ACA Exchange Subsidies Are Too Low

Almost every American gets a government subsidy to help pay for health care!  The two groups that subsidize Americans’ health care costs are private employers (by paying for part of employees’ health insurance premiums) and the government. The government subsidies come directly from taxes and not all of the subsidies are need-based (like in Medicaid). In addition, the criteria for who gets government health subsidies (and how much they get) vary from group to group. In my last blog post,  I showed that Americans who buy health insurance in the non-group insurance marketplace (both on and off the ACA Exchange) are expected to pay a larger percentage of their premiums and cost share than are Americans in other health insurance groups.  These Americans have to pay more for lousier insurance! The reason for this is simple—the ACA Exchange subsidies are too low relative to what other groups are getting.   The non-group Americans have not been given the chance to catch the “taxpayer subsidy party bus” with everyone else.

Exchange subsidies are too low party bus

Let’s look at some numbers.

Compared to Others, Exchange Subsidies are too Low

Almost every American receives a taxpayer subsidy to pay for health care. These subsidies take various forms depending on which health plan covers you. In my analysis below,  you will see that the ACA Exchange subsidies are too low relative to those received by other groups.  I have compiled a list of average taxpayer subsidies per beneficiary for several different health plans. Take a few minutes and look over the table below closely.

Exchange subsidies are too low Comparisons

As you can see, one group of Americans stands out for getting NO subsidies from our government—those under the age of 65 years old  who get their health insurance coverage in the non-group health insurance marketplace and make more than 400% Federal Poverty Level (FPL).  In 2017, this cut-off for a subsidy stood at $48,240 for single households and $98,400 for a family of 4.  I think that we can all agree that zero ACA Exchange subsidies are too low!

Taxpayer Subsidizes Based on Need?

In the health care subsidies described above, only in the non-group plans are they contingent on household income (need-based). These need-based subsidies are calculated using ACA-specific affordability yardsticks–one for premium cost (for those with household income less than 400% FPL and one for cost-share for those with household income less than 250% FPL.   These subsidies are only “generous” at the very low end of the household income range–at 150% FPL and below.  Even at the low end of household income, the ACA subsidies are too low especially if a person needs to actually use more than just a little health care.

For example, a person making as little as 200% FPL ($23,760 single) is expected to pay about $1500 in yearly premiums and more than $5000 if he/she needs a lot of health care.   On a yearly take-home pay of about $20,000 per year, the person making 200% FPL doesn’t have an extra $5000 to pay for needed health care. This stingy subsidy drives Americans to choose between health care and paying for food, shelter, and clothing! Therefore, even at the lowest household income ranges, the ACA Exchange subsidies are too low.   

The health care subsidies in the “other plans” are NOT contingent on showing “need”. The taxpayer subsidy from the ESI exclusion actually favors people with higher incomes. Unlike all other taxpayer subsidies above, the taxpayer subsidy under the employer-sponsored plan category INCREASES as household income INCREASES.

Every Medicare beneficiary gets a taxpayer subsidy to the tune of $390 per month (on average). This figure does not including extra subsidies for low income/low asset Medicare beneficiaries. In the Medicare plan, beneficiaries with both low income and low total assets are eligible for extra subsidies to help pay for health insurance premiums and cost-share (as well as nursing home expenses). These extra subsidies largely come from Medicaid funds and are not included in the table above. About 20% of Medicare beneficiaries get the additional Medicaid taxpayer subsidies to help pay for healthcare costs (they are called dual-eligibles).

There are also extra taxpayer subsidies for low income/low asset veterans (and their spouses and dependent children) in the form of monthly stipends (called pensions)  to help pay home and nursing home care. These additional taxpayer subsidies for veterans are also not included in the table above.

Where Do Taxpayer Health Subsidies Come From?

The taxpayer subsidies above do not all come from the same source. The Medicare, Veterans Health, Tricare, and FEHB subsidies come directly out of the federal government’s general revenues (the government’s annual income tax haul) while ACA Exchange subsidies do not. Subsidies on the Exchange are funded from new sources of revenue created under Obamacare (PPACA) legislation.  The Exchange subsides do not come out of general revenue and therefore are not as easily “hidden” with the other taxpayer health subsidies most other Americans enjoy.   If the subsidy sources for the Exchange subsidies are removed (as Republicans have been trying to do since taking control of Congress), then no one on the Exchange will receive a subsidy.

