for Medicaid is that often people need Medicaid when they become unemployed and lose access to employer-based health insurance. The imposition of work requirements for Medicaid would be more reasonable if their enactment was coupled with reforms that lowered the cost of maintaining private health insurance for the newly unemployed.
The big, beautiful bill makes substantial changes to rules governing access to state exchange health insurance. The bill shortens the annual open enrollment period, eliminates year-round enrollment for low-income households, increases the stringency of income verifications requirements, and reduces state-exchange access to immigrants, including people who are in the United States lawfully.
Both the omission of the extension of the expanded premium tax credit and explicit changes to both Medicaid and state exchange health insurance rules will decrease the number of uninsured American. The CBO found that 4.2 million people will lose health insurance from the expiration of the premium tax credit.
The projected share of insurance loss stemming from the omission of the renewal of the expanded premium seems really low. Recall, around 13 million additional people now obtain health insurance through state exchanges only four years after enactment of the expended premium tax credit.
In retrospect, it is apparent that the Biden Administration should have put a much higher priority on making the premium tax credit permanent, even if the achievement of this goal could only have been achieved by reducing expenditures on other items.
Two central tenets of public finance are that all money is fungible and there are scarce resources for multiple public goods. As noted in a previous post, many goals like incentivizing people to choose to purchase an electric vehicle over a gasoline powered vehicle can be achieved without direct government subsidies. I have a really hard time justifying expensive environmental credits when government is cutting programs to feed and provide health insurance to the poor. This tradeoff is especially difficult to understand when many of the environmental objectives can be achieved by small increases in fees, which help balance the budget or increase resources for other worthy projects.
The expansion and improvement of health insurance coverage is one of the top priorities of the Democratic party both because of its impact on both actual health and financial health. The increase in the number of uninsured will lead to higher levels of medical debt and will derail the ability of households to save more for retirement. It will be very difficult to reach consensus on needed changes to Social Security if people can’t save for retirement because they are drowning in medical debt.
It is time to consider a 2028 health insurance reform effort.
Authors Note: The big, beautiful bill is really bad public policy. Go here for 10 reasons why.