Lessons From Past Recessions for Health Coverage Today

Overview

Economic instability has long influenced the U.S. health care system, most notably through the impacts of recession on health insurance coverage. Recent rapid policy changes under President Donald Trump’s second administration have increased economic uncertainty, with several experts now forecasting a recession. This commentary explores how recessions affect health coverage for individuals and families, reviews trends from past economic downturns, and considers the potential consequences of health care policy inaction in 2025.

How Recessions Affect Health Coverage

In the U.S., access to affordable health care largely depends on having health insurance. Nearly half of all Americans (48.6%) rely on employer-sponsored insurance (ESI), highlighting the central role of job-based coverage in the U.S. health care system — over other sources like Medicaid (21.2%), Medicare (14.7%), or the individual market (6.2%).

The heavy reliance on ESI makes health coverage in the U.S. particularly sensitive to economic fluctuations and uniquely vulnerable during recessions. When people lose their jobs, they often face financial hardships, and replacing their employer-sponsored insurance can be challenging due to:

• High COBRA Costs — The Consolidated Omnibus Budget Reconciliation Act of 1985 allows individuals to continue their former employer’s coverage, but they must pay the full premium, making it prohibitively expensive for many.
• Limited Alternatives — Medicaid and the Affordable Care Act (ACA) marketplace may not be able to quickly absorb the newly unemployed and their families, and in some states, these options are not available at all.

Recessions can also affect access to affordable health care for those still employed, as employers and insurers often adjust benefits in response to economic pressures.

• Cost Shifting — Employers may shift more health insurance costs to employees by increasing deductibles or copays.
• Network Narrowing — Insurance companies may narrow their provider networks to exclude expensive providers, reducing access for employees.

Impact of Recent Recessions

Recessions create a dual burden for Americans — disrupting ESI for those who lose their jobs, while increasing financial strain on those who remain employed.

Unemployment and Coverage Disruption

During the 2007–09 recession, unemployment surged to 10%, leading to widespread loss of ESI. Medicaid enrollment rose as a result, straining state budgets. The federal government stepped in to provide additional funding to the states.

The COVID-19 pandemic resulted in similar patterns. More than 22 million Americans lost their jobs in early 2020. Again, the federal government responded by enhancing ACA marketplace subsidies that enabled many who lost ESI to afford new coverage.

Without the assistance of the federal government, many Americans who lost their job-related coverage during the 2007–09 recession and the pandemic would have joined the ranks of the uninsured.

Employer Responses During Recessions

For those who remain employed, recessions often lead to cost-shifting by employers and insurers, resulting in higher out-of-pocket expenses for workers.

In 2024, the average family premium for ESI exceeded $25,000, with employees paying about $7,000 of that cost. However, during recessions, employees typically shoulder a larger share of the cost burden. Following the 2007–09 recession, total ESI costs rose 3%, while the employees’ share increased 14%, outpacing inflation and wage growth. Studies of recessions pre-2000 found a correlation between rising unemployment rates and reduced employer willingness to absorb insurance costs.

Safeguarding Insurance Access in a Downturn

If a recession occurs this year with an impact on employer-sponsored insurance like past downturns, the federal government has two main policy tools to help reduce expected losses in access to affordable health care.

1. Support Medicaid — By increasing its funding, the federal government can help states maintain and support enrollees, as it did during the 2007–09 recession. This would enable states to more easily cover some formerly employed individuals and their families. Additionally, as during the pandemic, pausing Medicaid recertification or disenrollment can prevent current beneficiaries from losing coverage. However, given the proposed cuts to Medicaid included in the “One Big Beautiful Bill Act” passed by the US House on May 22, it appears that this Congress might not be interested in the bipartisan approach to support Medicaid taken during past recessions. 
    
2. Maintain Enhanced ACA Tax Credits — As during the pandemic, the federal government can maintain the enhanced premium tax credits that have helped many Americans afford coverage in the ACA marketplace. Introduced in 2010 with the ACA, enhanced in 2020 through the American Rescue Plan Act and extended through 2025 by the Inflation Reduction Act, Advanced Premium Tax Credits (APTC) assist low- and moderate-income Americans in buying private ACA marketplace insurance. In 2020, about 9 million Americans received these tax credits — a number that grew to over 24 million in 2025, due in large part to the enhancement.  
   
   Enhanced tax credits can reduce premiums to $0 for low-income individuals, and cap premiums at 8.5% of household income for others. Congress has yet to decide whether to extend these enhanced tax credits, but rising unemployment could increase pressure for swift action.

Conclusion

Because insurance coverage in the U.S. is closely tied to employment, economic downturns pose a serious threat to Americans’ access to affordable health care. Job losses often mean losing employer-sponsored insurance, affecting millions of individuals. Whether programs like Medicaid and the ACA marketplace can fill the gap depends on federal policy decisions. To prevent a potential crisis during a recession, policymakers should take proactive steps to limit coverage losses.

This publication was produced on behalf of Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by external experts prior to its release. Any errors are the responsibility of the author(s) alone.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author(s) and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s) and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.