EVAN HOROWITZ | QUICK STUDY
Jabin Botsford/Washington Post
In yet another strike at the Affordable Care Act, the Trump administration said late Thursday that it was canceling a subsidy designed to help millions of low-income Americans cover the out-of-pocket costs of health care.
The move followed Trump’s signing Thursday morning of a controversial executive order making it easier for people to purchase less comprehensive forms of coverage, which could lower premiums for healthy people while increasing costs for sicker Americans and those with preexisting conditions.
Compared with that executive order, last night’s decision to cut off select subsidies for lower-income buyers probably won’t matter much. There’s some risk that insurers might quit the Obamacare marketplace, but probably not in droves. Meanwhile, federal spending on health insurance might actually go up, poorer Americans won’t see any real change in their health costs, and the number of people with insurance will stay pretty stable, according to a preparatory analysis from the nonpartisan Congressional Budget Office.
How can a cut in funding for low-income folks not affect their ability to purchase insurance? In a nutshell, it’s because this cut to one subsidy will trigger an automatic increase in other kinds of support.
The payments Trump is planning to eliminate are called cost-sharing reductions, or CSRs. They are designed to help with out-of-pocket costs, like deductibles and co-pays, and they’re available to more than 10 million low-income Americans each year.
These CSR payments don’t go directly to low-income purchasers, however. It’s more roundabout than that. Insurers cover some of the out-of-pocket expenses of low-income Americans, and then the insurers get reimbursed for that expense.
Even without CSR reimbursements, insurance companies will still be required to help low-income buyers with their out-of-pocket costs. That’s hard-wired into the Affordable Care Act.
So think of it from the insurers’ perspective. Without the CSR reimbursement, they’ll need to make up for the lost money by raising their prices — not for out-of-pocket stuff, but for monthly premiums. That’s already happening around the country because Trump has been telegraphing this move for some time.
You might think: “Wait, if they raise premium prices, won’t that also make it harder for lower-income folks to purchase insurance?” There again, the answer is a surprising “not really.” Because apart from CSR, Obamacare also includes another, larger type of subsidy that is specifically designed to keep up with the cost of premiums, ensuring that family budgets are largely unaffected.
So the cascading effect of Trump’s decision is something like this: Insurers get less money for helping low-income people with out-of-pocket costs; they raise premiums to compensate; and that forces the government to increase premium-based subsidies to make sure people can still afford insurance.
This automatic increase in other subsidies also explains why the government will end up losing around $200 billion over 10 years under Trump’s deal. What he saves by cutting CSR, he gives back in premium subsidies.
The situation looks different for middle-income people on the Obamacare exchanges because they never got CSR subsidies and aren’t eligible for the premium subsidies. But here again the effect turns out to be relatively restrained. To understand why, start with the fact that Obamacare allows for several different kinds of plans: Bronze is cheapest, with the least generous coverage; gold is more expensive, with fuller coverage; silver is somewhere in the middle.
The CSR payments that Trump is eliminating only apply to silver plans. So when insurance companies start trying to make up for that lost money, their chief focus will be raising the price of those same silver plans (regulations will prevent them from raising the prices of other plans as severely).
And this has a funny effect. In many cases, the CBO estimates that gold plans will actually end up being cheaper than silver ones. And that should allow middle-class, nonsubsidized buyers to avoid big premium increases by shifting to gold or bronze plans.
If you’re looking for bad news, though, there is one deeper concern. At some point, insurance companies might tire of finding themselves at the mercy of an administration clearly indifferent to the long-term success of Obamacare. The onslaught of sudden regulatory changes will simply make it too risky, even if there are profits to be had.
Eliminating CSR payments probably won’t spark a mass exodus, but the CBO estimates that under this change, 5 percent of Americans will find themselves living in places where the Obamacare exchanges are empty next year. And the risk only increases when you account for the other destabilizing changes being made by Trump’s team, including cutting the enrollment period and reducing outreach.
As with so many of Trump’s executive actions, courts will probably have their say. And it might happen quickly because there is already a live case, brought in 2014 by House Republicans arguing that President Obama had no authority to make CSR payments without congressional approval.
The outcome of that suit is wildly uncertain, as is the prospect that Congress will step in and force Trump to continue making CSR payments — which they have the power to do.
But whatever happens next, this step alone probably won’t matter much. Low-income Americans will still be able to get additional help through the exchanges, government spending on Obamacare will actually go up, and there’s no risk of a spiraling problem ready to take down the system.
Think of it as just another cut in the death-by-a-thousand-cuts strategy Trump seems to be pursuing now that Congress has failed to repeal Obamacare outright.
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