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The Affordable Care Act at the Brink – Part II: Evaluating the HSA Construct

  • Writer: Paul Francis and Adrienne Anderson
    Paul Francis and Adrienne Anderson
  • Dec 29, 2025
  • 17 min read

Updated: Dec 31, 2025

PDF Available:


“It’s not what we don’t know that hurts us; it’s what we know that isn’t so.”

(Apocryphally attributed to Mark Twain)

Introduction

The recent rejection by the House and Senate of Democratic and Republican proposals to extend or modify the enhanced portion of the premium tax credits (PTCs) means that the “ePTCs” (as they are sometimes called) will expire on December 31, 2025. The enhanced PTCs under the Affordable Care Act (ACA) were first enacted in 2021, but for fiscal reasons, were adopted as a temporary measure. The expiration of the enhanced portion of PTCs will generally result in at least doubling the required member premium contribution to purchase ACA plans for the roughly 90% of the 24.3 million Americans enrolled in the ACA in 2025 who received federal PTCs.

Congressional representatives are usually loath to take away benefits from their constituents. So despite the currently entrenched positions and the expiration of the enhanced portion of PTCs, political pressure for Congress to “do something” on this issue will build during the month of January, when, at the end of the month, the latest short-term funding bill comes to an end.

Although a majority of Republican elected officials would be happy to see the enhanced PTCs expire rather than vote for an extension of the reviled “Obamacare,” moderate and politically vulnerable Republicans are alarmed that the expiration of the enhanced PTCs will roughly double insurance premiums for many of their constituents – and seem anxious to find a compromise solution. Because four Republican renegades have signed a Discharge Petition, the House is likely to be forced to vote on a clean extension of the enhanced PTCs in January, which will act as a further catalyst for negotiations.

Democrats, meanwhile, may be tempted to follow the Republican playbook in immigration and other areas and prefer to exploit the loss of enhanced PTCs as a campaign issue rather than solving the problem. At the same time, Democrats generally can’t help themselves from wanting to do the right thing. Hopefully, Democrats will be willing to meet in the middle if a reasonable compromise is available.

The “HSA Construct”

Finding a middle ground regarding the future of enhanced PTCs is partially a function of each side being willing to let the perfect be the enemy of the good. But another factor is that many congresspeople, political commentators, and the public at large don’t really understand how various proposed Republican alternatives would work. Indeed, there is not even a good understanding of the general structure of the ACA. The press tends to conflate the impact of the expiration of enhanced PTCs with the separate issue of the high cost of healthcare generally and the total premium cost of ACA plans for individuals and families who do not receive significant benefits from PTCs.

The structure of federal subsidies under the ACA, including both premium tax credits and cost-sharing, is complicated and technical. The debate about these alternatives is close to impossible to understand without getting into more depth than the media and elected officials seem capable of providing.

Two weeks ago, we posted a 7,200-word Substack paper titled “The Affordable Care Act at the Brink”. The paper was so long because we thought it was necessary to clearly present how the ACA works. Moreover, these concepts are hard to follow in the abstract, so we used real numbers to illustrate the effects of different alternatives.

Newspaper articles on the enhanced extension are typically about 500-700 words. Even the wonkier Substack posts on public policy that address the topic rarely exceed 1,500 words. We don’t think it’s possible to explain complicated issues like the ACA premium tax credits in that amount of space, which contributes to misconceptions about how alternatives to a “clean” extension of the enhanced PTCs would actually work. We urge readers who have trouble following the arguments below to read our longer paper on the subject.

Stories on the enhanced PTC issue tend not to distinguish the differences among the several Republican alternatives to a clean extension, but in fact, they are quite different. The House on December 17, 2025, approved a Republican-backed bill called the Lower Health Care Premiums for All Americans Act. This bill was not a serious attempt to improve the ACA, but rather a simple rejection of the extension of the enhanced PTCs coupled with a package of familiar Republican insurance market reforms that would further weaken the ACA.  Other Republican reform proposals have included tactical changes, such as income limitations on eligibility for federal subsidies, minimum member premium contributions, and other anti-fraud measures.

By contrast, the Senate passed along party lines a legislative proposal from Republican Senators Michael Crapo and Bill Cassidy that seeks to reform the ACA through structural changes. As we discuss in this paper, the Senate proposal creates winners and losers. Whether some version of it is a better approach than the status quo of enhanced PTCs requires value judgments regarding the competing goals of the ACA. But it is at least a serious proposal which should be better understood than we think it is now.

