Last month, Republicans in the Senate failed to pass legislation to repeal and replace the Affordable Care Act (ACA). Now, Republicans from both the House and Senate have expressed a willingness to find bipartisan improvements to the law. This new resolve to work together represents an opportunity to move away from the politically driven arguments that have mired the health care debate over the past eight years and to move toward an analysis-driven, evidence-based conversation about how Marketplaces can be made stronger. To be successful, lawmakers must use a holistic, consistent context when evaluating Marketplace changes.
Current Marketplace State of Play
Many health insurance Marketplaces across the county contain the features of a sustainable, competitive market. They have healthy competition between insurance companies, profitable margins, sizable participation rates, and diversified health risks of consumers. But some Marketplaces have experienced setbacks—particularly in rural areas, which are consistently unattractive to insurers—that include state decisions not to expand Medicaid, limited engagement by state officials, and even active sabotage from policy-makers. And, overall, Marketplaces have yet to attract the business of millions of consumers who remain uninsured.
The good news is that the current limitations of the ACA Marketplaces can be addressed by working toward the goals of lawmakers in both parties to:
- Lower premiums and premium increases for current health insurance consumers.
- Increase the value of insurance (that is, the price for a given set of benefits) in the Marketplaces to encourage more individuals, particularly those that are relatively healthier, to purchase insurance.
- Grow Marketplace enrollment with healthier risk to attract competing insurers.
The bad news is that recent debate in Congress has focused on a flawed measure of premiums. Specifically, Republicans touted the fact that the Congressional Budget Office (CBO) found that average market premiums under both the House and the Senate bills would be lower in 2026 than under current law. However, it turns out that lower premiums were primarily the result of health insurance plans covering fewer benefits and fewer older individuals getting Marketplace coverage. Driving down premiums by decreasing benefits and/or driving out people who need insurance is antithetical to the goals of strengthening the Marketplaces.
Driving down premiums by decreasing benefits and/or driving out people who need insurance is antithetical to the goals of strengthening the Marketplaces.
Public policy can substantially affect premiums by changing who has insurance, what is covered and the bang for the buck. To achieve the shared goals of greater affordability and stronger markets, policies must be judged as a whole and not simply by the end result of average premiums. To determine whether or not lower premiums will lead to stronger Marketplaces, it’s necessary to understand the underlying mechanism through which lower premiums function and how it will affect who signs up for insurance.
Public Policy Proposals to Improve the Marketplace
A Century Foundation report details how different policies, including those proposed in the House and Senate Republican bills, do or do not contribute to stronger Marketplaces. This commentary highlights four different proposals and examines the impact of each on premium affordability and strength of the Marketplaces. While the policies below are not exhaustive, the below side-by-side analysis highlights the importance of examining the trade-offs between different proposals to strengthen the Marketplaces.
1. Stability Funds.
Both House and Senate ACA repeal bills, along with the ACA itself, included an increase in federal funding to directly compensate insurers for high-cost enrollees. Such policies, like a reinsurance program, lower the cost of insuring a high-cost individual (like a person with hepatitis C) by reimbursing insurers for some of the individual’s claims costs. Under a reinsurance program, insurers are able to price their premiums lower because they are responsible for fewer enrollee costs. Programs like reinsurance also reduce premiums market wide because they lower uncertainty in the market.
Tradeoffs: Reinsurance and other similar programs lower market average premiums, which helps attract healthier consumers to join the market. Analysis of reinsurance programs from The American Academy of Actuaries and the Congressional Budget Office (CBO) find that reinsurance-like programs lower premiums for all ages. Additionally, several states have used reinsurance programs to lower average premiums with notable success. A healthier mix of individuals consequently further lowers future premiums. Stability funding also helps encourage insurers to participate in the markets because of the risk protection it provides. However, because the ACA’s premium tax credits are linked to a percentage of a family’s income, the reduction in premiums from reinsurance is only experienced as an increase in affordability for families not eligible for premium tax credits (families over 400 percent of the Federal Poverty Level (FPL)). As such, reinsurance programs are likely to do little to increase enrollment of tax credit eligible individuals of whom make up a large share of those eligible but not enrolled. So, while reinsurance provides valuable certainty for health issuers, stability funding as a mechanism to increase enrollment, dollar for dollar, would likely be better spent in a more targeted manner on those who need it most—for example, premium tax credits, which may be better suited to target increased affordability.
