The High Stakes Of ACA Subsidies: What’s At Risk For Hospitals And Patients

The Affordable Care Act’s enhanced subsidies are at risk of expiring at the end of 2025, and healthcare leaders are worried about what could happen if Congress doesn’t renew them. For instance, more Americans would become uninsured, premiums would increase, and hospitals would be saddled with more bad debt due to uncompensated care.
The post The High Stakes Of ACA Subsidies: What’s At Risk For Hospitals And Patients appeared first on Above the Law.

The Affordable Care Act’s enhanced tax credits — which were introduced during the pandemic to expand healthcare affordability during a time of widespread unemployment — are at risk of expiration at the end of this year if Congress doesn’t extend them. For many Americans, these expanded subsidies have meant the difference between affording routine care for themselves and their loved ones and skipping these visits entirely. 

But it’s not simply a matter of affordability and access. This looming policy change could also create significant challenges for hospitals already battling financial pressures.

Healthcare leaders have a number of concerns about what could happen if Congress does not renew the ACA’s expanded tax credits. Premiums could increase, a larger share of Americans could become uninsured, hospitals could be forced into more bad debt and uncompensated care, and most worrisome, American public health would deteriorate.

Still, the hefty price tag of the ACA’s enhanced tax subsidies makes it seem unlikely that they will be renewed by a Republican-led Congress — in fact, a bipartisan bill that was passed in December to prevent a shutdown before Christmas didn’t include it. An expert interviewed for this article noted that these subsidies were established to provide support during a public health emergency that has now expired — and they cost taxpayers $91 billion last year.

When the ACA health insurance marketplaces launched in 2014, tax credits went into effect to make coverage more affordable for individuals and families. These tax credits — which are based on ACA shoppers’ income and household size — were later expanded temporarily under the American Rescue Plan Act in 2021 and extended through the Inflation Reduction Act in 2022. This came in the form of larger subsidies and broader eligibility criteria​.

When the marketplaces were first established, the government provided subsidies to people earning 100-400% of the federal poverty level, and individual premium contributions ranged from 2.07-9.83% of their income. 

The American Rescue Plan Act and its extension under the Inflation Reduction Act boosted these subsidies by lowering premium contributions to 0-8.5% of income and approved $0 premiums for people earning 100–150% of the federal poverty level. The changes introduced during the pandemic also allowed Americans earning above 400% of the federal poverty level to qualify for subsidies if premiums exceeded 8.5% of their income. 

Char MacDonald, executive vice president of public affairs at the Federation of American Hospitals, noted that these credits have played a key role in reducing the country’s uninsured rate. Last year, the national uninsured rate reached an all-time low of 7.9%.

“What these tax credits have done is make sure that people have coverage for all the services they need — not just coming into the emergency room, but also that they continue with care that they need for their chronic condition, for oncology care, for primary care. That’s where it’s really critical — with the patients that we’re seeing, the hospital is not the first stop, it’s not the first entry into the healthcare system,” she explained.

Expanded subsidies reduce patients’ out-of-pocket costs, which makes them more likely to do things like book check-ups and preventive care appointments, MacDonald noted.

Jolene Calla, vice president of finance and legal affairs at HAP: The Hospital and Healthsystem Association of Pennsylvania, agreed that enhanced ACA tax credits are a major factor leading patients to seek preventive care.

“We have seen people coming to the hospital more because they have coverage, and that is a good thing. When I say coming to the hospital, I mean for things like preventive care services, access to prescription drugs, and getting early diagnosis and treatment for some of the chronic conditions that become the most expensive when people show up in the ED,” Calla remarked.

When people don’t have affordable health insurance, they tend to delay care, skip primary care visits and forego screenings, she pointed out. This often means that their conditions progress into a less manageable state, resulting in more expensive and acute care episodes down the road.

In Calla’s view, ensuring that Americans have access to affordable healthcare coverage “makes good financial sense.”

When people have coverage, they are much more likely to make check-up appointments to maintain their health and visit an urgent care site rather than a high-cost emergency department, she explained. 