The essence of the Crapo/Cassidy proposal in the Senate (which Sen. Cassidy has been the primary champion of and spokesman for) involves shifting the federal subsidies associated with the enhanced portion of PTCs, from their current function of reducing the member premium contribution, to using the enhanced portion of those subsidies to fund Health Savings Accounts (HSAs) that reduce subsequent cost-sharing payments. This Commentary will call the proposal the “HSA construct” for short. The HSA construct could not be implemented overnight, so if it is embraced by Congress, it might well be paired with a short-term clean extension of the enhanced PTCs.

Democrats and other longtime supporters of the ACA tend not to differentiate between the approaches of the Senate and House bills, including the critical distinction that the Senate bill would preserve (and perhaps increase) the total level of federal funding for ACA subsidies, in contrast to the House bill that would simply eliminate them. Instead, the supporters have tended to treat as sacrosanct the basic structure of the ACA that prioritizes keeping member premium contributions as low as possible for those with low incomes and preexisting conditions, who need healthcare coverage the most, at the expense of making ACA plans a better value proposition for healthier people and those with incomes above 250% of FPL.

These supporters of the ACA status quo reflexively reject the HSA construct but don’t explain empirically the trade-offs involved in their approach. Nearly all of these analyses emphasize the increase in the member premium contribution and highlight the maximum deductible under Bronze plans. However, even the most sophisticated of these policy analyses, such as those from the Urban Institute[1] and KFF[2], do not clearly explain the trade-off inherent in the HSA construct between those with the highest need for subsidized healthcare coverage and those healthier individuals for whom the level of cross-subsidization within the current ACA structure produces such a poor value proposition that a majority of eligible individuals choose to go uninsured.

We think it’s difficult, if not impossible, to fairly evaluate the merits of this trade-off without understanding in clear numerical terms how these trade-offs operate for individuals in different income cohorts and with different expectations about healthcare utilization. For example, Health Affairs recently reported a survey of health policy academics that found that 70% of respondents believed that the HSA construct would “measurably worsen Marketplace affordability.” The question itself ignores the issue of “worsening affordability for whom.”[3] 

Time will tell whether the Democratic strategy of holding out for a clean extension of the enhanced PTCs will be successful. Engaging with the Senate on the HSA construct as reflected in the Crapo/Kennedy Senate Bill could give Democrats a better opportunity to reshape aspects of the bill in order to mitigate the areas of greatest concern, while improving the chances that the country does not take a giant step backwards in terms of the total level of federal subsidies for healthcare coverage.

Moreover, the HSA construct addresses a core problem with the ACA itself, which is that even with enhanced PTCs, a majority of consumers don’t find enough value in the ACA plans to be willing to spend more than about $100 per month for coverage. As a result, the current ACA structure is failing to attract participation by sufficient numbers of healthier individuals to make the overarching goals of the ACA work. Addressing that flaw should be part of the broader effort in the Democratic Party to address the affordability concerns of the working class and middle class, in addition to meeting the needs of low-income Americans.

How the HSA Construct Would Work Under the Senate Bill

The Congressional Budget Office estimates that federal spending on PTCs, if the enhanced portion expires on December 31, 2025, will be approximately $22 billion lower in 2026. That is the best proxy we can find for the cost of the enhanced portion of PTCs. That amount of spending roughly equates to the per-capita value of the HSAs in the Senate bill, which would be $1,000 for individuals aged 19-54 and $1,500 for individuals aged 55-64.

Under the Senate bill, HSAs would only be available for individuals purchasing a Bronze plan and would be under the individual’s control to use for cost-sharing as they see fit. HSA funds would be paid monthly directly to Bronze plan members, bypassing their insurance plan. Disintermediating insurance plans is one of the few areas of bipartisan consensus.

There is another feature of the Senate bill that will impact the economics of purchasing an ACA plan. The Senate bill provides federal funding to insurance plans for the expense of “Cost Sharing Reductions” (CSRs) that reduce the cost-sharing burdens of individuals in certain income cohorts. We explain the impact of this below, but for now, we’ll just say that we don’t think the funding of CSRs fundamentally changes the pros and cons of the HSA construct.

