--:-- Ryan Knudsen: It's almost official. As of this evening, this will be the longest government shutdown in U.S. history. And Democrats and Republicans are at a standstill, largely over one issue, health care costs.
--:-- [Audio of a person speaking in the background]
--:-- Ryan Knudsen: And it's an issue that's on the minds of millions of Americans this week. Open enrollment for Obamacare, or the Affordable Care Act, officially kicked off on Saturday.
--:-- Ryan Knudsen: And when Kevin Foster logged in to check out his plan, he saw a number that made his eyes bulge. I just thought it was ridiculous. Kevin is 64 years old. He's a former business consultant and he lives in California.
--:-- Ryan Knudsen: This year, Kevin paid about $7,000 to cover himself and his wife. Next year, the total will be more than five times that, $38,000.
--:-- Ryan Knudsen: I thought there had to have been an error. And I went through the selection criteria to ensure I was, selecting the same plan as I previously had. And sure enough, it was that amount. Kevin's plan was the same, but something big had changed.
--:-- Ryan Knudsen: And it's the very thing Republicans and Democrats are fighting over, a government subsidy.
--:-- Ryan Knudsen: The startling thing is that, you think you plan every year. And you think you know what your costs are and what you can do and what you can spend money on. And then this one really comes out of the blue.
--:-- Ryan Knudsen: I can't believe I'm the only one surprised. I think this has got to be shocking to a lot of people.
--:-- Ryan Knudsen: Right now, the U.S. spends a lot on the Affordable Care Act. If these subsidies were to continue, the Congressional Budget Office estimates it would add $23 billion to the national deficit next year.
--:-- Ryan Knudsen: Republicans want to end the subsidies. Democrats want to keep them. And both sides are still very far apart.
--:-- Ryan Knudsen: They're avoiding this issue with crazy sound bites in the news and things and, trying to, quote-unquote, save money.
--:-- Ryan Knudsen: It's totally upsetting. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, November 4th.
--:-- Ryan Knudsen: Coming up on the show, the healthcare fight that's keeping the government shut down.
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--:-- Anna Wilde Matthews: What exactly is this subsidy that's at the center of the shutdown? How does it work?
--:-- Anna Wilde Matthews: It is very complicated. People who are in this marketplace have come to understand it but most are blissfully ignorant.
--:-- Anna Wilde Matthews: The subsidy actually is applied to your premium each month so that you pay the after subsidy amount.
--:-- Anna Wilde Matthews: And the way they do that is when you sign up for your plan in the fall, which is actually right now for the ACA, the open enrollment period is happening right now.
--:-- Anna Wilde Matthews: You estimate what your income is going to be for the coming year. And your subsidy is set based on that.
--:-- Anna Wilde Matthews: Can you tell me the story of how these credits came to be?
--:-- Anna Wilde Matthews: Yes, we are definitely going back into history now. The Affordable Care Act passed in 2010.
--:-- Anna Wilde Matthews: It was really a signature, maybe the signature policy accomplishment of the Obama administration. People now call those plans Obamacare.
--:-- Anna Wilde Matthews: Today, after all the votes have been tallied, health insurance reform becomes law in the United States of America.
--:-- Anna Wilde Matthews: It passed with no Republican votes and was deeply opposed by the Republicans at the time.
--:-- Anna Wilde Matthews: And for years afterwards, Republicans argued that it was really too much of a government intrusion into the marketplace.
--:-- Anna Wilde Matthews: They argued that it brought up premiums, brought up costs for people, and they really strongly opposed it.
--:-- Anna Wilde Matthews: And that resulted in a number of court challenges and Republican campaigning over the years, sort of getting rid of Obamacare.
--:-- Anna Wilde Matthews: That sort of peaked in 2017 when Republicans did actually get pretty close to doing a repeal and replace on the ACA.
--:-- Anna Wilde Matthews: But they fell just short when then-Senator McCain gave a very dramatic thumbs down.
--:-- Anna Wilde Matthews: Audible gas on the Senate floor.
--:-- Anna Wilde Matthews: Then, in 2021, the government passed a law that enhanced the subsidies to make coverage more affordable during the pandemic.
--:-- Anna Wilde Matthews: Enrollment has more than doubled over the past five years. We're now up to about 24 million people enrolled in ACA plans.
--:-- Anna Wilde Matthews: And what has that meant for the costs for the government?
--:-- Anna Wilde Matthews: The costs have increased quite a bit because the subsidies, which the federal government pays, got more generous.
--:-- Anna Wilde Matthews: That helped entice more people to enroll. So enrollment grew. There were more people being covered.
