The Trump administration recently announced a proposal to issue payments to individuals that makes a good deal of policy sense. No, I don’t mean the proposal for $5,000 rebate checks, which has myriad policy and political flaws.
But refunding excess user fees for people enrolled in Obamacare Exchange plans would help offset rising premium costs. And lowering user fees in the future would also mitigate against future premium increases. Depending on the details, this policy may also provide targeted relief to those affected by last year’s expiration of enhanced exchange subsidies.
Logical Principle
The White House’s announcement and fact sheet indicated that the rebates would come from a surplus of accumulated user fees. The user fees fund exchange operations — things like IT infrastructure, call centers, and assorted administrative costs — and get built into the premiums that enrollees pay.
For Obamacare’s first six years, the federal exchange charged a user fee equal to 3.5 percent of every premium dollar. Beginning with the first Trump administration, those fees have declined slightly. But the White House announcement suggests that the federal exchange continues to run an annual surplus. That surplus could stem from several possible factors: increased enrollment spreading fixed costs over a larger number of enrollees; lower IT costs now that the exchange is established; and greater awareness of Obamacare allowing a reduction in outreach efforts.
The fact sheet stated that rebates of $500 would go to “nearly 1 million Americans in 30 states.” The rebates will only go to enrollees in states that utilize the federal exchange architecture. Enrollees in (mostly blue) states that run their own exchanges will not qualify, because they never paid the federal user fees to begin with; instead, state-run exchanges enact and implement their own mechanisms to fund their operations.
The reference to “nearly 1 million enrollees” means that the rebates will only go to unsubsidized enrollees in those 30 states. Even after the Biden-era Covid enhanced subsidies expired last December, the vast majority of exchange enrollees still qualify for federal subsidies. Because those subsidies on average pay for the vast majority of subsidized enrollees’ premiums, it makes sense for the rebates to go only to unsubsidized enrollees, rather than giving additional benefits to those who already receive generous subsidies, or the government writing rebate checks to itself.
Some Details Unclear
While the principle remains sound, the White House fact sheet omitted details and left key questions unanswered. For instance, who will qualify for the rebates — if someone enrolled in an exchange plan last year, but did not reenroll this year, would they be eligible? What calculations led to the $500 amount?
As a practical matter, it might prove more effective and efficient to further reduce user fees going forward than to go through the process of issuing separate rebates. But the president seems enamored with issuing checks of various sorts, which might explain why this policy was announced during the Republican midterm convention with many important details still missing.
Targeted Relief
While Congress was right to allow the enhanced subsidies to expire last December, their expiration did affect a discrete group of people. The expiration of the enhanced subsidies means that households with incomes above 400 percent of poverty (about $64,000 for an individual and $132,000 for a family of four in 2026) no longer qualify for any subsidy. Households earning just above that threshold were most affected by the enhanced subsidies’ expiration, particularly those approaching retirement age, who pay higher premiums than enrollees in their 20s and 30s.
With the federal government now $40 trillion in debt, Washington couldn’t afford to give families in their 50s taxpayer-funded health benefits in their early retirement. But returning to these households that portion of the exchange user fees that the federal government never should have collected from them anyway provides a way to soften the blow. Here’s hoping that the administration figures out the remainder of the details and can find a way to bring this proposal to fruition.