The HSA construct would create winners and losers compared to continuing the status quo through a clean extension of the enhanced PTCs. However, given that the HSA construct is not intended to reduce federal subsidies for healthcare coverage but rather redirect them, it’s disingenuous to argue that the Democratic position is designed to protect healthcare coverage while the Republican alternative is designed to weaken it. Ironically, to the extent that the HSA construct creates a value proposition that is more attractive to many people who currently choose to go uninsured, it could potentially increase the participation level in ACA plans among those who are eligible for PTCs, which needs to be balanced against the fact that the HSA construct would increase costs for many individuals.

The fundamental trade-off of the HSA construct is that it makes the economics of an ACA plan more expensive for those who need insurance the most – high utilizers of healthcare services – while making the economics of an ACA plan less expensive for individuals who are not high utilizers of healthcare services. There is a valid debate about the merits of this trade-off, but that debate is not enhanced when, like trial lawyers in an adversarial legal process, each side tends to present the most extreme case of the shortcomings of the other side’s proposal, rather than a balanced presentation of the issues.

The economics for an individual purchasing an ACA plan are based on (i) the member contribution for premiums, which is based on a sliding scale of a percentage of household income – a percentage that was substantially reduced by the 2021 enhancement of PTCs; (ii) the member cost-sharing required under the plan; and, under the HSA construct, (iii) the amount by which an HSA helps to offset the member’s cost-sharing responsibility.

Consumer behavior in purchasing ACA plans is quite sensitive to the upfront member premium contribution. Enrollment in ACA plans appears to fall off sharply once the member premium contribution exceeds $100 a month, which for individual coverage in a household of two people would occur at approximately 216% of FPL, or approximately $46,000 in household income. Although family plans are available under the ACA, we focus on costs for an individual because children under the age of 19 with family incomes up to 400% of FPL are eligible for the lower-cost Children’s Health Insurance Program (CHIP). In addition, we are using national average member premiums for each income cohort without taking into account pricing differentials for different age groups within the cohort.

The following table shows the required member premium contribution with the current enhanced PTCs and the contribution that will be required in 2026 if the enhanced PTCs are allowed to expire.

The next table shows the distribution of income of individuals enrolled in ACA plans in 2025.

The data indicate that only 24% of all ACA plans are purchased by individuals with incomes greater than 250% of FPL (for which the average member premium contribution would be just over $2,115 for an individual plan), but even this overstates the level of participation by those for whom a higher member premium contribution is required, because approximately 55% (of all enrollees with household income >250% of FPL) are enrolled in Bronze plans for which the member premium contribution may be a nominal amount.

The HSA construct recognizes that eliminating the enhanced portion of PTCs will significantly increase the member premium contribution. The HSA construct mitigates that increase by incentivizing consumers to trade down from a Silver plan to purchase a Bronze plan, since the member premium contribution for a Bronze plan without enhanced PTCs will be comparable to the member premium contribution for a Silver plan with enhanced PTCs.

As an illustrative example, for an individual with income of 250% of FPL in a household of two, the premium contribution to purchase bronze plan individual coverage without enhanced PTCs would be only $27 a month higher than the cost of purchasing a Silver plan with enhanced PTCs. The table below illustrates this difference in member premium contribution costs by income:

Bronze and Silver plans offer identical coverage – the only difference is that the Bronze plan requires higher cost-sharing than the Silver plan. So even though trading down to a Bronze plan without ePTCs can keep the member premium contribution fairly constant compared to the cost of a Silver plan with enhanced PTCs, the real question is the change in the overall economics when both premium and cost-sharing contributions are considered.

Unlike the member premium contribution, which is the same within each income cohort irrespective of members’ utilization of healthcare services, whether individuals would be economically advantaged or disadvantaged in the HSA construct depends on the actual amount of cost-sharing, which is a function of the member’s actual utilization of healthcare services.

Failure to distinguish between two very different scenarios regarding the level of cost-sharing an individual would experience in a Bronze versus a Silver plan is the source of a major misconception about the HSA construct. In the first scenario, the member meets their deductible, which is the amount of cost-sharing any member of a given insurance plan is required to pay before the plan begins to pay for healthcare expenses. The out-of-pocket maximum is the annual limit on total cost-sharing for covered services, after which the plan pays 100 percent of allowed costs.[4] In practice, though, most enrollees never reach the out-of-pocket maximum, and copayments and coinsurance are nominal for routine care, which means the deductible is a useful proxy for the majority of cost-sharing most members experience in a given year.

