ACA Marketplaces Face Enrollment and Cost Challenges From New Federal Policies
The recent tax and spending law signed in 2023 and related CMS regulations are introducing multiple changes to the Affordable Care Act (ACA) marketplaces that impact enrollment, subsidies, and overall market risk. Key among these is the termination of federal subsidies for many lawfully present immigrants currently enrolled in ACA plans. This change is projected to affect over 100,000 immigrant enrollees in Covered California and even higher percentages in Massachusetts and Maryland marketplaces. These immigrants include survivors of human trafficking, domestic violence victims, refugees with asylum or temporary protected status, and Deferred Action for Childhood Arrivals (DACA) recipients, known as Dreamers. The loss of subsidies will likely force many of these individuals to drop coverage due to affordability challenges, as subsidies often cover 80% or more of monthly premiums for these lower-income enrollees.
The exit of younger, lower-risk immigrant enrollees poses financial concerns for ACA marketplaces. Immigrant enrollees tend to be younger and healthier, helping balance the risk pool by offsetting costs of older, sicker individuals. Their departure can lead to a smaller, sicker risk pool, which drives premium increases. This dynamic exacerbates overall market instability and raises insurance costs for remaining enrollees.
Besides the removal of subsidies for immigrants, other regulatory changes are also expected to deter enrollment and retention. These include shorter open enrollment periods, elimination of many special enrollment periods especially affecting low-income consumers, and discontinuation of automatic renewals. Verification requirements will be stricter, preventing consumers from starting subsidized coverage before their eligibility is fully confirmed. These administrative burdens may disproportionately discourage younger, healthier individuals from maintaining coverage, further shrinking the risk pool and increasing premiums.
A crucial factor in enrollment trends is the scheduled expiration of the COVID-era enhanced ACA premium tax credits at the end of 2023. These credits have significantly increased marketplace enrollment by reducing out-of-pocket premiums. Without Congressional renewal, premiums could rise by more than two-thirds in Covered California and nationally, driving down enrollment among healthier enrollees and increasing future costs as sicker individuals dominate the pool.
The policy changes and regulatory tightening come amid ongoing debate over addressing alleged fraud and system abuses in ACA marketplaces. Proponents argue these measures are necessary to enforce lawful implementation and fiscal responsibility. Critics, including multiple state attorneys general, contend they create barriers to coverage and penalize vulnerable populations, potentially violating the intent to provide accessible health insurance.
California and 20 other states have filed a federal lawsuit challenging parts of the CMS rule that they say impose unreasonable obstacles to health coverage. They seek a court ruling before the new rule’s effective date to prevent implementation. The lawsuit highlights tensions between federal policy shifts and state efforts to maintain marketplace accessibility and affordability.
These developments have implications for market participants, insurers, and policymakers. Insurers may face higher claims costs and pressure to raise premiums as the risk composition deteriorates. Policymakers must consider balancing program integrity and affordability to sustain enrollment and financial stability in ACA marketplaces.
Overall, the changes create a challenging environment for ACA marketplaces, with rising administrative complexity, reduced financial assistance for some enrollees, and uncertainty about future enrollee demographics. Maintaining a viable risk pool will depend on legislative action regarding subsidies and regulatory approaches that limit barriers to enrollment while preventing fraud and waste.