Improving ACA Subsidies for Low- and Moderate-Income Consumers Is Key to Increasing Coverage

Lower-income people are much more likely to lack insurance, and they comprise the majority of the marketplace-eligible uninsured.   The Affordable Care Act (ACA) has extended health coverage to more than 20 million people and has made coverage better or more affordable for millions more. Yet about 30 million non-elderly people remain without health insurance, about 12 million of them people for whom ACA marketplace plans are the relevant coverage option.^[1] Public discussion has mostly focused on how to address the affordability challenges facing people with incomes too high to qualify for the ACA’s premium and cost-sharing subsidies (the subject of a companion CBPP analysis).^[2] However, lower-income people are much more likely to lack insurance, and they comprise the majority of the marketplace-eligible uninsured. (See Figure 1; for state-level data, see Appendix Table 1.) Evidence from state policies and federal policy changes shows that improving subsidies is key to increasing coverage for this group and therefore to driving down overall uninsured rates.

Lower-Income People More Likely to Be Uninsured

Under the ACA, people with incomes below 400 percent of the poverty line (about $50,000 for a single person, about $100,000 for a family of four) are eligible for premium tax credits to help purchase marketplace coverage. Some have suggested that, as a result of these subsidies, health insurance is now more affordable for most families at lower income levels than higher income levels.^[3] But the data on uninsured rates by income level don’t support that assertion.

The ACA has indeed made health insurance far more affordable for low- and moderate-income people. Since the ACA’s subsidies took effect in 2014, uninsured rates for non-elderly people with incomes between 138 and 400 percent of the poverty line have fallen dramatically, from 19.2 percent in 2013 to 12.5 percent in 2017.^[4] Nonetheless, uninsured rates remain higher at lower incomes. For example, the uninsured rate is:

• 15.5 percent for people with incomes between 138 and 250 percent of the poverty line^[5] (those eligible for the largest subsidies);
• 9.8 percent for people with incomes between 250 and 400 percent of the poverty line (eligible for smaller subsidies); and
• 6.0 percent for people with incomes between 400 and 500 percent of the poverty line (not eligible for subsidies).

As Figure 1 shows, uninsured rates nationally decrease with income across the income scale; the same pattern also holds in nearly every state.^[6]

Low- and moderate-income people are less likely to have employer-sponsored coverage, but that is not the only reason they are more likely to be uninsured. Individual market coverage take-up among those without employer (or other) coverage is also lower at lower income levels. Among people with incomes between 138 and 250 percent of the poverty line, 41 percent of those without employer, Medicare, Medicaid, or other coverage are enrolled in an individual market plan. That compares to 53 percent between 250 and 400 percent of the poverty line, 63 percent of those between 400 and 500 percent of the poverty line, and 76 percent of those above 500 percent of the poverty line. While the ACA’s premium and cost-sharing subsidies are highly progressive, they do not make up for the fact that lower-income people have far less disposable income.

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Increasing Coverage Will Require Improving Subsidies

Uninsured people at all income levels consistently cite cost as the greatest barrier to coverage.^[7] Improving outreach and making it easier to enroll in marketplace plans can significantly increase enrollment, especially among subsidy-eligible people who may not realize how much financial assistance they qualify for.^[8] But sharply reducing uninsured rates and improving access to care will also require making financial assistance more adequate. Importantly, reducing sticker price premiums generally does not make coverage more affordable for people who are eligible for subsidies. (See box, “How ACA Subsidies Work.”)

Evidence from state policies and recent federal policy changes confirms that subsidy improvements substantially increase take-up of marketplace coverage and reduce uninsured rates.

• States that offer extra financial assistance have lower uninsured rates. Most striking, Massachusetts offers sizable additional subsidies that greatly reduce premiums for marketplace enrollees with incomes below 300 percent of the poverty line. The state’s supplemental assistance also reduces cost sharing (compared to the levels under the ACA), especially for people with incomes between 200 and 300 percent of the poverty line. For example, people with incomes between 138 and 150 percent of the poverty line are guaranteed a $0 premium plan option, compared to premiums of $48 to $63 for benchmark coverage in other states. Similarly, people with incomes between 200 and 250 percent of the poverty line pay $85 per month for the lowest-cost plan in Massachusetts, compared to $132 to $211 per month for the benchmark plan in other states.^[9] Massachusetts has the lowest overall non-elderly uninsured rate in the nation (3.2 percent), as well as the lowest uninsured rate for people with incomes between 138 and 250 percent of the poverty line.