Still, the deductible is much higher than the average amount of cost-sharing individuals are expected to experience on an actuarial basis. The percentage of total costs that the member is expected to pay is the inverse of what is referred to as a plan’s “actuarial value.” The base actuarial value of Silver plans is 70%, while the base actuarial value of Bronze plans is 60%. In other words, on an actuarial basis, an average member is expected to contribute 30% of the total cost of the plan through cost-sharing in the case of the base Silver plan and 40% in the case of the Bronze plan, although some members will pay less in cost-sharing and others will meet their deductibles.

The comparison between the cost-sharing under a Bronze plan and a Silver plan is further complicated by what are known as “Cost Sharing Reductions” or “CSRs”. To reduce cost-sharing payments, the ACA statute requires insurance companies to offer individuals at lower income levels Silver plans with a much better actuarial value than the base 70% actuarial value of a Silver plan offered to income groups not eligible for CSRs.

Initially, Congress paid insurance plans the increased costs associated with offering the CSRs, which enabled plans to offer Silver plans with high actuarial values without increasing their total premium cost. The Supreme Court subsequently ruled that Congress had not properly appropriated such funding. Because the ACA statute still required insurance plans that reflected the CSR improvement in actuarial value, plans were forced to compensate for this by increasing the premium cost of Silver plans – an act of rebalancing called “Silver loading.”

Given how Bronze plan premiums are determined indirectly by reference to the amount of federal premium tax credit for the benchmark Silver plan, Silver loading had the effect of reducing the member premium contribution for the Bronze plan, while the CSRs resulted in Bronze plans having significantly higher cost-sharing than was the case with Silver plans, especially at incomes up to 200% of FPL.

As alluded to above, the Senate bill includes restoring federal funding for the CSR amount. All things being equal, this will have the effect of decreasing both the total premium cost of a Silver plan and the dollar value of the associated PTC, which will have the effect of increasing the member contribution required to purchase a Bronze plan because of the mechanics of how the ACA operates. The Congressional Budget Office, in a different context that did not involve the HSA construct, estimated that funding the CSRs would reduce total ACA plan enrollment by approximately 330,000 individuals.[5]

However, all things will not be equal if the HSA construct is adopted. Many healthier individuals will choose to trade down from a Silver plan to a Bronze plan. This will weaken the risk pool in the Silver plan, which will tend to increase the cost of Silver plan premiums with the commensurate effect of increasing the dollar value of the associated PTC, which will reduce the member contribution required to purchase a Bronze plan. For modeling purposes, we assume that these countervailing forces will cancel each other out and that the required member contribution for the Bronze plan under the HSA construct will not be affected by the funding of CSRs.

Comparing the “HSA Construct” to the status quo, assuming cost-sharing based on (i) the deductible amount or (ii) an actuarial average estimate of healthcare utilization.

Data note: All tables utilize national KFF averages of 2026 premiums for the second lowest cost silver plan (i.e., the SLCSP, or the “benchmark” Silver plan), and the lowest-cost bronze plan, as follows:

2026 National Averages

Second lowest cost Silver plan (SLCSP):

$7,500

Lowest priced Bronze plan:

$5,472

Additionally, 2026 Median Deductibles were calculated from "QHP Landscape PY2026 Individual Medical" on healthcare.gov. A downloadable, interactive Excel workbook of these tables with more detail can be found here.

Deductible Scenario: If individuals utilize enough healthcare services that they meet their deductible, then the combined economics of the member premium contribution and member cost-sharing under a Bronze plan without enhanced PTCs are much less favorable than would be the case under a Silver plan with enhanced PTCs – even after taking advantage of an HSA to reduce cost-sharing. This is summarized in the first table below and illustrated in detail in the immediately following table.

Average Actuarial Cost-Sharing Estimate Scenario: The combined economics of purchasing a Bronze plan without enhanced PTCs under the HSA construct compared to the economics of purchasing a Silver plan with enhanced PTCs looks very different if the level of utilization of healthcare services results in the actuarial average expected cost-sharing for individuals in the plan. The economics are somewhat worse under the Bronze plan up until 200% of FPL, but are better than the Silver plan (even with enhanced PTCs) above 200% of FPL. This is summarized in the first table below and illustrated in detail in the immediately following table.

These two scenarios – the deductible amount and the actuarial average amounts of cost-sharing – essentially define the trade-off between the HSA construct and a clean extension of enhanced PTCs.

If the HSA construct is adopted and enhanced PTCs are eliminated, should individuals enroll in a Bronze plan or continue with a Silver plan because of lower cost-sharing?

