Recent/upcoming developments… With the shutdown behind them – and a promised Senate vote on the matter coming up on ~12/12 – lawmakers continue to debate (largely in partisan fashion) whether and how to address the ACA enhanced subsidies that expire at the end of this calendar year.  In general, Republicans are increasingly, though not exclusively, pushing for alternatives to the eAPTCs (i.e., letting them expire and replacing them with a different construct, alongside ACA reforms).  Meanwhile, Democratic lawmakers remain largely unified in their support for extending the eAPTCs.

* In recent days, President Trump has pushed for Republicans to reject eAPTC extension proposals and instead pursue policies which send “the money directly back to the people” to allow them to “buy their own, much better, insurance” (presumably a reference to the idea that the eAPTCs should expire in their current form and be replaced with some other consumer-facing construct).  Along similar lines, White House Deputy Chief of Staff James Blair indicated the administration would soon release the framework for a reconciliation bill that would include provisions to address health care (presumably reflecting some alternative to the ACA subsidies).

* This week, the Senate Finance and the House Ways & Means (W&M) Committees held hearings, the former focused on healthcare costs and the latter focused on chronic disease.  At a high level, both devolved into partisan debates over the eAPTCs.  Key Democrats (i.e., Finance Ranking Member Wyden (D-OR), W&M Healthcare Subcommittee Ranking Member Doggett (D-TX)) argued that renewing the subsidies is the only practical solution with the deadline for their expiration quickly approaching.  In contrast, key Republicans (i.e., Finance Chair Crapo (R-ID), HELP Chair Cassidy (R-LA)) argued that the enhanced subsidies were intended to be temporary from the start and emphasized the need for Congress to move toward a new approach to lowering costs for ACA enrollees.

* Republicans, particularly in the Senate, are releasing various proposals which aim to replace (rather than the extend the eAPTCs).  For example, Cassidy is pushing a plan to redirect funds from the enhanced subsidies to consumers through health savings accounts (HSAs) (standard subsidy established by the original ACA would continue to be available).  Separately, Sen. Scott (R-FL) has introduced a bill (the More Affordable Care Act) that, like Cassidy’s plan, would utilize HSA-style accounts.  Under Scott’s proposal, these accounts would be filled with the ACA subsidies as well as newly restored cost-sharing reduction payments (which, presumably, could be used by consumers to buy insurance and pay out-of-pocket costs).  Under both plans, the eAPTCs as currently constructed would be allowed to lapse.

* Separately, isolated efforts to reach a near-term bipartisan deal on an eAPTCs continue (largely in the background).  Sen. Britt (R-AL) and other Senate Republicans have been holding discussions with the White House on the notion of supporting a short-term eAPTC extension (to be followed by a larger ACA overhaul next year).  In the House, where Republican opposition to the eAPTCs is most intense, bipartisan members of the Problem Solvers Caucus (i.e., Reps. Fitzpatrick (R-PA) and Suozzi (D-NY)) have been holding meetings to discuss the issue and have been liaising with their Senate colleagues (i.e., Sens. Shaheen (D-NH) and Murkowski (R-AK)) to find a bicameral solution.

Our outlook… Despite some efforts to find a bipartisan solution, the parties are largely talking past each other on this issue.  And while the White House’s interest in a partisan reconciliation bill is generating some attention among Republicans, political and timing considerations make that outcome nearly impossible to achieve this year.  As such, lawmakers realistically have two options regarding the ACA before December 31: enact a bipartisan extension or do nothing.  It’s now our view that the probability of a subsidy extension this year has fallen to 45% (a notable shift down from our prior 60% and from an even higher level in recent months).  The primary variable that could change the dynamic is if President Trump shifts his position and embraces a temporary ACA subsidy extension as a bridge to enacting an alternative approach at a latter stage.  If the eAPTCs do expire, the debate will persist in 2026 but will take on new form.  At that stage, there will only be a 20% probability that ACA subsidies are retroactively extended on a bipartisan basis, and it will be more likely that Republicans either enact some HSA-based alternative to eAPTCs on a partisan basis (via reconciliation) or no health care legislation is enacted.  The following is a summary of the different scenarios we envision…

* For 2025…

     – 45% probability… ACA subsidies extended on a bipartisan basis for ~two years in a form that is limited by income and other parameters.

     – 55% probability… ACA subsidies expire given the increasingly partisan nature of talks over this issue and the fact that Republicans are increasing focused on alternative (HSA-based) reforms.

* For 2026…

     – 20% probability… ACA subsidies retroactively extended for ~two years in a form that is limited by income and other parameters.  With Republicans having tolerated expiration of the subsidies, conservatives will likely gain the upper hand among their colleagues at that point, making it less likely they are willing to compromise.  Many Democrats may also move on at that point and prefer to use the issue to create a political contrast rather than compromising on policy.

     – 45% probability… Partisan (Republican) reconciliation bill is enacted that includes some HSA-based alternative to the eAPTCs.  Such a bill would allow Republicans to counter the Democratic narrative around ACA price spikes and coverage losses ahead of the midterms.  However, Republicans’ slim margins will make getting intra-party consensus difficult.

     – 35% probability… No health care legislation enacted (i.e., no ACA subsidy extension, nor a HSA-based alternative).

Watch for these developments… While it increasingly seems unlikely, we are continuing to watch for indications that President Trump is open to a short-term extension of the eAPTCs, as his support (direct or indirect) would give House and Senate leadership (and vulnerable moderate Republicans) political cover to support an extension of the enhanced subsidies before year’s end.  If we get into December and the White House remains dug-in, we are watching for indications that the bipartisan talks around the eAPTCs (already isolated) are beginning to fade, as this would suggest the motivation to find consensus is waning.  On the reconciliation issue, we are watching for the reactions of Republican lawmakers to the plan the White House intends to release, as evidence that the party is coalescing around the President’s approach for further reinforce our view that (1) expiration of the eAPTCs is increasingly likely and (2) a partisan reconciliation bill next year that overhauls the ACA subsidy construct is a very real possibility.