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 market place plans proving more expensive
and what of Republican calls to do away with the ACA altogether in response?
We ask Wisconsin School of Business Professor of Risk and Insurance, Justin Sitner and
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 increase or decrease 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 market
place 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 $11,000 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, making 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 in the ballpark sum, it's $500 a year.
Some people it's $10,000 or more a year.
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 that most people get through their employers have.
Those premiums have been up about 25% over the last five years.
ACA premiums are pretty stable.
What's driving that 25% increase?
Yeah, so overall in the US, 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.
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 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 our prices are set by competitive forces, and the market
doesn't always hold down prices that well through those competitive forces.
So if you think about why are they increasing, why they steady rise over time, 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 are 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 health
care 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?
Well, so 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 I think we can analyze, maybe the clearest one I've seen was actually from Senator Cassidy.
So earlier this week, Senator Cassidy proposed, let's take part of the expiring enhanced premium
tax credits for people enrolling 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 health care costs, it's kind of a wash because
they're facing, say, a $15,000 deductible with that sort of plan.
If you're going to need to go to the doctor a lot, whether I give you $4,000 to cover
premiums or $4,000 in an HSA that you can cover your deductibles with, it's going to
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 health care, well, then
you might really prefer to have that $4,000 to cover the costs of the health care, 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 health care 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 want to keep the basic structure of the ACA, where we protect
people from pre-existing 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 plans.
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 health care costs rise, the premiums don't affect you that much.
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, health care
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 health care 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.
Yeah.
Professor Justin Sitner.
Thanks very much.
Great.
Thank you.
I guess you're a professor, but after ten years I'm getting mildly better at these