The subsidies that pay for Tricare (for military employees, retirees, and dependents) and veterans health benefits also come out of general revenues but are distributed out of the Department of Defense and Department of Veterans Affairs budgets respectively. Both of these taxpayer subsidies are high because both groups maintain their own separate medical treatment facilities (the military even has about 200 veterinary facilities in the U.S.).   Although veterans health benefits are not technically called “insurance plans”, the health care they deliver amounts to $640 per month for every veteran enrolled in Veterans Health. Former military personnel (veterans) can seek out benefits from both programs to maximize taxpayer subsidy use.

I’ve Got My Subsidies Tough On You?

The taxpayer subsidies that various groups of Americans enjoy today are the result of a hodgepodge of new laws and additions to existing laws that often passed simply to win favor with a particular group of voters. Most of these legislative “gimmies” occurred when health care costs were much lower and the future open-ended consequences of the largess not considered. I guess one might ask the question whether the ACA Exchange subsidies are too low or are the taxpayer health subsidies everyone else gets too high.

The ESI exclusion for employer-sponsored health insurance premiums was enacted to curry favor with middle class voters. Our VA health system started out as a way to treat soldiers during the Civil War and today treats all medical concerns for honorably discharged veterans that have serviced in the military for at least 24 months ( less if service occurred before September 7, 1980). Medicare coverage has been enlarged to include people under the age of 65 who are permanently disabled (after receiving Social Securing Disability checks for more than 24 months) or have been diagnosed with End-Stage Renal Disease or Lou Gehrig’s disease.

Many laws have been passed affecting the FEHB (Federal Employee Health Benefits) program for government employees over time.  Most changes have been extremely favorable to employees, retirees, and their dependents (including former spouses). These laws generally increased the eligibility rules, increased the percentage of health insurance premium that is paid by the government, and enlarged upon retiree benefits. Eligibility and benefits in both FEHB and Tricare retiree health benefits have been particularly marked by government generosity.

Government employees receiving FEHB receive two separate taxpayer subsidies—the ESI exclusion on health insurance premiums shown under the heading of “employer-sponsored insurance” above and the government’s share for their health insurance premiums. Currently the federal government picks up 72% of the weighted average premium costs from all plans offered. For government employees who enjoy FEHB, the total average taxpayer subsidy amounts to $5900 per year ($490 per month)—more than the total, unsubsidized cost of health insurance for most plans offered on the ACA Exchange! The 55 year old non-smoker in Albuquerque, NM pays $419 per month for a silver plan and $467 per month for a gold plan.

The problem with the people who receive their health insurance on the non-group marketplace is that our government did not provide health care “gimmies” (taxpayer subsidies) for them when everyone else got theirs. When Obamacare finally improved the health insurance situation for the non-group marketplace, it was in an environment where exorbitant health costs made government largess impossible. This is a major reason that the ACA Exchange subsidies are too low. Many Americans with good health insurance benefits (and subsidies) were more interested in protecting what they have than in ensuring that all Americans were treated fairly by our government.

Summary–ACA Exchange Subsidies are too low

The table above explains why the Americans who buy health insurance on the non-group marketplace (ACA Exchange) are required to pay so much more out-of-pocket for premiums and cost-share than all other Americans; namely, the ACA Exchange subsidies are too low relative to those received by all other Americans.  Even for those in the non-group that receive subsidies, they are heavily skewed toward the neediest Americans (household incomes of 250% and below).

Because little has been done to seriously contain health spending in the United States, generous taxpayer health subsidies from our government have been handed out like candy over the years to everyone but Americans who buy health insurance in the non-group health insurance marketplace. When Obamacare (PPACA) finally remembered this forgotten group, politics and high health costs severely limited the “generosity” of their taxpayer health subsidies. Without the generous subsidies, sick Americans who buy their health insurance on the ACA Exchange must dig much deeper into their savings to pay for their care than everyone else or do without.

Is this fair? No. Do the people who are on the “taxpayer subsidy party bus” want to give up some of their generous subsidies to share with Americans in the non-group? The inequity could be remedied by bringing all Americans into one big group (like Medicare For All) and we might even be able to get a handle on reducing health spending costs that are twice as high as costs in other industrial nations.

I have created a separate Taxpayer Health Subsidies Table Explained post for a more in depth clarification of the data.

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