A Practical Compromise to Make Health Insurance More Affordable

Background

The most recent federal government shutdown centered on health care funding and expired pandemic-era aid. During the COVID-19 pandemic, Congress enacted temporary, enhanced premium tax credits for the Affordable Care Act (ACA); those boosted subsidies are scheduled to expire on Dec. 31, 2025. Republicans generally pushed to keep the government open while allowing the enhanced credits to lapse, while Democrats insisted the subsidies be continued indefinitely as a condition of their votes.

After 43 days, eight Democratic senators crossed the aisle to approve a Republican bill that ended the shutdown. But that temporary resolution left unaddressed a deeper question: why does the ACA apparently need emergency-level subsidies simply to function?

Why Enhanced Credits Aren't a Long-Term Cure

The basic problem is straightforward: health insurance is expensive because health care itself is expensive. The enhanced premium tax credits help people pay premiums today, but they do not reduce the underlying cost of medical care or the price of coverage. Instead, they shift and hide costs — subsidizing premiums while leaving systemic prices largely untouched. Over time, that dynamic can make insurance more expensive and fiscally unsustainable unless the root causes of high costs are addressed.

Political Context

The ACA was enacted without a single Republican vote, and that history still shapes incentives. Proposals that send subsidies directly to enrollees — advanced recently by Sens. Rick Scott (R-Fla.) and Bill Cassidy (R-La.) and endorsed by former President Trump — will appeal to conservatives who favor direct payments. But those plans are unlikely to secure Democratic support in the Senate without additional concessions, and Democrats’ backing is needed to overcome a filibuster.

A Practical, Bipartisan Path Forward

One tangible place to begin is the ACA’s definition of so-called Essential Health Benefits (EHBs). While EHBs were intended to guarantee comprehensive coverage, in practice they function as a rigid menu of mandated benefits that can drive up premiums and prevent the sale of simpler, lower-cost plans that some consumers would prefer.

A politically feasible compromise could pair two elements:

• Phased Reduction of Enhanced Premium Subsidies: Gradually step down the temporary, pandemic-era premium tax credits to avoid sudden premium spikes and give markets and consumers time to adjust.
• Reform or Relaxation of Essential Health Benefit Requirements: Allow states and insurers to offer alternative, less comprehensive plans that cost less and better match some consumers’ needs, with appropriate consumer protections for people with preexisting conditions.

Combined, these moves would create space for lower-cost plan designs while avoiding a cliff that would immediately expose enrollees to unaffordable premiums. State flexibility and temporary guardrails could help manage risk and preserve access for vulnerable populations.

What To Watch For

Key trade-offs include ensuring that reductions in subsidies do not leave low-income consumers uninsured and that any relaxation of benefit mandates preserves protections for people with significant health needs. Policymakers should consider targeted assistance for those most at risk during a transition and regulatory mechanisms to limit adverse selection.

Conclusion

Temporary enhanced subsidies addressed affordability in the short term but did not fix underlying price drivers. A measured, bipartisan approach — phasing down enhanced credits while giving states more flexibility on benefit design — could lower premiums for some consumers and build durable consensus for deeper reforms to reduce health care costs.

Authors: Richard Manski is a professor at the University of Maryland School of Dentistry. David Hyman is the Scott K. Ginsburg Professor at Georgetown Law and an adjunct scholar at the Cato Institute.