2. Increasing Tax Credits for Younger Americans.
Another proposal under consideration is to increase the amount of tax credits available to younger individuals who purchase coverage on the Marketplaces. Lowering net premiums for younger individuals makes the purchase of insurance more attractive for this group, which tends to be healthier. When a greater number of healthy individuals enter the market, the average risk in the insurance pool declines. Higher tax credits for younger Americans directly decreases net premiums for younger Americans and indirectly decreases premiums for all consumers through an improvement in the average risk in the insurance pool.
Tradeoffs: A study by the Commonwealth Fund found that enhancing the ACA’s current tax credits by $50 per month for people between ages 19 and 30, with smaller enhancements for those between ages 30 and 35, would increase enrollment by individuals under the age of 30 by almost 1 million people and reduce average market premiums by 0.6 percent. For a larger effect on coverage and premiums, this policy could be scaled up or targeted to particular age groups. Because funding is directly targeted to younger enrollees, and applies to those who are lower-income, this policy may be a more efficient way to increase Marketplace enrollment and stability. However, despite the obvious upsides to this policy, because premiums are already relatively low for younger Americans, reducing premiums for younger adults may have a more limited effect than otherwise expected if knowledge of coverage availability and affordability is a higher barrier to enrollment than affordability itself.
3. Increasing Age Rating Limits.
Under current law, health insurers may not charge older adults more than three times the amount they charge younger adults for premiums. Both the House and Senate Republican bills sought to increase that limit to five times the amount charged for a younger adult.
Tradeoffs: Widening the cost of premiums due to age decreases premiums for younger enrollees and encourages greater enrollment from this relatively healthier group. However, there are several downsides to this proposal. First, this policy increases premiums for older enrollees, decreasing affordability and enrollment of older Americans. Decreasing enrollment of those who most need insurance does not meet test of strengthen the insurance market. In fact, when Commonwealth Fund’s study estimated the average market premium assuming the same age distribution present in the market today, it found that average premiums actually increased by 5.8 percent after five-to-one age rating is introduced. Additionally, while the policy itself does not explicitly involve a direct increase in federal funding like the others examined in this commentary, federal costs do increase because premium tax credits will rise commensurately with premiums for older individuals, a group that receives the majority of premium tax credit dollars. So, not only does this policy lower protections for older Americans, it also has the effect of increasing federal spending.
4. Increasing Premium Tax Credit Eligibility.
Under current law, premium tax credits are cut off at 400 percent of the federal poverty level (FPL). A concern is that there’s a sharp increase in costs for individuals above 400 percent FPL because they don’t qualify for tax credits. One policy proposal is to eliminate this cost cliff by limiting all consumer premiums to at most a certain percent of a person’s income. This proposal would increase affordability to middle-income Americans by applying the same limits to those above 400 percent FPL as current law applies to those at 400 percent FPL.
Tradeoffs: The Commonwealth Fund found that such a policy would strengthen the market and reduce premiums by attracting more healthy individuals to join the market through reduced premiums for middle income Americans. The policy would primarily have the effect of attracting relatively healthier older Americans to sign up for insurance, a population particularly in need of the benefits of insurance. However, the Commonwealth Fund also estimates that roughly half of the spending on the additional tax credits would go to individuals who already purchase insurance. Increasing affordability for those who already purchase insurance is certainly a bipartisan policy goal, but when examining the most efficient way to spend federal dollars, this “crowd out” of private funding with federal funding is important to consider.
The above policy proposals are just a sampling of those under consideration. There are, of course, other policies—such as increasing targeted outreach and enrollment efforts, various forms of public options, and policies to make insurance benefit design and delivery of services of more efficient—that are and should be a part of the conversation.
But the examples presented above do illustrate important considerations and tradeoffs of policies to strengthen the Marketplaces, particularly when federal investments are involved. For example, increasing funding for reinsurance brings down average premiums, but because of the tax credit structure, premium decreases are only experienced by those who are not tax credit eligible. Heightening enrollment of young adults via higher tax credits rather than through lower premiums with an age rating curve would be a more efficient use of federal dollars with less collateral damage to those who need insurance most. And extending premium tax credits up the income scale would address premium cliffs and increase affordability for middle income Americans but would probably have a smaller impact on the uninsured given that a large portion of the money would go to the already insured.
As such, careful examination of how to most efficiently strengthen the Marketplaces given the bipartisan set of goals is both necessary and useful as the policy process moves forward.
Every policy proposal should be run through the same set of metrics: how and for whom will changes increase coverage, maintain consumer protections, and improve affordability? When a consistent context is applied, debate over Marketplace improvements will have the capacity to produce legislation most beneficial to Americans across the country.