The whole government shutdown was
over extending enhanced tax
credits for Affordable Care Act
policies, with Democrats warning
of big increases in people's
monthly premiums come January if
they're not kept in place.
Aside from those extra subsidies
going away, why are marketplace
plans proving more expensive?
And what of Republican calls to
do away with the ACA altogether
in response?
We asked Wisconsin School of
Business Professor of Risk and
Insurance, Justin Sidner.
Thanks very much for being here.
Thanks for having me.
So is it in dispute that
ACA premiums could
more than double
without the extension of the
enhanced tax credits?
No, there's really no uncertainty
about that.
You know, it's basically pretty
straightforward, simple math.
The way the tax credits work
is that they're tied to a share of
the percent of your income, and
the enhanced tax credits increased
or decreased the share you would
have to pay and increase the income
range for people who are eligible.
So they'll definitely go
up. The share that you're
responsible for paying goes up if
those subsidies expire.
How much depends a lot on your
income level.
And in particular, we could maybe
think about a nice example here.
So take a 50-year-old couple,
so married couple in Wisconsin, 50
years old, no children.
They're facing a total premium of
about $18,000 for
a middle plan
this year in the ACA marketplace
in Wisconsin.
If they had the enhanced tax
credits and they made $85,000
or more a year, that's 400%
of the federal poverty line, they'd
get about a $11,000 subsidy
and they'd have to pay about $7,000
themselves.
So if those subsidies expire,
they're on the hook for that whole
$18,000. So that's an $11000
increase.
Now, for people who have lower
incomes, the subsidies protect
them more. Even if the enhanced
subsidies expire.
So let's take that same family and
move them way down the income
spectrum, make them at $25,000.
Now they're just above the poverty
line.
In the enhanced subsidies, they
don't pay anything for that middle
tier plan. They're paying zero,
but without them, they're paying
about $500 a year, so about
a $500 increase.
So that range, you know, in the
ballpark sum, it's $500.00 a
year. Some people, it is $10,000
or more a year
You know, there's so much political
consternation around not
just the tax credits, but the ACA
altogether.
Is the Affordable Care Act
in a free fall?
No, I don't think there's any reason
to think of it as being in a free
fall.
It's actually been quite stable.
So if you look at the cost of
plans for ACA marketplace
plans, both in Wisconsin but also
nationally over the last five
years or so, those premiums have
actually been very stable.
And in fact, they haven't risen in
the same way that the employer
sponsored premiums that we've seen
for, you know, that most people get
through their employers have.
Those premiums had been up about 25%
over the past five years.
ACA premiums are pretty stable.
What's driving that 25%
increase?
Yeah. So, you know, overall in the
U.S., our health care costs are just
high. So we pay about $15,000
a person per year in
health care costs across the entire
country.
You know, and those costs reflect a
lot of things. They reflect our
market based system.
So our costs are about twice what
they are in, say, Europe or Canada.
And you know, that's partly a
trade-off. We have a market-based
system. So we have a lot of
innovation We have good access we
have the best technology So if
you get very sick, you probably want
to be here on the other hand
It means that you know Our prices
are set by competitive forces and
the market doesn't always hold down
prices that well through those
competitive forces So
if think about why are they
increasing why they steady rise over
time, you know There's a confluence
of factors. So, we have an aging
population So we have
sort of more demand for health care
and the expansion of health
care services, how many nurses you
can bring on, how many doctors you
train, hospital systems.
Doesn't always keep up with that
rising demand well.
We've also seen a big explosion
of newer pharmaceutical drugs.
Innovations in genetics have allowed
us to treat rare diseases.
Those tend to be very costly.
Now, of course, they're also highly
beneficial. If you have a rare
disease, you're really happy that
there's a new drug for it.
But that's been a big part of cost.
And then there's also just overall
inflation. So there's been inflation
in all parts of the
economy, and that also hits the
healthcare prices.
So I wanted to ask you, I know that
President Trump and members of the
GOP talk about giving people direct
payments, like $2,000
or something to pay for their
health care and a health savings
account or something like that,
what do you think of that?
So, you know, it's it's hard
to react too much.
So, the details and specifics really
matter in health care.
And so far, the proposals haven't
been very detailed.
But, you now, I think we can analyze
the maybe the clearest one I've seen
was actually from Senator Cassidy.
So earlier this week, Senator
Cassody proposed, let's take part
of the expiring
enhanced premium tax credits
for people who enroll in the ACA.
Give them to people if they enroll
in the lowest generosity plans,
what are called bronze plans.
In the form of a health savings
account. So give them some part of
that money.
Now, so if you think in the short
term, what does that do?
Well, for somebody who's going to
have high healthcare costs, it's
kind of a wash because they're
facing, say, a $15,000 deductible
with that sort of plan.
If you're gonna need to go to the
doctor a lot, whether I give you
$4,000 to cover premiums
or $4000 in an HSA
that you can cover your deductibles
with, it's gonna work out about
the same.
But if you're a healthier person
thinking about enrolling in the ACA,
and you're not sure that you're
going to necessarily need to spend
very much on healthcare, well, then
you might really prefer to have that
$4,000 to cover the
costs of the healthcare, the
premiums that you know you have to
pay, rather than having it in
HSA that you can keep, but you can
only use for healthcare costs.
So there's sort of a trade-off
there. It's a little bit worse, but
it's not dramatically different if
you do it that way.
I think if you step back and think
in a longer run sense, there
is a trade off here with the
way the ACA is designed.
So most people would probably wanna
keep the basic structure of the AC
where we protect people from
preexisting conditions.
You don't have to pay more if you
get sick, say.
So imagine we keep all of that
structure the same, but we change
how the government helps subsidize
and pay for these plants.
Right now it's through these
premium subsidies.
So the amount you get and the
support you get depends both on your
income but also on
the cost of the premiums.
So the good thing about that in the
current structure is that it
protects you as the individual from
variability.
If healthcare costs rise,
the premium's don't affect you
that much, right?
The bad part about that, though, is
that very fact that you're not that
sensitive to the premium changes
lowers the competitive forces in
the systems and may lead to rising
prices somewhat over time.
Now, if you instead gave people
direct money that could be spent
on anything, healthcare premiums
or out-of-pocket costs, you
expose them to some more risk.
If those subsidies don't keep up
with the rising costs of healthcare
well, they're going to see that.
On the other hand, you create more
competitive pressure and forces.
And so there's some good economic
trade-offs there that are worth
exploring.
This but that.
Professor Justin Sidner, thanks very
much.
Great, thank you.
After 10 years, I'm getting mildly
better at these things.