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ACA Marketplaces Poised to Grow Stronger — If They’re Not Sabotaged

President Trump is again threatening to stop cost-sharing reduction (CSR) payments to insurers under the Affordable Care Act (ACA), just as new data show that such action would fuel sharp premium hikes in 2018. If, however, the payments continue, ACA marketplace customers in some areas would see little to no premium increase next year — a likely sign that the marketplaces continue to grow financially healthier and more stable.

Under the ACA, as we’ve explained, about 6 million low- and moderate-income people who are enrolled through the marketplaces are eligible for CSR plans with lower deductibles and other out-of-pocket costs. To qualify for CSRs, a person must have income up to 250 percent of the poverty line (or about $60,000 for a family of four) and enroll in a “silver-level” marketplace plan. On average, the CSRs reduce people's out-of-pocket costs by roughly $1,100 per person. The federal government is required to reimburse insurers for the cost, which is about $7 billion a year.

If the Administration continues to make the CSR payments as it’s done to this point, some insurers are planning to charge virtually flat premiums in 2018. Consider that:

  • In Arizona, Blue Cross and Blue Shield said 2018 premium rates across its plans would be virtually flat if CSR payments continue.
  • In North Carolina, Blue Cross and Blue Shield said it would not seek an increase in premiums next year if CSRs are paid, but proposed an overall average increase of 14.1 percent if the payments aren’t made. Eliminating the CSR payments would “drive many healthier individuals to exit the market,” the company said in its filing.
  • In Alaska, the sole marketplace insurer, Premera, submitted a rate decrease of more than 20 percent for 2018 assuming that CSRs wouldn’t be paid, meaning that the rate drop would be even larger if the payments are made.

If the Administration stops the CSR payments, marketplace insurers still must provide CSR plans and enrollees are still entitled to CSRs, as long as a marketplace plan is available where they live. But insurers wouldn’t be compensated for providing CSRs (though they’d likely seek retrospective relief in the U.S. Court of Federal Claims and would almost certainly prevail). To cover the upfront cost, marketplace insurers would likely raise their premiums for silver-level plans.

In Idaho, the four insurers that sell marketplace plans assumed that the federal government would not make the CSR payments in 2018, and they thus proposed an average increase of 38 percent; premiums for the most popular silver-level plans would rise an average of 50 percent. In Pennsylvania, Insurance Commissioner Teresa Miller has said the increase among five insurers would be 20.3 percent if the federal government doesn’t make the CSR payments, compared to an average overall increase of 8.8 percent for individual-market plans assuming the payments continue.

The new rate data show premiums that insurers have submitted for approval; they’re not final. The data also represent changes in the average “sticker price” premiums, not what individuals would actually pay for coverage out of their pockets. That’s because people who receive ACA premium tax credits (who account for the overwhelming share of marketplace enrollees) would be shielded from the premium increases because their premium cost is limited to a percentage of their income and the amount of their tax credit rises with premium costs.

That means, however, that people who have incomes too high to qualify for subsidies would bear the brunt of these rate increases. In addition, federal costs for premium tax credits would rise (generating overall higher net federal costs). Moreover, some insurers would likely withdraw from the marketplaces altogether. That could leave more consumers living in “bare” counties — that is, with no marketplace plans.

By stopping the CSR payments, the Administration would weaken the individual market’s financial health and stability. Consequently, it should eliminate the uncertainty and pledge to continue the payments.