Terry Savage: The health insurance sinkhole

Last year, when the additional subsidies for the purchase of health insurance under the Affordable Care Act (Obamacare) were removed, there were widespread predictions that millions of Americans would go without health insurance. Premiums were expected to rise sharply, even to double, without the government subsidies.

We've become inured to doomsday prophecies. But in this case, those predictions are about to come true. And the impact will be felt throughout our healthcare system — even by those who pay their own health insurance premiums, or have coverage through their jobs.

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The background

As of early 2024, approximately 27.1 million people of all ages in the United States were estimated to be without health insurance, representing a national uninsured rate of 8.2%. That was down from a peak of 48.6 million uninsured in 2010. The vastly improved rate of insurance coverage can be directly attributed to the Affordable Care Act, the reforms of which went into effect between 2010 and 2014.

The initial subsidies for the Gold, Silver and Bronze tiers were made available by using taxpayer dollars. The idea was that the social benefit of insuring people, instead of exposing them to the soaring costs of uninsured medical care, would offset the tax dollars spent, and would create a healthier population.

Then, those subsidies were increased dramatically in 2021 by the American Rescue Plan Act (ARPA) and extended through 2025 by the Inflation Reduction Act (IRA) of 2022 as a reaction to the COVID-19 pandemic. These enhanced subsidies, cut premiums and expanded eligibility to more middle-income earners. However, the enhanced subsidies expired at the end of 2025, despite attempts to have Congress extend them.

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The impact

The result was a shock to millions of middle- income families. It is no exaggeration to say that premiums doubled. Mike Smith, a health insurance expert and president emeritus of The Brokerage Inc., has helped brokers deal with the issue of individual and family insurance coverage for more than 30 years. He tells the story of one family of five that saw its health insurance premium jump from $800 per month to $2,000 per month this year.

The number was so shocking that instead of switching to some sort of limited major medical coverage, this family just gave up — and are now without health insurance at all. For them, the math was simple: A $2,000/month premium translates into $24,000 a year! Better to use urgent care or the emergency room to cover a child's illness or injury and then try to negotiate a poverty discount.

And if they do have an expensive health event? Balances will be sent to collection agencies, wages can be garnished, bankruptcies will rise, and so will home foreclosures for these middle-class families.

Multiply the decision to opt out of expensive health insurance policies by millions, and you suddenly see the strain on the nation's healthcare system, both in terms of resources and billings. Many physicians won't take uninsured patients — but emergency rooms must serve all. Hospitals will be writing off significantly more uninsured care this year — offsetting those losses by charging higher prices to those who do have health insurance. Those higher costs of treatment will be reflected next year in higher insurance premiums for those who purchase coverage.

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A solution?

Many have proposed a system of national health insurance, much like Medicare. But Medicare itself is struggling under rising costs of the millions of baby boomers now using its services. Although traditional Medicare sets reimbursement rates for services, patients have few limitations on its usage. Most physicians and hospitals accept its payment levels.

Attempts to restrain the growth of Medicare usage by lowering premiums through Advantage plans are meeting with growing frustration. Since Advantage plans are managed by publicly traded insurance companies, using a set, annual reimbursement rate from government for each member, they can only improve profits (and stock prices) by limiting care. Seniors only realize the trade-off when they become ill and try to access care, finding providers limited and requests denied.

Even worse, seniors find that once they've dropped out of traditional Medicare, in most states they can't return to traditional Medicare and get an affordable and comprehensive supplement if they now have serious health problems.

One possibility is that Centers for Medicare Services (CMS) will create a lower-cost but lower-coverage plan that will appeal to the budget conscious — a sort of "Bronze-light" plan. Those could be approved as early as this fall for next year's enrollment.

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Missing the point

In 2023, healthcare expenditures made up 17.6% of America's GDP — nearly one out of every six dollars spent. The cost of healthcare impacts each of us, rich or poor. Even members of Congress must use Obamacare, purchasing their insurance through the District of Columbia's Small Business Health Options Program, unless they are insured by a spouse's plan.

The salary of a representative or senator is $174,000 a year — well above the income cap of 400% of the federal poverty level, or $132,000 for a family of four, in 2026 — to qualify for an Obamacare subsidy. So, with no subsidy, members of Congress should start feeling the pinch of higher premiums personally.

Maybe then they'll pay attention to the health insurance crisis. And that's The Savage Truth.

— Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.