In 2016, the US Census Bureau estimated that 8.8% of people, about 28.1 million, did not have health insurance coverage for the entire calendar year.¹ This number was staggering compared to previous years. Between 2013 and 2016, uninsured rates declined in 39 States.² We’ll never have a perfect system, but we can always strive for a better one.
Healthcare expenditures account for more than 19% of our GDP, more than $4.1 trillion annually.³ According to the Peterson-Kaiser Family Foundation Health System Tracker, health spending has increased sharply, from $353 per person in 1970 to $12,531 in 2020.⁴ In constant 2020 dollars, the increase was from $1,875 in 1970 to $12,531 in 2020.
Many households find themselves on the brink of financial calamities due to a major health incident. Statistics show that outstanding medical bills are behind over two-thirds of personal bankruptcy filings.⁵ If not for the Affordable Care Act’s (ACA) enhanced premium subsidies, consumers’ payments in 33 states would have been 53% higher on average in 2022 for those using the federal health insurance market. These are just some of the facts pressuring the system.⁶
This demands that we do better and improve the system. It’s why, on Capital Hill, members of Congress pushed vigorously for and recently passed an extension of enhanced premium subsidies under the ACA.
In the Beginning
The ACA is federal legislation that was passed by Congress and signed into existence by President Obama on March 23, 2010. The ACA’s main goal is to provide affordable health insurance to all Americans.
Since then, it has helped millions of people get access to health care. It also protects against being denied coverage due to pre-existing conditions like cancer or diabetes. The ACA also helps families who are struggling financially with reduced costs for prescription drugs and free checkups for women and children.
The ACA 2022
The Inflation Reduction Act (IRA) of 2022 will hugely impact the ACA. Why? It contains in its core a three-year extension of enhanced premium subsidies that were put in place under the American Rescue Plan Act of 2021. Thanks to these enhanced subsidies, many middle-income families who previously couldn’t obtain coverage due to costs will continue to have this option.
The new law also allows Medicare to negotiate prescription drug prices with pharmaceutical manufacturers and includes a $2,000 out-of-pocket cost cap on Medicare Part D drugs.
Benefits of the ACA extension
Now that the bill has been passed into law, premium payments will hold mostly flat for 2023. The extension of temporary subsidies will prevent out-of-pocket premium payments from rising across the board until next year for more than 13 million enrollees.
If the IRA had failed to pass, we would have seen the impact of the “subsidy cliff,” whereby high premiums would have priced many low and middle-income families out of affordable health care.
Low-risk dynamic
When the price of a product increases, everyone starts to analyze whether they need it or not. Netflix raised its price, and people started to take note of how many streaming services they were already paying for and where they could cut costs.
The same is true with healthcare. When premiums start to increase, people question whether or not to continue their “subscription.”
It’s estimated that 90% of healthcare expenditures come from people with chronic diseases, mental health issues, or bad lifestyle choices.⁷ Low-risk individuals whose lifestyle and health habits don’t give them cause to take advantage of their insurance might decide it’s not worth the price.
So, when prices rise, a great deal of low-risk individuals might decide to forgo their insurance. If that happened, the risk pool would skew towards high-risk individuals. Companies have to make a profit and would have no choice but to bulk up their premiums. Why? Because low-risk individuals were helping lower the average risk, giving the federal marketplace stability.
ACA tomorrow
Rising inflation, demand, and dozens of other factors may cause higher 2023 premiums. That is par for the course.
But with extended subsidies through the IRA, things are not as bleak as they would appear. The new legislation will hugely influence the ACA marketplace, including costs of service and the stability of premiums.
It’s not a silver bullet; the subsidies are due to expire in three years, but it will bring stability through 2025.
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Footnotes
- “Health Insurance Coverage in the United States: 2016,” United States Census Bureau, September 12, 2017.
- “New Census Data: Number of Uninsured Dropped by 1 Million in 2016, with Young Adults Continuing to Make Large Gains,” The Commonwealth Fund, September 17, 2017.
- “NHE Fact Sheet,” Centers for Medicare & Medicaid Services, August 8, 2022.
- “How has U.S. spending on healthcare changed over time?,” Health System Tracker, February 25, 2022.
- “This is the real reason most Americans file for bankruptcy,” CNBC, February 11, 2019.
- “Five Things to Know about the Renewal of Extra Affordable Care Act Subsidies in the Inflation Reduction Act,” KFF, August 11, 2022.
- “Health and Economic Costs of Chronic Diseases,” Centers for Disease Control and Prevention, August 10, 2022.