--:-- Anna Wilde Matthews: And then health care costs over time just naturally defy gravity, always go up.
--:-- Anna Wilde Matthews: So the combination of those means that the impact on the federal government has really grown.
--:-- Anna Wilde Matthews: These enhanced subsidies are currently set to expire at the end of 2025, which brings us back to the shutdown.
--:-- Anna Wilde Matthews: Democrats refuse to go along with any new spending bills unless the subsidies are renewed.
--:-- Anna Wilde Matthews: Many Republicans argue that this is too much government involvement and that these were meant to be a temporary support, not a permanent crutch.
--:-- Anna Wilde Matthews: Republicans have definitely raised concerns about the cost of the ACA subsidies and sort of the increasing cost of the ACA subsidies.
--:-- Anna Wilde Matthews: And they've made the argument that this is really sort of putting band-aids on a dysfunctional health care system.
--:-- Anna Wilde Matthews: And why should more federal money pour into that?
--:-- Anna Wilde Matthews: What have Democrats been saying?
--:-- Anna Wilde Matthews: Democrats have been saying people need health coverage.
--:-- Anna Wilde Matthews: And this is really what we can do to ensure that people have health coverage.
--:-- Kevin Foster: For Americans who get their insurance through the Affordable Care Act, the extent of the sticker shock depends on how much you make.
--:-- Kevin Foster: In order to afford the rising costs, I'm trying to get creative.
--:-- Kevin Foster: I'm considering moving abroad until I'm eligible for Medicare.
--:-- Kevin Foster: I mean, we've actually looked into, what does travel insurance cost?
--:-- Kevin Foster: There providers out there and if you spend you know you can spend six months and a day offshore and still be insured within the United States through other providers.
--:-- Kevin Foster: And you can get policies like that for about $700 a month.
--:-- Kevin Foster: So, I mean, probably travel for an extended period of time and use that kind of insurance.
--:-- Kevin Foster: That's one option. If I can't figure something out, I might just have to bite the bullet.
--:-- Kevin Foster: For me, being uninsured isn't an option.
--:-- Kevin Foster: I mean, even though we haven't had any issues in the past, you never know when it can happen.
--:-- Kevin Foster: We have too many friends that have had surprising issues like cancer pop up, and then you can get wiped out if you don't have insurance.
--:-- Ana: Many people are considering going without insurance altogether.
--:-- Ana: And indeed, the CBO has also estimated that If the subsidies do not continue, around 3.5 million fewer people will be insured in 2027.
--:-- Ryan Knudsen: What this could mean for the Affordable Care Act system, that's next.
--:-- Ryan Knudsen: The enhanced subsidies are going away at a time when health care costs overall are going up dramatically.
--:-- Ryan Knudsen: Health care costs in the U.S. only ever go up. They never go down.
--:-- Ryan Knudsen: And there is a lot of evidence that in the last couple years, they've actually been going up at a steeper trajectory.
--:-- Ryan Knudsen: You actually can see that across different kinds of insurance.
--:-- Ryan Knudsen: I cover health insurance, so I have to listen to the quarterly earnings calls that the big insurers make.
--:-- Ryan Knudsen: The health care costs are rising faster. And that has actually squeezed the margins in recent years for a number of the big insurers.
--:-- Ryan Knudsen: Why are costs going up more steeply now?
--:-- Ryan Knudsen: There is some evidence, at least that you hear from the insurers, that use of certain health care services is rising, maybe more hospital visits, maybe more doctor visits.
--:-- Ryan Knudsen: Drug costs continue to go up, and particularly the category of medications called the GLP-1s.
--:-- Ryan Knudsen: So that's the category that includes like Ozempic. We know a well-known product there. The weight loss drugs.
--:-- Ryan Knudsen: The use of those has been growing and that has driven up spending.
--:-- Ryan Knudsen: And there are also rising costs, rising pricing for health care.
--:-- Ryan Knudsen: So hospital systems in particular, they themselves were squeezed over the last couple of years by inflation.
--:-- Ryan Knudsen: The insurance industry's relationship with the Affordable Care Act marketplace has changed a lot over the years.
--:-- Ryan Knudsen: Some years, especially when those enhanced subsidies kicked in and millions more people signed up, have been pretty good for business.
--:-- Ryan Knudsen: This year, that has not been the case.
--:-- Ryan Knudsen: The margins, the profits that the insurers are making have, in some cases, have shrunk and in some cases they're actually losing money.
--:-- Ryan Knudsen: So the insurers are not particularly feeling that the Affordable Care Act business is all that successful right at the moment.
--:-- Ryan Knudsen: They're bringing different strategies to bear.
