Among its many accomplishments, the $1.9 trillion coronavirus relief legislation that President Joe Biden signed Thursday afternoon will quietly rectify what has long been one of the most glaring flaws and nagging political liabilities in the Affordable Care Act.
And it turns out that the fix was pretty dirt cheap.
Under Obamacare’s original design, many middle-class Americans were never eligible for government help to buy insurance on the law’s exchanges. Subsidized coverage was only available to households that earned less than 400 percent of the federal poverty line—which currently works out to about $51,000 for singles and $106,000 for a family of four. Those above the cutoff had to pay full freight, and often found their options maddeningly unaffordable.
Consider a 60-year-old in 2019. A near-senior making $45,000 would have had to pay $318 per month, or 8 percent of their income, for a silver plan, the second-lowest level of coverage, according to the Kaiser Family Foundation. But their peer making $50,000 would have had to pay $943 a month, or 23 percent of their income.
This problem was known as the subsidy cliff. And as of right now, it’s finally no more. The American Rescue Plan Act will make higher earners eligible for help while making the assistance more generous for everyone else.
Previously, those who qualified for subsidized coverage were asked to pay between 2 percent and 9.8 percent of their income toward premiums for a benchmark plan, with the cost rising alongside earnings. Under the new law, nobody who buys coverage on the exchanges will have to pay more than 8.5 percent of their income. Those making up to 150 percent of the poverty line won’t have to pay anything—which should be a major boon to Americans in states that have refused to expand Medicaid. The Congressional Budget Office believes that, as a result, about 1.3 million fewer Americans will be uninsured thanks to this bill.
While health care journalists have covered this change at length over the last several weeks, it hasn’t generated a ton of attention. That may be because it’s a relatively uncontroversial move—Obamacare is fairly popular, and Democrats are just shoveling a bit more money into it. It’s also only a temporary fix; the change only lasts two years, though the widespread assumption is that lawmakers will eventually try to make it permanent.
In the meantime, they’ve taken the first step toward addressing what was truly Obamacare’s original sin, which was that the law was designed to be penny-wise and pound-foolish. Democrats wanted to reform the insurance market so health plans would be required to cover patients with preexisting conditions and offer robust basic coverage. Everyone knew those reforms would make insurance more expensive. Lawmakers could have chosen to subsidize everyone’s coverage to ensure it stayed reasonably affordable. But instead, they decided to go for the bank shot known as the individual mandate, which aimed to keep costs down by making all adults, including young and healthy ones, purchase coverage so their premiums could cross-subsidize less healthy customers.
It didn’t work that well, even before Republicans effectively repealed the mandate as part of their 2017 tax bill. Ultimately, a slice of Americans saw their premiums shoot up and were told to pay for the full cost of coverage they felt they couldn’t really afford under threat of a fine. As a result, the subsidy cliff created real financial burdens for a small but very vocal group of voters, in particular the self-employed and small-business owners who relied on the individual market, whose complaints badly damaged the law’s image in its early days. (It’s easy to forget that public opinion wasn’t consistently favorable toward the law until 2017, when Republicans suddenly threatened to repeal it.) As health care writer Jon Walker put it recently, “It was madness to pass something called the ‘Affordable’ Act and then have it make care significantly less affordable for one of the groups who most struggled to afford care.”
And in the end, it turns out that capping everybody’s premiums just doesn’t cost all that much. According to the CBO, this two-year patch is going to require a grand total of $22 billion (about $13 billion of which is for 2022, when it will be in place for the full calendar year). It would have just been a dollop more cash in the original ACA, which was originally estimated to spend $938 billion on health care while reducing the deficit by $143 billion on net. Presumably, those cost savings could have been better spent actually making the law work.
But hey, better late than never, right? Hopefully they’ll get to work on Obamacare’s high deductibles next.