  Several other states offer some, though generally less, additional help to low- and moderate-income consumers. Minnesota and New York both have Basic Health Programs open to people with incomes between 138 and 200 percent of the poverty line, with premiums lower than what these consumers would pay for marketplace coverage. The District of Columbia allows people with incomes up to about 215 percent of the poverty line to enroll in Medicaid, and Vermont provides supplemental financial assistance to people with incomes between 200 and 300 percent of the poverty line. While these states (as well as Massachusetts) have also adopted other policies that help increase coverage, it’s noteworthy that all have below average uninsured rates, even compared to other states that have expanded Medicaid.

• A rigorous study of the Massachusetts program finds extra financial assistance greatly increases take-up of marketplace coverage. Massachusetts’ subsidies are structured such that premiums increase by about $40 per month at 150 percent, 200 percent, and 250 percent of the federal poverty level. That means that researchers can estimate the impact of lower premiums by comparing enrollment rates among people just above versus just below those cut-offs. Using that approach, a study by Massachusetts Institute of Technology and Harvard economists finds that cutting premiums by about $40 per month increases take-up of individual market coverage among eligible people by 14 to 24 percentage points, with larger effects at lower income levels.^[10] (For example, they estimate that 70 percent of eligible people in Massachusetts with income just above 150 percent of the poverty line took up marketplace coverage in 2011, compared to 94 percent of people with incomes just below 150 percent of the poverty line.)

  Notably, the additional people who enroll due to lower premiums are healthier and have lower health care spending, on average, than those who enroll with less financial assistance. For example, monthly costs are 14 percent higher among people with incomes just above 150 percent of the poverty line (facing higher net premiums) than just below 150 percent of the poverty line (facing lower net premiums), the researchers estimate. That suggests that improving financial assistance would not only increase coverage rates but also strengthen the marketplace risk pool, which would reduce sticker price premiums.

• “Silver loading,” which increases financial assistance, appears to have increased take-up of marketplace coverage. In late 2017, the Trump Administration decided to stop reimbursing marketplace insurers for the cost-sharing reductions (CSRs) they are required to provide to lower-income consumers. While President Trump was clear that he expected stopping CSR payments would destabilize the marketplaces,^[11] his decision ended up benefiting consumers. Ending CSR reimbursements gave rise to “silver loading,” or insurers building the cost of CSRs into their marketplace silver plan premiums. Because premium tax credits are based on silver plan premiums, that approach makes financial assistance more generous. (See box, “How Silver Loading Is Making Coverage More Affordable.”) But the extent to which silver loading increased financial assistance in 2018 varied significantly by state.

  Looking across states, marketplace enrollment in 2018 increased more in states where silver loading had a greater impact on premium tax credits. Moreover, the correlation was greatest for consumers with incomes between 250 and 400 percent of the poverty line, who benefit the most from silver loading; it was weaker for consumers with incomes between 200 and 250 percent of the poverty line, who benefit some; and was approximately 0 for consumers with incomes below 200 percent of the poverty line, who benefit little.^[12] Consistent with these data, the Congressional Budget Office estimates that silver loading is reducing the number of uninsured by 500,000 to 1 million people.^[13]

Policy Options for Improving Financial Assistance

Several legislative proposals introduced in the previous Congress would significantly improve the ACA’s subsidies, reducing both premiums and out-of-pocket costs (deductibles, co-insurance, and co-payments) for subsidized consumers. H.R. 5155, introduced by Representatives Frank Pallone, Richard Neal, and Bobby Scott (now the chairs of the three House committees with jurisdiction over the ACA), would significantly increase both premium tax credits and cost sharing assistance, lowering net premiums for subsidized ACA consumers to closer to Massachusetts levels. The bill would also extend subsidies to people above 400 percent of the poverty line.

Legislation introduced by Senator Elizabeth Warren (S. 2582) would make similar changes. Other proposals would make more limited but targeted improvements, for example lowering premiums for young adults (S. 2529, introduced by Senator Tammy Baldwin). All of these proposals would advance the goals of expanding coverage and making premiums and out-of-pocket costs more affordable for those who are already insured.

Major subsidy improvements along the lines of those included in H.R. 5155 would likely extend coverage to at least several million people, at a cost of several hundred billion dollars over ten years.^[14] One option for offsetting the cost would be to roll back a portion of the tax cuts in the 2017 tax bill, which will cost nearly $2 trillion over ten years. Notably, the 2017 tax bill cut $314 billion over ten years from health programs by repealing the ACA’s individual mandate penalty, leading fewer people to sign up for subsidized coverage.^[15] Undoing tax cuts worth that amount could pay for major subsidy improvements.