Marketplace Pulse: The Coming Coverage Cliff—Some States Have a Lot to Lose

The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.

• More than 3 million people could lose coverage if the America Rescue Plan Act’s (ARPA) enhanced premium tax credits expire—an increase in the uninsured population of 11 percent.
• Half of that increase in uninsurance is predicted to occur in just three states: Florida, Georgia, and Texas.
• These three states and six others are predicted to see their marketplace enrollment drop at least 30 percent.
  

The United States is facing a steep cliff in health insurance coverage and access to care, as a confluence of events are likely to soon separate millions from their healthcare. Emergency measures provided COVID-19 services at no cost for the uninsured, created emergency Medicaid eligibility categories in some states, and temporarily suspended eligibility redeterminations in Medicaid. Now these programs are unwinding. The COVID-19 program for the uninsured has run out of money and stopped reimbursing claims. Emergency Medicaid eligibility will soon end in the 15 states where it was in force, and the process of redetermining Medicaid eligibility will begin at some point.

An additional and more significant threat to health insurance coverage is the looming, year-end expiration of the enhanced premium tax credits implemented as part of the ARPA. These credits both expanded eligibility to those earning over 400% of the federal poverty level and increased the size of the credits, making insurance plans more affordable.

The change resulted in a significant uptick in marketplace enrollment. If Congress does not act to extend them, their expiration will result in a significant decline. The Urban Institute projects that individual market enrollment will drop by nearly 4 million in 2023, about 20%, if the enhanced tax credits lapse. Additionally, an estimated 9 million remaining in the marketplace will face higher premiums.

Some of those who leave the marketplace will have other sources of coverage, but many will not. The uninsured population is predicted to grow by a little more than 3 million in 2023, an increase of 11 percent. The expiration of the enhanced tax credits will have the greatest impact on uninsurance among younger adults, those with incomes between 200 percent and 400 percent of the federal poverty level, and Black adults, for whom uninsurance is predicted to rise 17.7 percent.

The impact of the expiration of the tax credits will vary dramatically by state. It is predicted to cause a decline in marketplace enrollment that ranges from 2% in New York and Rhode Island to 44 percent in Kentucky. (Figure 1). The increase in the uninsurance rate is similarly predicted to range widely, falling by less than 1 percent in New York, Rhode Island, and Washington, D.C., but nearly 25 percent in Florida. (Figure 2).

One important driver of the wide variation in marketplace enrollment declines among states is the uninsurance rate. States with high uninsurance rates have the most exposure to this potential lapse. Just as these states benefited the most from the enhanced premium tax credits, they will lose the most if they are taken away. Of the 3.1 million people estimated to become uninsured, half will live in just three states: Florida, Texas, and Georgia. Georgia is facing a 36 percent decline in marketplace enrollment and a nearly 25 percent increase in their uninsurance rate if the enhancedpremium tax credits expire.

Nine out of the twelve states that have not expanded Medicaid under the ACA have projected increases in uninsurance at or above the national average. Other states that have expanded Medicaid but have above average uninsurance rates—like Louisiana, Kentucky, Oklahoma, and Missouri—are also poised for big increases in their uninsurance rate. New Hampshire and Maine also risk significant increases in uninsurance.

States with higher premiums will see more fallout from the expiration of the enhanced premium tax credits. For example, in West Virginia, where the average benchmark premium is far above the national average, marketplace enrollment is projected to decline by one third. Premiums are generally higher in rural areas, magnifying the loss of affordability if the expanded premium tax credits go away. In general, rural residents will pay a heavier price than will their urban counterparts if the premium tax credits were to expire. A new study from the Urban Institute shows that nationally premiums are on average 10 percent higher in rural as compared with urban areas. In some states differences are even greater. For example, in Arizona and Colorado, benchmark premiums are one third higher in rural versus urban areas, and in Nevada they are more than fifty percent higher. In high-priced rural areas, the enhanced premium tax credits made coverage affordable for the first time, and their elimination will have a major effect.

If the premium tax credits expire, there will be implications for the marketplace risk pool, since healthier enrollees will be more likely to drop coverage, leading to adverse selection that will raise average costs. Another response to increased costs will be to buy down to a lower actuarial level, causing enrollees to have higher levels of out-of-pocket costs, which leads to skipped care and medical debt. In the absence of information to the contrary, plans that are currently developing rate filings will have to assume that the tax credits are ending, which will result in renewal notices showing large premium increases. Consumers will start receiving these notices in September or October, but rates will be finalized and publicized in most places in July. Many plans will develop two sets of rates.

From the standpoint of coverage continuity, this change could not come at a worse time. When the pandemic hit in 2020, the safety net was fortified with a number of measures that were designed to be temporary. But the enhanced premium tax credits in ARPA built upon the permanent coverage infrastructure provided by the Affordable Care Act. As demonstrated by recent experience, the need for a strong and permanent safety net persists. The withdrawal of that enhanced support at the precise time that temporary measures are ending will magnify the painfulness of the transition.

Millions of Americans will face the loss of coverage or higher insurance costs if the premium tax credits are allowed to expire, and while the problem is widespread, the impact will not be evenly distributed. Younger adults, those with low to moderate incomes, and Black enrollees will feel this change the most, as will those living in rural areas. The ending of the tax credits will have the greatest impact in those states that are least able to absorb the shock, exacerbating existing geographical disparities in coverage and access to care.