Despite Biden’s boasts, fewer people are enrolled — and at a higher taxpayer cost — than was projected. President Biden is boasting that the uninsured rate is at a record low, taking credit for growth in individual market enrollment and setting up a 2024 election issue, particularly as an expiration of massive health-insurance subsidies will confront whoever is president in 2025. In fact, recent expansions of Affordable Care Act (ACA) subsidies have driven exchange enrollment to record highs. But by itself, this is not evidence of the success of the ACA. Our new actuarial analysis, released this week by Paragon Health Institute, serves as a reality check. The truth is that the ACA has attracted half as many people at three times the projected taxpayer cost per new enrollee as expected before the law's provisions took effect.
In 2013, the Congressional Budget Office projected that by 2021, 40 million Americans would enroll in the individual market, where most non-elderly middle-income people without an employer plan obtain health insurance. It turns out that there were only 20 million people enrolled. We estimate the ACA led to only 1.6 million more Americans with private health insurance despite $60 billion in annual subsidies to obtain these gains — an inefficiently high annual cost of roughly $36,800 for each additional private-insurance enrollee.
After the 2014 rollout, several policy changes have increased the number of Americans with private insurance, but at a significant cost.
First and perhaps ironically, a response to a legal decision by the Trump administration substantially increased ACA subsidies. The ACA requires insurers to reduce cost-sharing, like deductible amounts, for many lower-income exchange enrollees. The Obama administration had compensated insurers for these cost-sharing reduction (CSR) payments despite the absence of a necessary congressional appropriation of funds. The Trump administration ceased CSR payments, and insurers responded by significantly increasing the premium for the plan linked to the subsidies. We estimate the cessation of CSR funding increased enrollment by 600,000 people but at a cost of $16,900 per additional subsidized enrollee by 2022.
Second, Congress increased subsidy generosity and expanded subsidy eligibility to households with higher incomes in the 2021 American Rescue Plan Act. By 2022, we estimate this change increased spending by $8,700 per additional subsidized enrollee.
Third, some states, such as Texas, began enforcing the ACA's single-risk-pool regulation which requires insurers to price their plans in alignment with underlying benefits and not the characteristics of particular enrollees in each plan. This has led to significantly higher premiums in plans linked to the subsidies, and consequently much greater federal spending.
Despite the surge of subsidies for exchange plans, 92 percent of the ACA coverage gains are from Medicaid eligibility expansion. Contrary to the purported intent of expanding private coverage, the ACA has mostly served to commandeer a health-insurance market to enact income redistribution.
Instead of increasing coverage, the ACA exchanges have effectively fostered a winners-and-losers demographic shift that attracts a different group of people — primarily older, sicker, and lower-income households eligible for large subsidies. Meanwhile, the negative impact of higher premiums has hurt Americans who do not qualify for subsidies and are increasingly unwilling to purchase health insurance in the individual market. Only 21 percent of individual-market enrollees in 2022 paid the premium without taxpayer help. In 2013, the individual market was entirely unsubsidized.
To improve future policy, Congress must first comprehend the inefficiency of the ACA model, the poorly targeted subsidy expansions, and ongoing state regulatory actions that may substantially boost federal spending. In 2025, the legislatively expanded subsidies expire, presenting a timely opportunity for reform.
Rather than perpetuate the approach of infusing more taxpayer funds into an inefficient program, Congress should pursue three meaningful reforms. First, leverage new actuarial analyses to better allocate federal subsidies to those disadvantaged by the ACA. Second, recognize that ACA plans are unattractive to many Americans and permit people greater freedom to select plans not subject to inflated premiums. Third, reverse the decline in small employers offering health benefits by enacting policies that help small employers offer coverage to their employees.
After the disappointing original ACA results buoyed by inefficient subsidy expansions from both Presidents Trump and Biden, lawmakers have an opportunity to serve the American people by improving the structural framework of health insurance, revoking inefficient federal spending, and adopting policies that lead consumers to procure health-insurance coverage at a lower cost.
Greg Fann is an actuary at Axene Health Partners and a strategic adviser on ACA matters. Daniel Cruz is a health actuary and cofounder of Presidio HealthCare.