The Affordable Care Act has led to historic gains in health coverage and affordability. But it also left gaps in affordable coverage, especially following recent federal policy changes, including the expiration of premium tax credit enhancements, the elimination of eligibility for many lawfully present immigrants, and new paperwork burdens. Each of these changes will both decrease affordability directly and disproportionately discourage enrollment among healthier consumers, which will increase gross premiums across the board.
Fortunately, states have tools to address these affordability gaps and support their insurance markets. Chief among them, states can provide their own Marketplace subsidies to supplement federal subsidies. With the recent federal changes, interest in state subsidies is at an all-time high. Already, more than a dozen states have enacted them, and others are considering new ones.
State Marketplace subsidies can meet numerous state goals. They can address affordability gaps by reducing out-of-pocket premiums and cost-sharing. They can expand health coverage, which improves state residents’ health and productivity. They can draw healthier people into the risk pool, reducing gross premiums across the board. They can increase take-up of federally subsidized coverage, drawing federal dollars into the state and supporting the state’s health care providers, who face significant revenue losses due to the federal changes. And they can be targeted to specific needs, including wrapping around existing subsidies, providing a safety net for immigrant populations, and providing extra help to young adults or those facing small premiums.
Offering a state subsidy generally requires a state-based Marketplace. Beyond that, implementation is straightforward, with systems that have been vetted over many years. Often, a state’s biggest challenge is figuring out how to pay for it—an especially acute concern in the current environment.
This issue brief explores reasons states consider subsidies, design options, and state actions to date. It is meant as a resource for state policymakers, consumers, and stakeholders considering whether to create a subsidy and how to structure it.
