How the 24 Million Americans With Marketplace Health Plans Will Get Squeezed

(Dreamstime)

While much has been written about health insurance cuts for low-income Americans in the Republican megabill expected to get signed into law on Friday, the millions of Americans who earn too much to qualify for Medicaid and instead use marketplace health plans will take a big hit, too.

Enrollment in the plans, which were established as part of the Affordable Care Act under President Barack Obama and are provided by private insurers, has doubled since 2021 to 24 million this year. That is a direct result of new, enhanced subsidies enacted under President Joe Biden through the Inflation Reduction Act and American Rescue Plan that dramatically reduced the price of the plans.

Combined with pre-existing subsidies, they brought the average monthly price for a marketplace plan down from $619 to $113 this year for the 92% of enrollees who took advantage of the tax credits. Some 42% of enrollees selected plans with premiums of $10 or less, according to data from the Centers for Medicare and Medicaid Services.

The administration says the changes are needed to prevent waste, fraud, and abuse. Some research indicates that the rise of brokers who receive commissions from private insurers for signing people up for their plans could be a problem.

“Unscrupulous brokers are certainly contributing to fraudulent enrollment,” according to a report by Paragon Health Institute, which was founded by a former advisor to President Donald Trump.

That thinking has led to an overhaul of the program, resulting in higher costs and tougher eligibility and other rules set to kick in over the next few years.

Here are four big changes that could affect anyone with a marketplace plan:

Higher Premiums for Most People

The sharpest sting will come not from what’s in the bill, but what’s not. Enhanced subsidies on monthly premiums enacted during the Biden administration are set to expire at the end of 2025. Those subsidies lowered the average annual cost of marketplace plans by 44% or about $705, according to a KFF analysis of federal data. The bill doesn’t extend them like it did for Trump’s 2017 tax cuts.

The change will result in an estimated 4.2 million people losing health coverage through 2034, according to a Congressional Budget Office analysis. That is in addition to the millions more who will lose Medicaid health insurance due to stricter eligibility requirements.

Almost everyone who has a marketplace plan gets some kind of subsidy, with the exact amount based on their income and cost of the plan. While the Biden subsidies will end, other premium tax credits and cost-sharing reductions for things like deductibles and copays will remain in place. “Most enrollees will still receive some form of subsidy,” KFF’s Matt Gough, a policy analyst on the Affordable Care Act, told Barron’s.

More Complicated Signup and Renewal

Getting approved for a plan will get more complicated for anyone who wants to take advantage of the remaining tax credits that reduce their monthly premiums. This is partly because of the bill and partly because of the government’s new Program Integrity Rule.

Whereas currently enrollees have a 90-day grace period after enrolling to submit their financial information, starting in 2027 they will need to provide that information upfront and exchanges must verify whether any immigrant who applies and is in the country lawfully is an “eligible alien.”

Since verification is required prior to enrollment, automatic renewal is no longer an option. That could cause some headaches or even prevent some people from re-enrolling if they have trouble getting their financial documents in order.

And starting in 2027, due to the new Program Integrity Rule, the annual fall open enrollment period will be shortened to six weeks, down from as much as two and a half months.

Lastly, signing up outside of the annual enrollment period could make people ineligible for any subsidies if they don’t have a specific qualifying life event such as having a baby or losing employer-sponsored health coverage. That provision takes effect starting in 2026.

You May Owe More to Uncle Sam at Tax Time

Because tax credits that lower monthly premiums are based on estimated income, enrollees typically reconcile the difference between what they expected to earn and what they actually earned come tax time. So if they earned more than they thought, for example, they will have to pay back some of the advance tax credits that lowered their premiums.

Under current law, there is a cap to the amount that must be paid back for all but those earning more than 400% of the federal poverty level, which works out to $62,600 for individuals in most states.

In the megabill, those caps are eliminated for all income brackets, effective in 2026. Failure to pay back any excess tax credits makes enrollees ineligible for them in the future.

A Silver Lining for Health Savings Accounts

Currently, the lowest cost marketplace plans typically have the highest deductibles and cannot be used with a health savings account that lets enrollees sock away pretax funds to cover out of pocket medical expenses.

Under the new bill, these so-called bronze and catastrophic plans can now be paired with a HSA. That will help shave costs not covered by the plan since enrollees can use pretax money to pay for them.

Write to Anita Hamilton at anita.hamilton@barrons.com