“Just because you don’t have coverage, that doesn’t mean you don’t get sick. These patients are still going to the hospital, and there is a cost to that. That means the hospital is going to end up paying for at least part of that uncompensated care — and that puts financial strain on the hospital because they might get some of that back, but they’re generally not getting it all back, so they have to absorb that,” Calla declared. 

That means hospitals then have to make tough decisions, like hiring less nurses or forgoing new equipment they may need to better serve their patients, she remarked.

She said that ACA tax credits — along with individual states expanding Medicaid coverage — have led to lower rates of uncompensated care at hospitals. Last year, Pennsylvania’s uncompensated care rate dropped to 1.39%, Calla noted.

“But still, even at that percent, that is $774 million that hospitals are not getting,” she stated. “Coverage is a really big deal for hospitals, and with the loss of the [tax credits], we expect that the number of insured patients is going to rise dramatically, and that’s going to have a ripple effect on costs for hospitals and the amount they’re losing.” 

She noted that more than half of Pennsylvania hospitals had negative operating margins in 2023.

“It’s really bad timing for a really bad development for Pennsylvania patients and hospitals, if those [tax credits] were to go away,” Calla said.

Another healthcare leader in Pennsylvania — Devon Trolley, executive director of Pennie, the state’s official health insurance marketplace — noted that her organization has seen a 50% increase in enrollment since the ACA’s expanded subsidies were introduced.

This is because coverage is now more affordable for a wide variety of people — such as those with low and moderate incomes, self-employed people, short-term contract workers, individuals who have recently lost their jobs.

“There’s a more affordable bridge from Medicaid to the private health plans through the marketplace. There’s also more options for people who are above 400% of the federal poverty level. Before this, they had no tax credits. When they say 400% you may think that’s a lot of money, but that’s $60,000 per year for a single person, so it’s not as big as it sounds. This is for people who really find full price coverage to be very challenging to afford,” Trolley said.

If Congress fails to renew enhanced ACA subsidies, “every single enrollee through Pennie” — which is more than 435,000 people — would be affected, she declared.

On average, premiums would rise by 81%, Trolley remarked.

“It would double, sometimes even quadruple, what they are paying for health coverage right now,” she said.  

Trolley said her main concern about the subsidies’ potential expiration is that this would force thousands of families in her state to make difficult decisions about whether to maintain their health insurance coverage. Given the significant increase in out-of-pocket costs, many will drop their plan, which would reverse the “incredible progress” that’s occurred since the enhanced tax credits were put into place, she stated.

Jeremy Nordquist, president of the Nebraska Hospital Association, also expressed worry that uninsured rates would increase significantly if expanded subsidies are not renewed.

He noted that about 120,000 Nebraskans have health coverage through its state marketplace, and “pretty much all of them” are receiving enhanced tax credits. He also said that enrollment in the state’s marketplace plans has increased by about a third since the subsidies were upgraded through the Inflation Reduction Act.

“The generous subsidies help reduce the average premium for those that are receiving subsidies by about 50%, obviously more on the lower income side than higher, but there’s a big impact to those individuals getting coverage. Without them, we know more Nebraskans are likely to skip buying coverage and would remain uninsured,” Nordquist declared.

If Congress does not renew the ACA’s expanded tax credits, the nation’s number of uninsured citizens would rise by 3.8 million each year on average from 2026 through 2034, according to estimates from the Congressional Budget Office. 

The agency predicted that gross benchmark premiums would increase by 7.9% on average over the same period.

MacDonald of the Federation of American Hospitals pointed out that robust enrollment in ACA plans benefits the risk pool. The more people enrolled in the marketplace, the healthier the risk pool is, which brings down premiums for everybody, she stated.

“If we see the tax credits expire and people are unable to obtain insurance, you’re going to see only the sickest patients enrolling, and that’s problematic for the risk pool. That means the premiums are higher for everyone else, and it just has an effect that will continue and will be negative for everyone out there,” MacDonald explained.

Nordquist of the Nebraska Hospital Association noted that the elimination of enhanced ACA subsidies “would be really disastrous” for rural communities in particular.

