Impacts on Premiums, Enrollment If the ACA Is Modified

Ending the subsidies offered under the Affordable Care Act (ACA) would sharply increase costs for consumers, according to a study from the RAND Corporation. Furthermore, without the subsidies, more than 11 million Americans will lose their health insurance.

Without the subsidies to help low- and moderate-income individuals purchase health insurance on the government-run marketplaces, premium costs in the individual marketplaces could increase by as much as 43%, researchers found. Authors Christine Eibner and Evan Saltzman predicted the effects of eliminating the subsidies as several federal courts are considering whether subsidies are applicable to marketplaces run by the federal government instead of by the states.

“If subsidies are eliminated entirely, our research predicts substantial disruption in the individual health insurance market,” Eibner, the study's lead author and a senior economist at RAND, said in a statement. “Without the subsidies, prices would jump sharply and many people simply could not afford to enroll.”

According to the study, ACA marketplaces without the tax credits would likely consist of a small number of high-risk individuals. The result would drive prices higher and prevent enrollees from purchasing coverage.

Ending the mandate requiring individuals to purchase health insurance would only cause premiums to increase by 7%, but enrollment in the individual market would fall by more than 20%.

“While the effect on premiums is relatively modest, the sharp decline in enrollment, if the individual mandate is eliminated, suggests that the mandate is important to achieving the ACA’s goal of nearly universal coverage,” the authors wrote.

Overall, eliminating both the mandate and the subsidies makes premiums more sensitive to the enrollment decisions of young adults, the investigators found. Reduced enrollment among individuals between the ages of 18 and 34 is associated with slight premium increases. For every 1 percentage point reduction in the share of young adult enrollees, premiums are projected to increase by 0.44%.

Eibner and Saltzman modeled replacing the subsidies with alternatives, such as vouchers, and found such moves would make the marketplaces even more sensitive to changes in the age mix of enrollment. Under a system using vouchers instead of tax credits, each percentage point reduction in young adult enrollment, premiums would increase by 0.75%.

“If the ACA’s subsidies are eliminated entirely, our model predicts a near death spiral—that is, sharp premium increases and drastic enrollment declines in the individual market,” the authors concluded.