ACA subsidies in reconciliation?

The Democratic caucus in the Senate is slowly moving forward again on a reconciliation bill that is mostly a tax and climate bill with some healthcare components. Here is the current status:

NEW on reconciliation, w/ @sahilkapur:

-Negotiations on $500b spending, $1T revenue

-Expected $300b “ceiling” on energy/climate section

-Manchin looking at options for lower-cost ACA subsidies that could fill the rest, no commitments yet. https://t.co/psOYSaFWa1

— Benjy Sarlin (@BenjySarlin) July 6, 2022

 

The ACA has received buffed up subsidies to reduce premiums through the end of 2022. There is no current income limit instead of the 400% Federal Poverty Level cap that was law from 2014-2021 and is current law for 2023 and beyond. There is also a reduction in premium contributions at all income levels. The Congressional Budget Office estimates that a ten year extension of the ARPA subsidies as currently written would cost $210 billion or just slightly more than the remaining spending space left over from any climate portion.

There are a lot of policy priorities that liberals want and using the entire slot for one policy is likely to piss off a lot of people in the coalition. Are there ways to get most of the funding for ARPA subsidies while still keeping some funds for other priorities?

Yes.

Andrew Sprung and Charles Gaba both argue that Congress could fund most if not all of the ARPA subsidies by appropriating CSR funding for silver plans. This would turn off silverloading which has inflated the benchmark premium since 2018 and led to far more zero premium plans and higher value plans at reasonable prices since then. The CBO estimated that appropriating CSR funding would save the federal government just under $200 billion dollars over a decade. Trading Silverloading for ARPA subsidy extensions is trading an expensive, effective and inefficienctly targeted subsidy system for a more targeted subsidy system. In terms of federal budgeting the total cost delta between these two policies is a rounding error. It is a plausible but highly technocratic path forward.

There are other plausible paths to get most of ARPA, keep silverloading and free up resources. Currently, there are two sets of people who receive ARPA premium subsidies.  Individuals earning between 100% to 400% FPL get their ACA level subsidies and then have those increased.  Most notably the population earning under 150% FPL now see $0 silver benchmark plans in most cases where the deductible is less than $500.  The second population are people who are newly subsidized as they earn over 400% FPL and previously were not eligible for subsidies.  These individuals now are guaranteed a benchmark silver plan for 8.5% of their income.  It is likely that a significant chunk of the expense of the over 400% FPL subsidies are heavily concentrated.

There are spaces to tweak the formula here.  Below is a proposed tweak that keeps zero premium prevalence high for low income individuals and provides some top end protection for all people to account for the edge cases of a pair of 64 year olds with 25 year old triplets in rural Wyoming facing massively expensive premiums.  (I’m using a 2021 Brookings table for 2021 current law moved forward two years for 2023 current law estimates- — I’m off by a little bit)

 

	ARPA 2021-2022	2023 Current Law & ACA	Proposed
FPL Band
100-138	0%	2.07%	0
138-150	0%	3.1% to 4.14%	0
150-200	0% to 2%	4.14% to 6.52%	1% to 3%
200-250	2% to 4%	6.53% to 8.33%	3% to 5.25%
250-300	4% to 6%	8.33%-9.83%	5.25% to 7.5%
300-400	6% to 8.5%	9.83%	7.5% to 10%
400+	8.50%	No Subsidy	10% to 15%
1000+	8.50%	No Subsidy	15%

 

This proposed table would still provide zero premium plans to low income buyers and give top end cover for outlier situations well through the upper middle class to upper class who live in very rural areas. It would also cost significantly less than $200 billion dollars, thus freeing up other policy space for other priorities.