End of enhanced tax credits could cost millions their ACA health coverage

Editor’s Note: This is the second in an ongoing, occasional series examining the potential health coverage impacts that may occur as the COVID-19 public health emergency and associated emergency government benefits wind down.

An estimated 3 million people who get their health insurance through the Affordable Care Act exchange could lose their coverage unless Congress acts before the end of the year.

The American Rescue Plan Act of 2021, enacted as COVID-19 continued to ravage the nation, increased the premium tax credits for purchasing ACA insurance coverage and extended those credits to more people. This enabled more people to purchase health insurance, swelling the ranks of those covered under the exchanges to a record of 14.2 million. However, the enhanced tax credits are set to expire after 2022.

ARPA increased advanced ACA premium tax credits for all eligible income brackets, including extending tax credits to those who earn more 400% of the federal poverty level. These subsidies, which make plans more affordable, are set to end with the expiration of ARPA on Jan. 1, 2023, reversing enrollment gains and possibly worsening plan risk pools, the American Academy of Actuaries warned.

U.S. faces 'steep cliff'

The U.S. faces “a steep cliff” in health insurance coverage and access to care as the tax credits are due to expire while an estimated 5.3 million to 14.2 million could lose their Medicaid coverage when the COVID-19 public health emergency ends.

The Urban Institute projects that individual health insurance market enrollment will drop by nearly 4 million in 2023, about 20%, if the enhanced tax credits lapse. Additionally, an estimated 9 million who continue to buy health insurance in the marketplace will face higher premiums, according to America’s Health Insurance Plans.

The end of the enhanced premium tax credits could affect Americans in the following ways, the Urban Institute predicted:

• Non-Hispanic Black individuals, young adults and people with incomes between 138% and 400% of the federal poverty level would experience the largest coverage losses.
• Individuals and families enrolled in the marketplaces or other nongroup coverage will pay hundreds of dollars more per person each year in premiums if the enhanced tax credits expire. People currently eligible for enhanced tax credits with incomes between 150% and 400% of the federal poverty level would pay over $1,000 more per person for a silver plan. People with incomes above 400% of the federal poverty level who lose eligibility would pay roughly $2,000 more per year.
• Extending the enhanced premium tax credits will increase the federal deficit by $305 billion over 10 years, unless legislation extending the tax credits also includes raising revenue.

“It's kind of like a perfect storm, where there's a potential for a huge loss of coverage right now,” Katherine Hempstead, Robert Wood Johnson Foundation senior policy advisor, told InsuranceNewsNet.

"We’re probably at a historic high in the percentage of the population that has health coverage, between the ARPA and all the special enrollment periods that were called as a result of COVID-19."
— Katherine Hempstead, Robert Wood Johnson Foundation senior policy advisor

“We’re probably at a historic high in the percentage of the population that has health coverage, between the ARPA and all the special enrollment periods that were called as a result of COVID-19,” Hempstead continued. “When you combine the Medicaid unwinding with the end of the public health emergency, and then look at the estimated premium increases that people will face if the tax credits are not renewed, we’re at risk of having a decline in people being covered.”

The renewal of enhanced premium tax credits is one of the items included in a reconciliation package being negotiated in the Senate. It is expected that the bill will come up for a vote before Congress leaves Washington for its August recess.

Not all states affected equally

If the tax credits expire, some states will be impacted more than others, according to a report Hempstead wrote.

The predicted marketplace enrollment decline would range from 2% in New York and Rhode Island to 44% in Kentucky. The uninsured rate would rise by less than 1% in New York, Rhode Island and the District of Columbia, but would rise by nearly 25% in Florida.

States with high uninsured rates have the most to risk by the potential end of the enhanced premium credits, Hempstead’s report said. States that benefited the most from the enhanced credits will lose the most if they are taken away, she said. Of the 3.1 million people estimated to become uninsured, half will live in three states: Florida, Texas and Georgia. Georgia is facing a 36% decline in marketplace enrollment and a nearly 25% increase in their uninsured rate if the enhanced premium tax credits expire.

Nine out of the 12 states that have not expanded Medicaid under the ACA have projected increases in uninsurance at or above the national average, the report continued. Other states that have expanded Medicaid but have above-average uninsurance rates —like Louisiana, Kentucky, Oklahoma and Missouri — are also poised for big increases in their uninsurance rate. New Hampshire and Maine also risk significant increases in uninsurance.

Implications for risk pool

If the premium tax credits expire, there will be implications for the marketplace risk pool, since healthier enrollees will be more likely to drop coverage, leading to adverse selection that will raise average costs, Hempstead said. Another response to increased costs will be that consumers may decide to drop down to a lower level of coverage (from a silver level plan to a bronze level plan, for example), which would cost them to have higher out-of-pocket costs.

“From the standpoint of coverage continuity, this change could not come at a worse time,” Hempstead’s report said. “When the pandemic hit in 2020, the safety net was fortified with a number of measures that were designed to be temporary. But the enhanced premium tax credits in ARPA built upon the permanent coverage infrastructure provided by the Affordable Care Act. As demonstrated by recent experience, the need for a strong and permanent safety net persists. The withdrawal of that enhanced support at the precise time that temporary measures are ending will magnify the painfulness of the transition.”

Ultimately, what happens to the enhanced tax credits is up to Congress, Hempstead told InsuranceNewsNet.

“We're hoping that we're not going to see a big clip in the individual market where all of a sudden, things become a lot less affordable, but that's definitely at risk,” she said. “If Congress doesn't act, it's definitely something that that could happen.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].