The two sets of tables above compare the relative impact of a Bronze plan under the HSA construct to a Silver plan under the status quo situation of enhanced PTCs. However, if the HSA construct is adopted in lieu of extending the enhanced PTCs, the choice individuals will face is whether they are better off trading down to a Bronze plan to minimize their member premium contribution while accepting more cost-sharing or paying more for a Silver plan that has a higher member premium contribution but lower cost-sharing.

We illustrated on the previous page the scenarios in which individuals who only experience actuarial average estimated cost-sharing would be better off purchasing a Bronze plan without enhanced PTCs under the HSA construct than purchasing a Silver plan with enhanced PTCs. This comparison is even more favorable in the event that the enhanced PTCs are replaced by the HSA construct. Individuals who only experience the average level of cost-sharing would be much better off purchasing a Bronze plan without enhanced PTCs in the HSA construct than purchasing a Silver plan without the benefit of enhanced PTCs.

For individuals who expect to have sufficiently high healthcare utilization that they expect to reach their deductible, it clearly would make sense to purchase a Silver plan at the higher member premium contribution of a Bronze plan (as well as a higher premium than they would be required to pay if enhanced PTCs were still in effect), because the combined cost of premium contribution and cost-sharing under the Bronze plan would still be significantly higher even with the benefit of $1,000 in an HSA account, until 300% of FPL.

 

Implications for New York State

It should be noted that in New York State, the relative economics are somewhat different from the national average, because the flat amount of HSAs proposed ($1,000-$1,500) is significantly less than the increased federal subsidies associated with enhanced PTCs. That is the case because New York’s premium costs are approximately 39% higher than the national average, which increases the amount of federal subsidy needed to make up the difference between the member premium contribution (which is the same nationally as a percentage of income) and the total premium cost.

As a result, as reflected in the table below, New Yorkers under 200% of FPL who experienced actuarial average cost-sharing amounts would be much worse off under the HSA construct than they would be under the status quo. However, because New Yorkers who are eligible for PTCs are also eligible for essentially free Medicaid or Essential Plan programs, only those in the 200%-250% of FPL would be affected as a practical matter.

In New York, most of the income cohorts for which a Bronze plan without ePTCs is more costly than the status quo Silver plan with enhanced PTCs are eligible for the Essential Plan. Those not eligible for the Essential Plan are better off with a Bronze plan under the HSA construct than with a Silver plan under the status quo, despite the fact that the value of the HSA is not as much as the amount of the enhanced PTC.

New Yorkers who utilize enough healthcare services to meet their deductibles and are not eligible for Medicaid or the Essential Plan would be significantly worse off in a Bronze plan under the HSA construct than they would be in a Silver plan under the status quo.

 

Conclusion

Neither a clean extension of enhanced PTCs nor the adoption of an alternative such as the HSA construct will resolve the underlying problem that comprehensive healthcare coverage continues to be inordinately expensive for employers and governments, as well as for individuals who are forced to purchase healthcare coverage for themselves.

Moreover, there is no easy solution to the internal contradiction of the ACA that, to make insurance affordable for those who need it the most because of pre-existing conditions or otherwise, the system needs significant cross-subsidization from relatively healthy individuals. In the absence of ever larger federal subsidies, the more the ACA is structured to advance its first goal of providing affordable insurance to those who need it the most, the harder it is to create a value proposition that will lead healthier individuals to participate.

The choice between a clean extension of enhanced PTCs and adoption of the HSA construct is essentially a question of whether Congress is willing to shift the dial to make ACA plans more attractive to healthier individuals, even at the cost of making comprehensive healthcare coverage somewhat more expensive for those who need coverage the most. Either approach would be better than the alternative of allowing the enhanced PTCs to simply expire.

My hope is that by quantifying the stakes involved on both sides of this equation, the odds will be better that both Republicans and Democrats will not let the perfect be the enemy of the good and find a middle ground that both can live with.

Endnotes:


[1] Six Questions to Evaluate the White House’s Proposal to Extend Affordable Care Act Enhanced Premium Tax Credits. Jason Levitis and Clare O’Brien. The Urban Institute. November 26, 2025.

[2] The New ACA Repeal and Replace: Health Savings Accounts. Larry Levitt and Cynthia Cox. November 21, 2025.

[4] Technically, the deductible is not the maximum amount an individual may be required to pay under an ACA plan: under most plans, additional coinsurance applies after the deductible is met, up to the out-of-pocket maximum.

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