Rural areas tend to have a higher percentage of people who are self-employed or employed by small businesses — oftentimes working in agriculture or trades like woodworking and blacksmithing, he said. 

He also pointed out that rural hospitals operate on extremely tight operating margins. This is due to a number of factors, such as lower patient volumes and limited access to specialized services that generate higher revenue.

“If you now have a 10% uninsured rate in your community, as opposed to a 5% uninsured rate or even lower, it really makes the path hard to figure out how to break even at the end of the day,” Nordquist declared.

Brock Slobach, COO of the National Rural Health Association, pointed out that about half of rural hospitals are losing money on operations. 

He said this share will grow significantly if expanded ACA tax credits are not renewed, which could force some hospitals to close their doors.

“About 460 rural hospitals are in danger of closing, according to our statistics, and 216 of those are highly vulnerable to closure. So something like this, for those 216 highly vulnerable hospitals to closure, could really produce some significant negative impact,” Slobach remarked.

If enhanced subsidies are not renewed, the negative impacts will be both immediate and long-term, Trolley of Pennie pointed out.

She highlighted the fact that about a quarter of the U.S. population is between the ages of 45 and 64. Many people in this pre-Medicare age range are early retirees or people who have switched to lower-stress jobs that may not offer health insurance, she noted.

Without affordable ACA options, many of these people may opt to go insured and wait until they are eligible for Medicare, Trolley explained.

“There’s a lot of focus on how to make Medicare more effective and how to curb some of the cost increases there. If you have people who are uninsured for five years before they hit Medicare and they haven’t gotten preventive care or maintenance care for things like diabetes or heart conditions, they’re going to hit Medicare with unmanaged chronic or serious conditions that are going to cost a lot more at that stage to treat than if they had gotten in early and been able to have that ongoing access,” she declared.

The expiration of tax credits might also lead to a renewed focus on price transparency, said Josh Berlin, CEO of rule of three, a healthcare consulting firm. 

The failure to renew these subsidies will make healthcare access even more unaffordable, which could ignite greater fervor around efforts to present pricing information transparently, he noted. 

“You might see a reemergence or doubling down of the transparency requirements, with some political support and maybe even bipartisan support, that could provide an emphasis on the way costs are transparently pushed out in and across the health system,” Berlin stated.

Last month, Congress passed a stopgap funding bill that included some healthcare provisions, such as extensions for Medicare telehealth flexibilities and the Acute Hospital Care at Home program — but it did not extend the ACA’s enhanced tax credits.

In an interview — before the stopgap bill was introduced minus the tax credits extension — Michael Abrams, managing partner of Numerof & Associates, predicted that it is not likely that Congress would extend the subsidies.

“Republicans have an issue with the legislation in the sense that they believe that the subsidies distort the use of the program by extending it to people who don’t need it. Now, that may not have been true during the pandemic, but the question is, is it still true now?” he remarked.

The ACA subsidies were expanded during the pandemic — a time when many Americans unexpectedly lost their jobs, Abrams pointed out. Now, the U.S. unemployment rate is 4.2%, which is “about as close to full employment as we’re going to get,” he said.

In Abrams’ view, Congress will probably use this logic: tax credits were expanded in response to a public emergency, and now that that emergency is over, it’s time to wind these credits down.

“The ACA itself should not be competing with alternatives that are available to individuals through employment,” he declared. “It’s hard to, I think, justify the continuation of a program that was a Band-Aid for a particular point in time.”

He also pointed out that “too many people” are focused on the fact that enhanced tax credits have increased ACA enrollment.

“For them, more enrollment in the ACA is an end in and of itself, but it shouldn’t be. The ACA is a safety net kind of program, and not that there is no place for it, but whether it thrives or not is really a measure of strength of our economy. And if the economy is getting stronger, it’s only logical that the use of the safety net program shrinks,” Abrams explained.

If Congress takes this stance, “there is no question” that hospitals will suffer negative financial consequences, which is why both hospital and commercial insurance lobbies are working hard to keep enhanced subsidies alive, he said. But at the end of the day, he has serious doubts their efforts will be successful.

Photo: Niyazz, Getty Images