BONUS: What Happens if Obamacare Subsidies Shrink?

Dan Gorenstein (DG): Hey, it’s Dan.

As the country barrels toward a government shutdown — and with health care taking center stage — we want to bring you a special bonus episode that looks at the Affordable Care Act. 

Minority Leader Hakeem Jeffries: Democrats do not support the partisan Republican spending bill because it continues to gut the health care of the American people.

DG: If Republicans want to keep the government open past Sept. 30, Democrats are demanding an extension of generous health insurance subsidies. 

The Democrats say this aid, which is set to expire at the end of the year, helps millions of people pay for Obamacare coverage.

Some Republicans are open to negotiating. Others are balking.

Speaker Mike Johnson: I have concern, Republicans have concern about those policies, if you look at how much they’ve been abused.

DG: Last Wednesday, September 24, Tradeoffs co-hosted a virtual event with the Leonard Davis Institute of Health Economics at the University of Pennsylvania.

I moderated a conversation with two of the country’s top health economists — the University of Chicago’s Kate Baicker and MIT’s Jon Gruber — to unpack the evidence around what these enhanced subsidies have meant for Americans’ health, and what would happen if they went away.

Today, a few particularly insightful moments from that conversation.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein, this is Tradeoffs.

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DG : A bit of context before we dive in.

When Congress first passed the ACA, they included federal subsidies to help low-income people afford their coverage. People making up to 400% of the federal poverty limit, about $100,000 for a family of three in today’s dollars, would pay no more than 10% of their income on health insurance premiums. The feds would cover the rest.

Democrats and the Biden administration expanded this aid as part of a COVID relief package. Now, consumers only pay up to 8.5% of their incomes, and no income cap. This additional support has cost U.S. taxpayers more than $20 billion over the last two years.

I asked Jon Gruber what we’ve bought for all that money. 

Jon Gruber (JG): I’d say the most important thing we bought, Dan, is we could now make a statement that no American has to pay more than 8% of their income to buy good quality health insurance. I think that was the main thing we gained was a level of social protection, a guarantee.

Along the way that brought millions of people into insurance coverage, and that’s a wonderful benefit. But to my mind, the biggest benefit is the power of that statement, which is to say we are going to be a country where we’re going to make sure people can get health insurance for 8% of their income.

DG: Over the last two years, eight out of 10 people buying an Obamacare plan had an option that cost $10 a month or less. A study Jon co-authored found about 4 million people got insured thanks to these enhanced subsidies.

Some conservatives, though, argue those gains have come at too high a cost. Paragon Health Institute estimates 6.5 million people improperly received subsidies, either because people lied about their incomes, or insurance brokers signed people up without their knowledge. Plus, extending the extra aid for another decade will run about $350 billion.

If these additional subsidies do expire, experts say 2 to 5 million people could end up uninsured next year. I asked Jon and Kate what would happen to people’s health if we saw lots of folks go uninsured.

JG: I think the best evidence comes from studies that have been done of what the Affordable Care Act did. There’s really high quality studies of both what the Medicaid expansions did, which show they saved lives, and studies of what mandating private insurance did, which came from this really cool study where people randomly got reminders about their mandate and picked up insurance.

Both of those studies show that when people lose insurance, they die. Now, not one for one, obviously, but the best estimates are something like for every 500, 800 people who lose health insurance, one person dies. So if we’re talking about 5 million people losing health insurance, then basically we’re talking about 5,000 people dying a year because they’ve lost their health insurance. Maybe it’s 2,000 at the lower bound.

The bottom line is thousands of people will die because we’re removing this health insurance coverage.

DG: Thanks, Jon, for that. I’d like to bring you in, Kate, here to talk more about the evidence. Earlier this year, Tradeoffs did a story about why many Republicans wanted to shrink Medicaid, and something that came up for us, Kate, again and again as we interviewed conservatives, was their belief that there’s limited evidence that having health insurance actually improves people’s health.

A number of them cited your work, the Oregon Medicaid Experiment. And for context, that was a big randomized controlled trial in the early 2000s. It compared people who got Medicaid coverage in a lottery with those who did not.

And you found no differences between the two groups in three physical health outcomes that you measured: cholesterol levels, blood pressure and keeping diabetes under control. Since then, as Jon has just explained, several studies have found that Medicaid and expanded coverage under the ACA have improved health and even saved lives.

Kate, what is your honest reading of what we know about the impact of health insurance, including on mortality? Because different people are out there drawing different conclusions?

Kate Baicker (KB): Absolutely. And I really appreciate the opportunity to talk about the nuance of the evidence, because health insurance does lots of things to health care use, and health is a multifaceted outcome. And the reading of the evidence overall, I think paints a very compelling picture that health insurance is very good for your health.

People with Medicaid are much better off than those without it, and people with any insurance are much better off than those without it. They have better access to health care. They’re more likely to report their health care needs are met.

One thing we found in the Oregon study was that there was a dramatic drop in depression, which is in and of itself a large unmet health need, but also then correlates to lots of other downstream health outcomes. We did not in the Oregon study find any effect on mortality, nor did we expect to. We didn’t have a big enough sample size to be able to say anything useful about mortality.

Now, I’ve worked on other studies that used states that chose to expand Medicaid in advance of the ACA expansion versus those that didn’t, to get much bigger sample sizes, and there we did find mortality effects.

To me, it seems clear there are important big health benefits to people who get insurance. Those benefits aren’t free. They have to be weighed against the cost of expanding the insurance. People use more health care and someone has to pay for that.

And so the question for policymakers and for voters is, how much do you value this bundle of health improvements for this population that gains insurance through the program? Is it worth the cost? And what is that value relative to spending that money on education or housing or food or lower tax rates?

So as a policymaker and as a voter, you don’t want to think about just the benefits. You want to think about the costs and decide what’s important to you as a society.

