Trump Ends Subsidies for Health Insurers: How It Impacts You

Trump Ends Subsidies for Health Insurers: How It Impacts You
Photo by Andy Dean Photography / Shutterstock.com

The federal government no longer will provide subsidies to health insurance companies to help cover discounts the insurers provide to lower-income people who purchase their own health coverage.

News of this change came out overnight — on the heels of an executive order that also impacts health insurance — and the change is effective immediately.

President Donald Trump said on Twitter early Friday morning, “The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!”

These payments are technically known as “cost-sharing reduction payments,” or “CSR payments.”

What are cost-sharing reduction payments?

Under the Affordable Care Act — the federal law commonly referred to as Obamacare — insurers are required to provide certain policyholders with lower out-of-pocket costs such as deductibles and copayments. These discounts are known as “cost-sharing reductions.”

In turn, insurers receive payments from the federal government — CSR payments — to cover the insurers’ losses, as the Congressional Budget Office has described it.

According to Consumer Reports, almost 6 million people — 57 percent of those who buy health insurance through state or federal exchanges — receive CSR discounts.

The discounts are available to folks whose income is between 100 and 250 percent of the federal poverty level, according to Consumer Reports. That range currently translates to $12,060 to $30,150 per year for an individual, and $24,600 to $61,500 for a family of four.

The Trump administration requested U.S. Attorney General Jeff Sessions’ legal opinion on a section of federal law regarding the funding of CSR payments to insurers.

Sessions concluded in an Oct. 11 letter:

“In sum, it is my opinion that the best interpretation of the law in that section 1324 does not appropriate funds for the Affordable Care Act’s Cost-Sharing Reduction program.”

Shortly thereafter, the U.S. Department of Health and Human Services (HHS) announced it would discontinue CSR payments:

“The Obama Administration unfortunately went ahead and made CSR payments to insurance companies after requesting — but never ultimately receiving — an appropriation from Congress as required by law. … After a thorough legal review by HHS, Treasury, OMB, and an opinion from the Attorney General, we believe that the last Administration overstepped the legal boundaries drawn by our Constitution. Congress has not appropriated money for CSRs, and we will discontinue these payments immediately.”

What the ending of CSR payments means for you

Premiums for most plans bought through state and federal insurance exchanges are generally not expected to change as a result of this action.

An August analysis by the Congressional Budget Office found that discontinuing cost-sharing reduction payments to insurers would predominantly affect only “silver” plans in the Obamacare marketplace, as you must purchase a silver-level plan to receive CSR discounts. The CBO wrote:

“Because they would still be required to bear the costs of CSRs even without payments from the government, participating insurers would raise premiums of ‘silver’ plans to cover the costs. Gross premiums for silver plans offered through the marketplaces would be 20 percent higher in 2018 and 25 percent higher by 2020.”

Net premiums would not change as much, though. Because policyholders on silver plans would have higher gross premiums, they would end up receiving greater premium tax credits. Those tax credits are “directly linked” to premiums, the Congressional Budget Office said.

The office projects that many people earning between 100 and 200 percent of the federal poverty level would “pay net premiums (with the tax credits factored in) that were similar to what they would pay if the CSR payments were continued.” Or they could buy insurance that covered fewer of their health care expenses, in which case the increased tax credits would often cover the entire cost of premiums.

The big loser here appears to be the federal budget, due to the increase in tax credits. The Congressional Budget Office’s analysis projected the federal budget deficit would increase as a result of this action by a net of:

  • $6 billion in 2018
  • $21 billion in 2020
  • $26 billion in 2026

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