If enhanced premium tax credits under the Affordable Care Act (ACA) are allowed to expire at the end of the year, out-pocket premiums for 22 million enrollees that receive premium assistance will increase by an average of 114%, or $1,016 per person.

Democrats have pushed for the enhanced tax credits to be extended, and a vote is expected on their proposal in December. There have also been some bipartisan negotiations and proposals to extend the tax credits for up to two years, with changes like a cap on who is eligible by income and efforts to address any fraudulent signups by insurance brokers.

Meanwhile, proposals have emerged from some Republicans in Congress to effectively repeal some or all of the ACA premium tax credits and replace them with contributions to Health Savings Accounts (HSAs) or something similar. President Trump posted recently:

“THE ONLY HEALTHCARE I WILL SUPPORT OR APPROVE IS SENDING THE MONEY DIRECTLY BACK TO THE PEOPLE, WITH NOTHING GOING TO THE BIG, FAT, RICH INSURANCE COMPANIES, WHO HAVE MADE $TRILLIONS, AND RIPPED OFF AMERICA LONG ENOUGH. THE PEOPLE WILL BE ALLOWED TO NEGOTIATE AND BUY THEIR OWN, MUCH BETTER, INSURANCE.”

(The current ACA premium tax credits do not, in fact, go to insurance companies. The tax credits go to people to help them pay their premiums for ACA Marketplace plans. People can either wait until they file their taxes the following year to receive a lump sum or qualify for advance tax credits based on estimated income so they do not need to wait until they file their taxes. Those advance tax credits are forwarded directly to the insurance company they choose to purchase, directly lowering the enrollee’s monthly premium payments.)

Senator Scott Proposal

The most expansive health account proposal was recently introduced by Senator Rick Scott of Florida. It would allow the enhanced premium tax credits to expire but keep the value of the ACA premium tax credits from the original law. States could submit a waiver to the federal government to replace the original ACA premium tax credits with contributions by the federal government to accounts similar to HSAs. These “Trump Health Freedom Accounts” could be used for out-of-pocket health care costs, or to pay health insurance premiums (unlike traditional HSAs).

Unlike ACA premium tax credits, which can only be used for ACA Marketplace plans, the accounts in the Scott proposal could be used for any type of health insurance plan, including short-term plans that can exclude people based on pre-existing conditions. States could also waive certain provisions of the ACA, including the requirement to cover certain benefits.

While ACA plans would still be required to cover people with pre-existing conditions under the Scott proposal, it is likely that the ACA Marketplace would collapse in states that seek a waiver under his approach. Healthy people would be able to buy less expensive coverage that does not cover pre-existing conditions, or forgo insurance altogether and use their health accounts to pay for health care directly (carrying over any unused balanced from year to year). People with expensive health conditions would only be able to get coverage in ACA Marketplace plans, leading to a premium “death spiral” for those plans. Insurers would likely leave the ACA Marketplaces.

Senator Cassidy Proposal

Senator Bill Cassidy of Louisiana has proposed a different, narrower approach. Under the Cassidy proposal, the original ACA premium tax credits and benefit rules would remain in place. The value of the enhanced premium tax credits would be converted to federal contributions to HSAs, which could be used for out-of-pocket health care costs (e.g., deductibles and copays), but not to pay premiums. HSA contributions would only be available for people who enroll in bronze level ACA plans.

The Cassidy proposal is not yet available in legislative language, so a number of questions remain about how it would work. For example, how big would the HSA contributions be? Enhanced ACA premium tax credits vary by income, age, and the level of premiums in the county of residence, and they range from hundreds of dollars to thousands of dollars per person.

Because the health accounts in the Cassidy proposal could not be used to pay premiums, out-of-pocket premiums for ACA enrollees would more than double on average once the enhanced tax credits expire at the end of the year. HSA contributions would cushion the effect of the premium increases by helping people pay for deductibles, if people can afford the premiums to continue purchasing coverage.

However, to qualify for the HSA, enrollees would need to select a bronze plan and most people today are in a silver or gold plan. Many low-income people could get a bronze plan with no monthly premium payment, even without the enhanced tax credits. But, the lowest-income enrollees get cost-sharing reductions that bring their deductibles down to about $80 only if they purchase a silver plan. Deductibles in bronze plans average $7,476 per person.

Additionally, some middle-income people would no longer qualify for a tax credit because their incomes exceed four times the poverty level, and may be priced out of even a bronze plan premium, meaning they would not benefit from the HSA contribution.

While healthier people could benefit from the Cassidy proposal by receiving HSA contributions that could be used for a variety of health care expenses and carry over from year to year, sicker people could be stuck with higher premiums or higher out-of-pocket health costs. Because the HSAs in the Cassidy proposal are contingent upon having ACA Marketplace coverage, it does not pose the same risks of insurance market instability as the Scott plan.

Although the proposals from Senators Scott and Cassidy are quite different, they would both present trade-offs, generally benefiting people who are currently healthy at the expense of people who have expensive health conditions.