2023 Tax Legislation Reshapes ACA Enrollment and Premiums in State Marketplaces

The recent tax and spending legislation signed into law in 2023 introduces significant modifications to the Affordable Care Act (ACA) that impact the insurance market, particularly in 19 states plus Washington, D.C., that operate their own ACA exchanges. Key changes include shortening open enrollment periods, increasing paperwork requirements, and eliminating automatic reenrollment. Automatic reenrollment currently assists a large share of policyholders, especially in state-based marketplaces, by enabling smooth coverage renewal without active consumer intervention.

Ending this feature could lead to enrollment declines, as many enrollees may not complete the required annual updates to maintain coverage. Early data from states like Pennsylvania and other large state exchanges such as California, New York, and New Jersey illustrate high dependence on automatic reenrollment, with more than 60% of enrollees renewing coverage automatically in some states. The legislation comes alongside the anticipated expiration of the enhanced premium subsidies that were expanded during the COVID-19 pandemic, which have been crucial in sustaining ACA enrollment and keeping premiums more affordable. Without these subsidies, premiums are expected to rise by an average of approximately 75%, with some states already requesting double-digit rate increases for the coming year. Market analysts warn that the combined effect of stricter enrollment rules and subsidy reductions could drive millions of eligible individuals out of the ACA marketplaces, potentially causing a 30% to 50% enrollment loss in certain states. This contraction in coverage threatens to reverse progress made in lowering the uninsured rate, which fell from nearly 15% in 2014 to just over 8% recently. The legislation seeks to address concerns about enrollment fraud in the ACA program, particularly fraud related to unauthorized sign-ups and broker-driven commission schemes that have been reported mainly in states using the federal healthcare.gov platform. State-based marketplaces have reported fewer fraud incidents, crediting their enhanced security protocols and broker oversight.

Nevertheless, the new requirements to verify eligibility every year and to eliminate automatic reenrollment are poised to increase administrative burdens on enrollees and complicate access to tax credits, which are tied to timely submission of documentation. Free market economic analysis suggests these policy changes yield limited benefits by reducing fraud but produce substantial drawbacks including higher premiums resulting from a smaller, older, and sicker risk pool. Such dynamics may lead some insurers to raise prices further or exit markets altogether. Consequently, the regulatory shifts under this tax and spending bill significantly alter the ACA's operational landscape, with major implications for coverage continuity, market stability, and insurance affordability.