How the Affordable Care Act subsidies work and who depends on them

Geoff Bennett:

House Speaker Mike Johnson said today he will not call for a vote on extending enhanced subsidies for people buying insurance through the Affordable Care Act. That effectively guarantees the subsidies will expire at the end of the month and premiums will spike substantially for some 20 million Americans who get their coverage that way.

In a moment, we will hear from Republican Senator Bill Cassidy, who's a key player in this debate.

But, before we do, we turn to the first of two reports on the subsidies and alternative ideas.

William Brangham focuses tonight on how the subsidies work and what's at stake if they expire.

Joe Biden, Former President of the United States: Because tens of millions of Americans will be a whole lot healthier from this moment on.

William Brangham:

It was March 23, 2010, and Vice President Biden whispers in President Obama's ear, "This is a big effing deal."

(Cheering)

Joe Biden:

This is a big (EXPLETIVE DELETED) deal.

William Brangham:

And it was, signing of the Affordable Care Act into law.

Barack Obama, Former President of the United States: Today, after all the votes have been tallied, health insurance reform becomes law in the United States of America.

(Applause)

William Brangham:

It was complicated to pass and complicated in its structure, but the ACA, which was quickly dubbed Obamacare, had a fairly straightforward goal, expand health care coverage and keep costs down.

And over the ensuing 15 years, the ACA has been mostly successful on that first front by expanding Medicaid and by helping people buy insurance. All of that helped cut the uninsured rate in half. But that promise of lower prices, what President Obama often called bending the cost curve, that has been a much harder nut to crack.

Cynthia Cox, Program on the ACA Director, KFF: In the United States, we spend twice as much money on health care as many other countries do.

William Brangham:

Cynthia Cox analyzes the Affordable Care Act at KFF.

Cynthia Cox:

The ACA worked by using taxpayer dollars to reduce the cost of health care for individuals that qualify for those programs, but it didn't do a whole lot to address the underlying reasons why health care is so expensive.

William Brangham:

As health care prices keep rising across the system, health care premiums do too. With the ACA, to soften the blow of those higher premiums, targeted subsidies were built into the law.

Avik Roy co-founded the Foundation for Research on Equal Opportunity, and he has served as an adviser to past Republican presidential candidates.

Avik Roy, Foundation for Research on Equal Opportunity: Part of the rationale of the subsidies was, well, if we're going to regulate what these plans can offer and how they can be designed, they're going to be more expensive. And if they're going to be more expensive, then some people will have trouble affording them.

William Brangham:

Despite those subsidies, by 2020 enrollment had stalled. For some Americans, the plans still cost too much. So during the pandemic, then-President Biden boosted those subsidies and expanded who was eligible for them to higher income brackets.

And they worked, cutting costs for consumers and driving a surge in enrollment. While those enhanced subsidies got more people covered, they were also very expensive and temporary. Congress gave them an expiration date, December 31, 2025, hence this New Year's Eve deadline that we are all talking about.

Sen. John Thune (R-SD):

This is a failed program.

Sen. Thom Tillis (R-NC):

The Democrats created the problem. We have got to solve it.

Sen. Chuck Schumer (D-NY):

Are they going to vote for this bill and bring health care costs down for the American people, or block this bill and send premiums skyrocketing?

William Brangham:

Here's how the subsidies work. What someone has to spend for an insurance policy is capped at a certain percentage of their income on a sliding scale.

So, for example, and there's different plans and deductibles to consider, but, generally speaking, let's say I make under $22,000 a year. I'd pay nothing for the basic benchmark health insurance plan. But as my income grows, so does the percentage I'd have to pay, up to 8.5 percent of my income once I start making $65,000 a year.

The remaining cost of that policy, no matter how expensive, is paid for by the federal government. And though they are sometimes referred to as tax credits, in most cases, the money goes straight to insurance companies.

Cynthia Cox:

What most people opt to do is to have their tax credit dollars sent directly to the insurance company that they pick for their insurance. And then that way it lowers their monthly premiums directly so that person doesn't have to pay the full premium up front.

William Brangham:

In 2025, the total cost of the ACA subsidies was an estimated $138 billion. That's 5.5 times NASA's entire budget.

Avik Roy:

The plans are much more expensive than people believed they would be in 2013-2014. And as a result, the subsidies have become more needed because fewer people can afford the plans in the ACA. And that's what creates the policy debate that we're having now.

William Brangham:

If the subsidies are not renewed, nearly all of those 24 million enrollees, overwhelmingly low- and moderate-income households, will see huge spikes in their premiums.

Cynthia Cox:

On average, people are going to pay about twice as much next year as they do this year.

William Brangham:

Forty-five percent of Obamacare recipients, almost 11 million people, can currently get their coverage at no cost. But that will change if these enhanced subsidies go away. For example, a family of four making $45,000 a year will see their premium increase from zero to around $1,600 a year.

Cynthia Cox:

It is a lot of money to someone who's maybe barely making it to me to begin with.

William Brangham:

People like Crystal Akers in Kentucky.

Crystal Akers, Kentucky:

For the current plan that I have now, it showed that my monthly premium would be about double what I'm paying. As far as I'm concerned right now, I don't have insurance. I turned off my payment for November.

William Brangham:

Cox also says some older Americans will be especially hard-hit.

Cynthia Cox:

So, that big spike is going to happen for older people who have incomes just above four times the poverty level. So for an older couple, this might be an income of $85,000. They actually, because it's two of them, might see their premium costs go up by almost $20,000.

William Brangham:

Avik Roy argues this crisis is a moment to reassess some fundamentals about the ACA.

Avik Roy:

I think the question that a lot of people are asking is, do we just throw more subsidies at the problem and paper over the fact that the ACA has led to these much higher prices for health insurance or do we try to reform the design flaws in the ACA, so that we can actually have not just lower health insurance for those individuals, but for everybody who has to shop for coverage on their own?

William Brangham:

But time is running out for that kind of compromise. The Congressional Budget Office estimates, without an extension, 2.2 million enrollees will drop their coverage in 2026 alone.

People like Melissa Ruff of Jacksonville, Florida.

Melissa Ruff, Florida:

Here I am, 57, seven years out from Medicare, facing being uninsured with a cardiac condition. I can't afford it. It prices me out of health care.

William Brangham:

And, in Tennessee, Tenika Mason says she has to have insurance.

Tenika Mason, Tennessee:

Our daughter is a brain cancer survivor and we have to go with the insurer that covers the specialists that she needs. So not having insurance is not an option for us. It would ruin us financially.

William Brangham:

And that's the trade-off at the heart of this standoff. Keeping health care affordable for Americans on these plans is very expensive, but leaving people with no coverage at all has costs of its own.

For the "PBS News Hour," I'm William Brangham.