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Ending Subsidies for New Enrollees Would Drive Up Premiums, Threaten Health Marketplaces

Congressional Republican health plans, developed in case the Supreme Court invalidates health insurance subsidies in states with federal marketplaces, purport to help the 6.4 million people now receiving subsidies.  But they do nothing for new enrollees who would otherwise be eligible for subsidies.  That’s a big problem for millions of potential enrollees and for the marketplaces’ future.

Throughout the year, significant numbers of people churn in and out of marketplace coverage, or they experience changes in family income, size, and employment status that make them eligible or ineligible for federal premium and cost-sharing subsidies.  In any given year, well over one-third of subsidized marketplace enrollees will move into other sources of coverage and be replaced by new marketplace enrollees who previously were eligible for Medicaid or otherwise ineligible for subsidies, the Urban Institute has estimated.

If the Supreme Court, in King v. Burwell, eliminates subsidies in states with federally run marketplaces, any legislation that continues subsidies in those states only for current enrollees would be calamitous.  Millions of people who would otherwise become eligible for marketplace subsidies would be shut out.  They include those who lose their job-based health coverage or see their incomes rise or fall, families that would otherwise be eligible for subsidies due to the birth of a new baby, and newlyweds who would otherwise be eligible as a result of marriage.  Without subsidies, they would likely end up uninsured.

Ending subsidies for new marketplace enrollees also would seriously harm the risk pool.  More than 85 percent of marketplace enrollees receive premium subsidies and the vast majority of them couldn’t afford coverage without them.  So, when current enrollees leave marketplace coverage, new people wouldn’t join, causing marketplace enrollment to fall fairly rapidly and the overall individual market to deteriorate, as the American Academy of Actuaries warns.

In addition, various congressional Republican plans would also immediately scrap the requirement that most people have health coverage or pay a penalty, leaving healthier people more likely to go without coverage. 

All told, it’s a recipe for disaster.  The likely result would be skyrocketing premiums and severely destabilized insurance markets.  Before long, the marketplaces would no longer be viable.