Since the efforts to repeal the Affordable Care Act collapsed in the Senate last month, President Trump has been threatening to “let Obamacare implode.” There are several things the Trump administration could do to ensure that implosion happens. One of those things is ending payments for cost sharing reductions (CSRs) that help insurance companies offset the costs of offering low-deductible, low-cost-sharing plans for low-income people. In a series of Tweets, Trump referred to these payments as “bailouts” and threatened to end them. If he does so, it would wreak havoc on insurance markets, driving premiums up and driving more insurers out of the Marketplaces. According to a new report from the nonpartisan Congressional Budget Office, ending payment for CSRs would cause health insurance premiums to increase by 20% next year and would continue to increase in later years.
What are cost sharing reductions (CSRs)? The Affordable Care Act (ACA) provides two kinds of subsidies to help low- and middle-income people pay for health insurance: premium tax credits and cost sharing reductions (CSRs). Premium tax credits help cover the costs of insurance premiums for people with household incomes up to four times the federal poverty level. But even with subsidized premiums, most low-income people can’t afford to use their insurance, because they still cannot pay the high cost-sharing (deductibles, co-payments, co-insurance) required by most insurance plans. To help those who would struggle to pay for cost-sharing, the ACA requires insurance companies to reduce the cost-sharing levels for people making less than 250 percent of the federal poverty level. About 6 million Americans, including over 155,000 Tennesseans, receive cost-sharing reductions. The ACA then instructs the federal government to reimburse insurance companies for the higher cost of offering these low-cost-sharing plans, and the government so far has been making payments to insurers for doing so.
What is the Trump administration threatening to do to the CSRs? The Trump administration is threatening to stop making the payments to reimburse insurance companies for offering the low-cost-sharing plans. If the Trump administration follows through on its threat, insurers will still have to provide low-cost-sharing plans to eligible people. The insurers just won’t get reimbursed for it.
What would happen if the Trump administration stops making the CSR payments? This would throw the individual insurance Marketplaces into chaos and trigger huge premium hikes. Some insurers will choose to leave the Marketplaces altogether, leaving more counties with few or no insurance plans available and more people without access to affordable insurance. Other insurers could compensate for the loss of CSR funding by raising premiums. According to the Congressional Budget Office (CBO), insurers would raise premiums in the individual market by 20% next year to cover the loss of CSR payments, and premiums would continue to rise in later years. Indeed, some insurers are already raising premiums for next year in anticipation of an end to CSR payments.
Ending the CSR payments would also cost the federal government more than continuing to make the payments. This is because CSRs are only available to people who enroll in a silver-level Marketplace plan, so insurers would focus their premium increases on these plans. Silver-level plans are also the “benchmark” for determining premium tax credits, so increasing the premiums on silver-level plans would dramatically increase premium tax credits for everyone receiving them. The CBO estimates that ending CSR payments would increase the federal deficit by $194 billion in the next decade.
Can the Trump administration legally stop making CSR payments? That is debatable. The ACA requires the federal government to make CSR payments to the insurance companies, but it does not specifically appropriate any money for doing so. Critics of the ACA claim this is a problem because the Constitution says that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by law.” Supporters of the law argue that ACA implicitly authorizes the expenditures. This Constitutional dispute is already the subject of one federal lawsuit. In 2014, the House of Representatives filed a suit (formerly House v. Burwell, now House v. Price) challenging the authority of the Obama administration to make the payments. The district court ruled against the Obama administration, saying that the CSR payments were illegal and ordering the CSR payments stopped. The order did not go into effect, though, because the Obama administration appealed the ruling.
Then Trump was elected. Until recently, Trump simply could have dropped the appeal and allowed the district court’s order to stop making CSR payments go into effect. But the D.C. Court of Appeals has now allowed 17 states and the District of Columbia to intervene in the case, since their citizens would be hurt by the loss of CSR payments. The Court said that ending the CSR payments “would lead directly and imminently to an increase in insurance prices, which in turn will increase the number of uninsured individuals for whom the States will have to provide health care.” This does not end the lawsuit or decide the legality of the CSR payments, but it makes it more difficult for the Trump administration to dismiss the appeal and claim legal cover for ending the payments.
Can Congress do anything to ensure the government keeps making the CSR payments? Yes, Congress could appropriate the money, even if only temporarily. Luckily, several senators, including Sen. Lamar Alexander, Chair of the Senate Health Committee, have expressed interest in a new bipartisan effort to stabilize the health insurance Marketplaces. Senator Alexander has asked the Trump administration to continue funding the CSR payments through September to give Congress time to appropriate the money going forward.