Trump Move Would Boost Premiums, Raise Federal Costs, Destabilize Insurance Market

In threatening to stop making federal cost-sharing reduction payments (CSRs) to health insurers providing marketplace coverage, President Trump falsely claimed that they constitute an insurer “bailout.” Actually, the federal government must make these payments to compensate insurers for reducing deductibles and copayments for low- and moderate-income marketplace consumers, as the Affordable Care Act (ACA) requires. Ending the CSR payments would boost premiums for many consumers, raise overall federal marketplace subsidy costs, and likely cause some insurers to withdraw from the marketplaces.

Under the ACA, 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. The federal government is required to reimburse insurers for the cost, which is about $7 billion a year. 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 CSR payments aren’t a bailout. Insurers are entitled to them under the law, just as eligible people are entitled to the lower cost-sharing charges they provide. Moreover, insurers don’t profit from CSRs and the ACA requires insurers to provide them to enrollees even if the federal payments are eliminated. That means that enrollees who are entitled to CSRs would still be able to access plans with lower deductibles and other cost sharing, as long as a marketplace plan is available where they live. But insurers wouldn’t be compensated for providing CSR plans (though they’d likely be able to seek retrospective relief in the U.S. Court of Federal Claims and would almost certainly prevail.) To cover the upfront cost of providing CSRs, insurers could raise the average premium for silver-level plans and would likely need to do so by an average of at least 19 percent, according to the Kaiser Family Foundation. While premium tax credits would shield most marketplace consumers from the premium increases, people with incomes too high to qualify for getting subsidies would face these higher premium costs.

Ending the CSR payments would thus raise the federal cost of providing premium tax credits – by $2.3 billion in 2018 and $31 billion over ten years, according to Kaiser.

In addition, if President Trump stops the CSR payments, some insurers may decide to leave the marketplaces altogether rather than raise premiums. They may view Trump’s action as a sign that the Administration plans to continue to sabotage the marketplaces. This could leave more consumers living in “bare” counties — that is, with no marketplace plans.

Trump’s threat comes amid growing signs that the marketplaces are becoming financially healthier and more stable and as several states, most recently Ohio, are showing progress in preventing bare counties in 2018. Consumers who depend on individual market coverage, and the insurers who serve them, need more market stability, not less. They need certainty that the cost-sharing subsidies and individual market plans will be there when they need them.