Democrats are warning of a surge in the number of uninsured if costly enhanced subsidies for exchange coverage expire as planned at the end of next year.
But exchange coverage is borderline useless to many enrollees. It requires beneficiaries to fork over huge sums before it kicks in and confines them to narrow provider networks. Rather than subsidize “junk” insurance through the exchanges, lawmakers should deregulate the market so insurers can offer health plans that are affordable and efficient without federal subsidies.
The enhanced subsidies allow people with incomes up to 150% of the federal poverty level, $46,800 for a family of four, to sign up for free exchange coverage at taxpayer expense. Exchange enrollees pay a progressively larger share of income for premiums until they reach 400% of the poverty level, $124,800 for a family of four, when their contributions are capped at 8.5% of income.
Those premium subsidies hide the actual cost of coverage. Consider a hypothetical couple in their 20s living in Harrisonburg, Virginia, making $80,000 a year — just under 400% of the poverty level. The least expensive plan they’d be able to purchase through the exchange runs $417.43 a month, after an $82 tax credit.
But the plan comes with narrow networks, a $7,200 per person annual deductible, and 40% coinsurance for most health expenses after the deductible is met. The out-of-pocket maximum is $18,400 — enough to purchase a decent car fresh off the lot.
Add in the plan’s narrow provider network, and the picture gets worse. If our hypothetical couple can’t find an in-network provider, they’ll be on the hook for 100% of most fees — for everything from primary care to lab tests to baby deliveries. If they visit an out-of-network emergency department, they’ll be on the hook for half of the bill — even after they hit their deductible.
In short, marketplace insurance often works like catastrophic coverage — only useful if someone suffers a five-figure healthcare catastrophe. But that’s not how exchange coverage is advertised. Many enrollees don’t learn that their coverage won’t offer them much help until they’ve made their first claims.
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Perhaps that dynamic explains why so many have rejected exchange coverage this year. Enrollment is down by roughly three-quarters of a million people compared with the same time a year ago.
Democrats’ plan to make the enhanced premium subsidies permanent would cost taxpayers $335 billion over the next 10 years, according to the Congressional Budget Office. We shouldn’t be spending that kind of money to subsidize coverage that many people find useless.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on X, formerly Twitter, @sallypipes.