Trump eliminates cost sharing reductions
The administration’s plan to sabotage the ACA takes form
Late on October 12th, the White House announced that it would be ending cost sharing reductions (CSR) payments to insurers on the Obamacare exchanges. With the announcement, Trump has finally followed through on months of threats to pull the rug out from under insurance providers. It should be made very clear that doing so is not motivated by any good policy or fiscal ideology reasons — it is purely to spite Trump’s predecessor.
In ending the CSR payments, the White House cited a lack of appropriations from Congress for the money. However, this reason had not been enough to stop payments the other months of the young administration. Previously, Trump has taken relatively small steps to whittle away at the health care exchanges, believing that it will bring Democrats to the negotiating table. However, with this move Trump has moved fully into “you break it, you bought it” territory.
For families with little to spare, high copays or deductibles can make affording health care difficult, even if you have insurance. To that end, the CSR payments were written into the ACA as a way of subsidizing insurers for reducing out-of-pocket costs for low-income consumers. CSRs are paid out monthly to insurers, and total an estimated $7 billion this year alone.
Ending CSR payments will make insurance more expensive for millions of consumers and the federal government simultaneously. A large part of this is due to the expected response of insurers trying to honor their contract in the exchange, a move referred to as “silver loading.” Other insurers will exit the market entirely, raising premiums as competition lowers and potentially leaving some consumers without options.
For 2018 plans, insurers will still have to pay out as though they were receiving CSR payments. For the upcoming year at least, low-income families will not see out-of-pocket costs jump. Insurance companies will be looking to make up these costs, and many states have opted to follow a “silver loading” strategy.
The uncertainty surrounding whether Trump will continue CSR payments has already led state insurance directors to allow double-digit premium increases in many states. The “silver load” allows insurers to raise premiums drastically on silver plans within the exchange. The Congressional Budget Office (CBO) estimates that premiums for silver plans will jump by 20% in 2018 alone as a result. Because the premium tax credit is benchmarked to the silver plan rate, consumers getting the tax credit won’t feel the crush of the increase, while insurers still get paid. For the 6.7 million individual market consumers who aren’t receiving premium tax credits (those above 400% of the federal poverty line) this plan could mean drastic premium increases. As a result, CBO writes that this will lead to an increase in the number of uninsured Americans.
Perhaps counterintuitively, “silver loading” means that stopping CSR payments to insurers will actually lead to increases in federal spending. Again, because the premium tax credit is tied to the silver plan benchmark, almost the entire increase in insurance premiums for 2018 will be paid for by the federal government. Over the next ten years, removing CSR payments is estimated to increase the federal deficit by $194 billion.
Additionally, Nicholas Bagley points out, the government stands a chance of getting billed for this twice. As CSRs end, insurers will begin filing giant lawsuits to recoup their costs, since the ACA says they are entitled to these payments. In response, the government can default, or in the more likely case, courts would order the government to meet its obligation to insurers and lead to billion dollar payouts.
Beyond spending, there is a very real risk of destabilizing the individual market. Much of the administration’s rhetoric this summer against the ACA was focused on potentially bare counties where all insurers had pulled out of the exchange. While this didn’t happen, there are still many counties where there will only be one or two insurers. Trump’s latest action raises the question of whether (or how many) insurers will exit the exchanges in 2018 and 2019. While open enrollment for 2018 is about to start, there may be exit clauses in some insurer contracts. The big concern is who stays in the exchanges in 2019.
Troublingly, the solution to all of this lays in the hands of Congress. If the CSR payments are appropriated through Congress, the uncertainty driving premium spikes and insurer exits will cease. However, this requires the Republican controlled Congress to weigh two priorities: fiscal responsibility, or blindly attacking the ACA. If Republicans can swallow the idea of helping insurers implement Obamacare, they can help their constituents. Yet they’re efforts may still be in vain if Trump vetoes the appropriation. The GOP will be facing a crisis of their own making after spending the summer showing voters that they have no viable alternatives.
