Sen. Bill Cassidy (R-LA) says he aims to craft bipartisan legislation to give subsidies directly to Obamacare exchange enrollees rather than to insurance companies — a plan that would flesh out President Donald Trump’s suggestions for resolving the demands from Democrats that led to the longest total government shutdown in U.S. history.
Cassidy, chairman of the Senate’s health committee, told the Washington Examiner that his proposal is meant to defray the rising premium costs for Affordable Care Act enrollees after the extended premium tax credits expire at the end of the year.
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Republicans have latched onto the argument that Obamacare enhanced premium tax credits, passed by Democrats as a temporary COVID-19 relief measure in 2021 and 2022, benefit insurance companies that directly receive the subsidies, rather than the patients themselves.
Trump has twice since Friday called for congressional Republicans to create a system that would give money directly to patients to lower healthcare expenses, and Cassidy contends his plan is the best put forward so far.
Cassidy’s proposal would utilize the current funding for enhanced premium tax credits to fund flexible spending accounts for Obamacare enrollees who are eligible for subsidies. FSAs are limited, tax-free accounts meant to help beneficiaries cover the costs of copays, deductibles, and other health expenses.
“FSA, you have 15 months to use it, and if not, it reverts back to, in this case, the federal government,” said Cassidy. “I actually think it’s fair too, because we’re trying to help people, but if you don’t need healthcare, then we don’t need to give you the money.”
Not all details, including the income levels that would be eligible for the new FSA accounts, have been worked out yet, as Cassidy said he hopes to collaborate with Democrats and other Republicans to come to a solution. But the intention of the policy fits with the president’s goals of directing subsidies away from insurance companies.
Cassidy said that if the enhanced premium tax credits were renewed for the next year, the federal government would send $26 billion to insurance companies, 20% of which would go toward profits and administrative overhead.
“If instead, we redirect that money into the flexible spending account, 100% is going to patients to purchase the healthcare that they need,” Cassidy said.
Cassidy said that his plan will not lower premium costs for patients buying into Obamacare plans, but it will reduce overall healthcare expenses by offsetting the out-of-pocket costs of higher deductible plans.
The senator outlined for the Washington Examiner a hypothetical example of an enrollee who, last year, chose a heavily subsidized silver, or middle-tier, low-deductible plan. For 2026, if that person is eligible for a $5,000 FSA subsidy, they may calculate that a higher-deductible bronze plan with a lower monthly premium is more affordable because they have the FSA funds to offset higher out-of-pocket costs.
“It decreases their total cost of being insured, because the silver level subsidy, which is being put into the flexible spending account, can now be used to pay for the deductible, and they can choose a bronze level plan, which is overall less expensive,” Cassidy said.
Conservative health economists told the Washington Examiner that they are optimistic about the GOP push to give money to patients rather than insurance companies, but they are unsure whether Cassidy’s proposal is the way to go.
Brian Blase, president of the Trump-aligned Paragon Health Institute, told the Washington Examiner that he would like to know more details on Cassidy’s plan, but he’s skeptical of any proposal that would keep Obamacare subsidies at current levels, whether the money is going to insurance companies or directly to patients.
“I don’t think that we should be thinking about how we could more creatively use the enhanced subsidies in different ways,” said Blase.
But if there is some sort of subsidy going directly to patients, Blase said he generally prefers Health Savings Accounts to FSAs.
HSAs are long-term savings and investment accounts for health-related expenses, including copays and deductibles. They must be paired with high-deductible health plans, but the funds in the account roll over year after year. Both the initial investment and income gained from the investment are pre-tax.
Paragon in 2022 put out a proposal to use some of the original Obamacare structure to fund HSA accounts for enrollees within 250% of the federal poverty level, or less than $40,000 annually for a single person and $80,000 for a family of four. Blase said his team’s proposal would lower premium costs by roughly 12% and also reduce deficits.
Cassidy has in the past supported expanding access to HSAs, but in terms of crafting a policy to meet the immediate needs of Obamacare enrollees, he told the Washington Examiner he thinks a policy centered on FSA is more practical.
And although HSAs have more political clout among fiscal conservatives, Cassidy said the Congressional Budget Office, the in-house group of budget experts that provides analysis for Congress, is “very aggressive” when it estimates how much tax revenue is foregone by HSAs.
For example, the CBO estimated that the 2023 Bipartisan HSA Improvement Act, which would have expanded access to HSAs, would have added $12.9 billion to the deficit over 10 years. The bill passed out of the House Ways and Means Committee but did not advance further.
“If we put up something which CBO scores that’s costing a lot more than the status quo, a lot of Republicans will find that objectionable. So I’m living within the political reality in which we are currently operating,” Cassidy said.
Chris Pope, health policy expert for the conservative Manhattan Institute, told the Washington Examiner that, because enough Democrats voted to end the shutdown, Republicans have the upper hand in deciding the future of Obamacare’s subsidy structure.
But Pope said he does not think an FSA proposal would go very far because offering an FSA account might incentivize more people to enroll, inevitably generating more Obamacare spending than the status quo.
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“There are people who currently don’t want insurance who might think, ‘Oh, I would love some cash,’ and might suddenly put their hands up to get cash when they were reluctant to get Obamacare,” said Pope. “So I don’t see that being in any way cheaper for taxpayers.”
That said, Pope also noted that whatever policy wins the day, Republicans will have to do something before 2026. “There’s a big political cost for having premiums just suddenly surge across the board, so I think they’re not going to want to do completely nothing.”