--:-- Ryan Knudsen: One big insurer, Aetna, has simply decided to stop offering ACA plans.
--:-- Ryan Knudsen: They just said, you know, we're out. This is not a business we want to be in right at the moment.
--:-- Ryan Knudsen: And so how do insurers feel about the possibility of these enhanced subsidies going away?
--:-- Ryan Knudsen: The insurers very, very, very much want to see the enhanced subsidies continue.
--:-- Ryan Knudsen: And, you know, the reasons are probably obvious.
--:-- Ryan Knudsen: The enhanced subsidies are paid to the insurers. And the availability of the enhanced subsidies expands the number of people who have the plan.
--:-- Ryan Knudsen: Because they're more affordable to more people. So the business grows, the business is larger if the enhanced subsidies are at play.
--:-- Ryan Knudsen: It generally projected that if the enhanced subsidies go away the number of people with ACA plans will shrink
--:-- Ryan Knudsen: If people drop out of the health care system and stop paying what impact might that have on the system overall?
--:-- Ryan Knudsen: Well, the concern for insurers and companies that offer Affordable Care Act plans is that when people drop out of coverage because costs are getting higher, it tends not to be an even thing.
--:-- Ryan Knudsen: What happens is the people who are the healthiest, people who have the least need of health care are the ones who are most inclined to drop out.
--:-- Ryan Knudsen: The issue for what they call the risk pool of the ACA or for the insurers that offer these plans is that when healthier people drop out and the less healthy people stay in, the average cost of the people who are in the plan goes up.
--:-- Ryan Knudsen: And to cover that cost going up, they raise their premiums.
--:-- Ryan Knudsen: So they say, okay, if the average person in this plan is going to be more expensive, we need to charge more to cover that projected cost.
--:-- Ryan Knudsen: So that pushes the premiums up even further, and it becomes sometimes a vicious cycle.
--:-- Ryan Knudsen: Do you have a sense of how Democrats and Republicans are negotiating on this right now?
--:-- Ryan Knudsen: How close are they to a deal, and what might a deal look like?
--:-- Ryan Knudsen: You know, I don't think we really know exactly how close they are.
--:-- Ryan Knudsen: There have been some smoke signals issuing out of Washington that maybe there are some talks or some paths toward a potential compromise.
--:-- Ryan Knudsen: There are things that some Republicans have signaled they're definitely looking for.
--:-- Ryan Knudsen: They're concerned about the potential for fraud in the ACA market, people being enrolled who aren't really getting the health coverage.
--:-- Ryan Knudsen: And some Republicans have signaled concern about the upper end of the income spectrum.
--:-- Ryan Knudsen: Some Republicans have argued perhaps there should be a cap so that people who are making certain incomes, there shouldn't be a subsidy available to them.
--:-- Ryan Knudsen: And Republicans, if they are willing to support any continuation, are certainly looking for that not to go on forever.
--:-- Ryan Knudsen: While a deal between Republicans and Democrats to open the government could theoretically come at any time, right now, the sides don't seem very close.
--:-- Ryan Knudsen: So for people who are thinking about enrolling in the Affordable Care Act right now, what are they supposed to do?
--:-- Ryan Knudsen: You know, it's just very chaotic for people who are enrolled in these plans right now.
--:-- Ryan Knudsen: And really, as I talk to experts, what they're saying is people just really need to pay attention.
--:-- Ryan Knudsen: So people who are in ACA plans, many actually have what's called auto-re-enrollment, which is they just actually, without doing anything, they are re-enrolled in the same plan they were in this year, next year, without having to take action.
--:-- Ryan Knudsen: This year, that is a really, really bad idea.
--:-- Ryan Knudsen: Everyone I talked to said, if you're in an ACA plan or want to get into an ACA plan, you need to pay attention because the subsidies are not going to be what they were, at least if Congress doesn't take action.
--:-- Ryan Knudsen: And what you think you're going to pay might be very different.
--:-- Ryan Knudsen: And you need to just be active and check it out.
--:-- Ryan Knudsen: So you may have chosen the best plan for you under a particular circumstance right now.
--:-- Ryan Knudsen: Congress could change those circumstances dramatically.
--:-- Ryan Knudsen: So you just kind of need to watch the news and you might need to go back in and select a different plan if Congress decides to take action.
--:-- Ryan Knudsen: Americans have until December 15th to enroll in Affordable Care Act coverage for the new year.
--:-- Ryan Knudsen: That's all for today. Tuesday, November 4th. The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Ryan Knudsen: Additional reporting in this episode by Sabrina Siddiqui.
--:-- Ryan Knudsen: Thanks for listening. See you tomorrow.
