Assessing Policy Options for Subsidies to Improve the Affordable Care Act: One Approach Could Insure More People, Reduce Premiums, and Save $14 Billion per Year
Feb 5, 2016
An Assessment of Policy Options for Providing Subsidies
Published in: Health Affairs, v. 34, no. 12, Dec. 2015, p. 2095-2103
Posted on RAND.org on December 10, 2015
A key challenge of health reform efforts is to make health insurance affordable for individuals and families who lack coverage without harming those with coverage or increasing federal spending. The Affordable Care Act (ACA) addresses this challenge in part by providing tax subsidies to qualified individuals for purchasing individual insurance and retaining tax exemptions for employer and employee contributions to the cost of premiums of employer-sponsored insurance. These tax exemptions cost approximately $250 billion annually in lost tax revenue and have been criticized for favoring higher earners and conferring preferential treatment of employer-sponsored over individual insurance. We analyzed three options for leveling the financial playing field between the two insurance markets by reallocating the value of tax benefits of employer coverage. We found that one option that uses the subsidy formula employed in the insurance Marketplaces under the ACA for both the individual and employer-sponsored insurance markets, and additionally requires the subsidy to be at least $1,250 without an upper income limit on subsidy eligibility imposed, could expand insurance coverage and reduce individual market premiums relative to the ACA with no additional federal spending.