The Enhanced Health Insurance Premium Tax Credits, Again

Last October I wrote about the Enhanced Health Insurance Premium Tax Credits that were due to expire at the end of December. At that time, the government had shut down due to the Republican inability to overcome a Democratic filibuster in the Senate. In exchange for their votes, Democrats demanded an extension of the tax credits. Republicans adamantly refused to negotiate with the Democrats, instead relying on cult leader, convicted felon, and failed President Donald Trump to increase pressure on Democrats by withholding funds for Democratic priorities, particularly food stamps, while finding alternative methods to fund Republican priorities. Eventually, Democrats caved to Republican pressure in exchange for a promise of a meaningless vote on extending subsidies. Despite the failure of Democrats to make progress at that time, yesterday the House passed a bill that would extend the enhanced tax credits.

In early December, the Senate held the vote promised in return for reopening the government. In fact, there were two votes. Both received a majority of the votes, but both also failed to overcome filibusters. The Democratic-backed bill would have extended the tax credits for three years. Four Republicans — Maine Sen. Susan Collins, Missouri Sen. Josh Hawley, and Alaska Sens. Lisa Murkowski and Dan Sullivan — joined Democrats in supporting the bill, resulting in a 51-48 vote. Sixty votes were needed to overcome the filibuster. Republicans, in turn, offered an alternative that would have created new health savings accounts into which money would be directly deposited and could then be used by recipients to purchase healthcare. That bill also received a 51-48 vote, which was, again, not sufficient to overcome a filibuster.

While Republicans repeatedly touted ideas for reforming healthcare to make it affordable, they were never able to develop a plan. At the end of December, the tax credits expired, increasing health insurance costs for millions of Americans. My family was one of those that witnessed a significant rise in premiums.

Prior to passage of the Affordable Care Act in 2011, what eventually became known as "Obamacare," obtaining health insurance that was not employer-provided could be a challenge. Insurance companies could reject applicants due to preexisting conditions or refuse to provide coverage for those conditions. Those with health issues were commonly shunted off into so-called high-risk pools. It is fairly common for anyone of middle age or older to have a preexisting condition, even if minor. Insurance for those in high-risk pools was extremely expensive and often had very limited coverage. This was an untenable situation and is what motivated reforms such as the ACA.

The ACA created health insurance marketplaces that allowed Americans to purchase high-quality, affordable health insurance through government-run marketplaces. The insurance was provided by private companies who competed for customers in the marketplaces. As I wrote in my earlier post, I had been sticking with a full-time job and only working on DC Urban Moms and Dads in my spare time due to my family's need for insurance. In 2014, thanks to the District of Columbia's healthcare marketplace, I was able to quit that job and begin working on this website full-time. The healthcare marketplaces created the opportunity for many other entrepreneurs and small businesses to similarly obtain insurance. It is not an exaggeration to say that the marketplaces were important factors in the creation of many new small businesses.

The ACA included tax credits for low-income Americans. However, my family did not need nor receive tax credits. The tax credits allowed families who had previously not been able to afford health insurance to obtain it at a low cost or even free. As a result, the number of insured Americans greatly expanded. However, the original plan had included a mandate requiring everyone to either obtain health insurance or pay a fine when it came time to pay taxes. Republicans challenged this provision in court, but the Supreme Court eventually upheld the mandate. However, during Trump's first term, Congress eliminated the mandate with Trump's support.

Insurance pools operate by spreading risk. Those who are healthy pay premiums but make little use of the insurance. Their payments allow premiums to remain affordable for those with more health issues. Without a mandate, there is an incentive for healthy people to skip purchasing insurance, only to obtain it later when their healthcare needs increase. As a result, the risk pool becomes riskier and premium costs go up. This is exactly what happened. My family's premiums increased to such an extent that we switched to a plan with fewer benefits in order to keep our premiums affordable.

The American Rescue Plan Act of 2021 introduced enhanced premium credits that changed the formula for tax credit eligibility. My family became eligible, which allowed us to return to our previous Silver plan. Critics of the tax credits often point out that the enhanced credits were part of a pandemic-era rescue plan and were never meant to be permanent. While technically true, that is only part of the story. The American Rescue Plan Act of 2021 only provided the credits for two years. However, the Fiscal Year 2022 Budget Reconciliation Law extended the enhanced credits until the end of 2025. At that time, Democrats wanted to make the enhanced credits permanent, but were prevented by West Virginia Senator Joe Manchin, who was obsessively fixated on the debt impact of the bill's spending. Had it not been for Manchin, the enhanced credits would have been permanent.

There is widespread agreement that the expiration of the enhanced credits will have a very negative impact. By the time they expired, almost everyone purchasing insurance through an ACA exchange received the credits. Without the credits, premiums increased by two or three-fold. This makes health insurance unaffordable for many families. The biggest impact will be felt in Republican-controlled states such as Florida, Texas, and Georgia. Almost everyone agrees that something must be done about the cost of health insurance generally and for those purchasing insurance on exchanges specifically. However, there is no agreement on exactly what should be done.

To put real numbers to what the expiration of enhanced credits means, I will describe my family's situation. We are a family of four consisting of two over-fifty adults and two young adults. Last year, our monthly premium for a Silver plan was $1,180.70. This was our second-largest monthly payment after our home mortgage. We actually paid off our home last year, making health insurance our largest monthly expense. With the expiration of the enhanced subsidies, our monthly premium increased to $3,818.81 for the same plan. This is an over 300 percent increase and will cost us almost $46,000 for the year. Obviously, that money will have to come from somewhere and will mean significantly reduced spending elsewhere and a decreased ability to save. While with some sacrifices we will be able to afford it, it is easy to see why others either won't be able to do so or will choose not to. I considered switching to a lower-cost Bronze plan, but frankly, there was not that much savings, and there were a lot of additional costs thrown in.

Yesterday, the U.S. House of Representatives voted to pass legislation sponsored by Illinois Representative Lauren Underwood that would extend the enhanced tax credits for three years. The vote had been forced by a successful discharge petition that went over the head of Speaker of the House Mike Johnson. While this is a significant indication that the credits may not be dead, there is still a long way to go. As written above, the Senate has already been unable to overcome a filibuster on a similar three-year extension. However, a bipartisan group of Senate negotiators has continued to work on a compromise bill. Currently, that group is focused on a two-year extension that includes some healthcare savings account options that Republicans favor. Trump has also urged Republicans to pass some sort of bill to reduce healthcare costs.

Trump's emphasis has been on putting money into health savings accounts. Frankly, this is a stupid idea. If amounts of money equal to the enhanced subsidies were to be provided, consumers would simply purchase insurance from the same companies from which they currently obtain insurance on the exchanges. There would be no real savings. Trump seems to think that Americans can deal directly with healthcare providers. In some cases, that may be true. My current insurance already allows me to compare the cost of a procedure from various providers. However, there are cases, such as when emergency care is needed, that it is impossible to compare prices among providers. Moreover, if the HSA money is not used to buy insurance, but rather to directly pay healthcare costs, there are other problems. Some years, healthcare costs may be minimal, but other years might be extensive. How will HSAs account for this? It is really an unworkable solution.

Elected officials, including Trump, seem to understand that the expiration of enhanced tax credits is an important issue that is likely to negatively impact Republican election outcomes. The damage is unlikely to be limited solely to those who purchase insurance on the healthcare exchanges. Those with employer-provided insurance will likely see their costs increase as well. This may motivate Congress to do something about it. Already, several Republicans joined Democrats to support the House extension. There is bipartisan support in the Senate. Hopefully, something can get done.