DG: When we come back, Kate and Jon break down the tradeoffs that come when consumers pay more for their health insurance.

BREAK

DG: Welcome back. With ACA enhanced subsidies at the center of the debate over a potential government shutdown, we wanted to bring you a special bonus episode. 

Last week we co-hosted a live, virtual event with the Leonard Davis Institute of Health Economics at the University of Pennsylvania. 

I talked with health economists Kate Baicker and Jon Gruber about the value of these subsidies and what happens when consumers shoulder a greater burden for their coverage. 

Again, here are excerpts from that conversation.

DG: We’re now in a moment where the GOP is shrinking what we spend on health care. The so-called Big Beautiful Bill from this summer cut $1 trillion over the next decade, mostly for Medicaid. Obviously, letting these subsidies lapse would continue that trend.

For years, we’ve seen Republicans push for more access to so-called skinny plans, health insurance that costs less and covers less. For example, the Trump administration just recently made it easier for people to buy what are known as catastrophic plans with high deductibles.

The question for both of you, and Jon, we’ll go to you first: What does the evidence tell us about the health effects of these skinnier plans that cost less and cover less?

JG: Dan, it’s a great question, and I think we need to think about what skinny means. Certainly you can define skinny in terms of how big your deductible is. You can have a $10,000 deductible. That’s a very skinny plan or a $0 deductible — that’s not skinny.

But in terms of what the plans actually covered, there’s not a lot of disagreement. Basically, you got to cover drugs. You got to cover inpatient, you got to cover outpatient, you got to cover doctors. You do that, there’s just not a lot else. I mean, yeah, maybe you don’t cover plastic surgery. Maybe you don’t cover certain specific drugs, maybe don’t cover GLP-1s, you know, like Ozempic. It basically is all about cost sharing.

KB: Jon, let me, I agree with what you’re saying, and let me jump in with one clarification. There have been periods where people have been more enthusiastic about plans that have a lot of upper limits, limits on catastrophic coverage, where, you know, they cover up to X thousand dollars of care.

I think Jon and I would both agree that’s bad insurance. Insurance is supposed to protect you against big, unexpected expenses that you can’t afford otherwise. An insurance plan that caps benefits at $1,000 or $10,000, those are sometimes called skinny plans. I would call those like prepaid health care that has very little insurance value. Those are worse.

And that’s not I think what we’re talking about here because catastrophic insurance protection is in some ways the most important part of the insurance aspect of insurance. That’s what insurance is for — when something bad happens to protect you from the financial consequences of the bad thing. Sorry, Jon. Go ahead.

JG: It’s super well put, Kate. I think the bottom line we’re agreeing, Dan, is skinny versus not skinny is not about the benefits you cover. It’s about the cost sharing provisions, either the deductible or the cap.

So let’s come to your question: What do we know about skinny versus non skinny? What we know really comes from the evidence about high deductible versus non-deductible plans. And the answer here is quite mixed.

I think I would summarize the evidence as saying when people face more cost sharing, on the one hand, they use less of everything, including both valuable and less valuable care. On the other hand, there’s not a lot of evidence that are in worse health.

So it’s sort of this weird thing, which is how can they be using less valuable care and not be in worse health? And there’s two possible answers. One is doctors are wrong about what care is valuable. The other is that maybe the set of people who cut back care are exactly the set of people who don’t need that care.

You know you name your podcast Tradeoffs, I think the inherent trade off people have the hardest time understanding with health care is the premium-out of pocket trade off. That basically if you want to make it skinny by making people pay more out of pocket, you can have lower premiums, but then people pay more out of pocket. People want both low premiums and no deductible, and you can’t have both. 

DG: As our talk drew to a close, I took us into a kind of speed round and asked Jon and Kate two final questions that spoke to the current political moment.

DG: Jon, several people in the audience, including Merrill Goozner, Gina Krupp and Matt Klebanoff asked if states can do anything to mitigate the impact of these enhanced subsidies expiring. You’ve published a working paper earlier this year that offers some useful insights. What did you find? And again, please be brief.

JG: Basically, the key insight is states play a big role. We found that states that run their own exchanges have much more effective implementation of the ACA than states that don’t. I think states can play a large role through outreach and through other tools to facilitate enrollment in the exchanges and to try to mitigate the damage done by these subsidies going away. 

DG: So if states are really concerned about this, there are actions they can take. 

JG: There are actions they can take, in particular actions they can take to facilitate enrollment and advertise enrollment. They’re not going to solve the problem, but they will help on the margins.

DG: Kate, as we’ve said, Republicans are focused on cutting federal health spending and promoting health insurance options that cover less. What do you want conservative policymakers to be thinking about as they consider these changes to health insurance?

KB: I think we’ve outlined them in the conversation that there are real health benefits to people of having insurance that gives them access to care that they wouldn’t otherwise have, and that comes with a cost. The health care use has to be paid for. These plans don’t pay for themselves.

So I would ask policymakers to be weighing the costs against the benefits and thinking about the alternative uses of the resources. And could you do, would you do as much good spending those resources somewhere else? And those are hard questions. But I think we have a lot of evidence of the benefits of insurance coverage.

DG: As Kate and Jon said again and again, decisions about who gets health insurance and how much it costs are political decisions up to lawmakers and voters.

While the subsidies are in place until the end of the year, experts say if Congress doesn’t extend them before open enrollment starts on Nov. 1, insurers will have locked in higher premiums and many consumers may walk away from plans that are too expensive.

To hear our entire conversation, including Kate’s roadmap for achieving universal coverage at lower costs, go to tradeoffs.org or LDI’s YouTube page to watch the full conversation. We’ll put a link in our show notes.

I’m Dan Gorenstein, this is Tradeoffs.