Health Reform WK-EDGE Terminating ACA insurer payments would cause premiums, uninsured rate to yo-yo
Monday, August 21, 2017

Terminating ACA insurer payments would cause premiums, uninsured rate to yo-yo

By Kelly J. Rooney, J.D., M.P.H.

If payments for cost-sharing reductions (CSRs) are terminated, the insurance market would be unstable in the short run—2018 would see premiums would increase by 20 percent, the number of uninsured would increase slightly, about 5 percent of people would live in areas with no nongroup market plans available, and the federal deficit would increase by $6 billion in 2018—according to an August 2017 Congressional Budget Office report. At the request of the House Democratic Leader and the House Democratic Whip, the CBO and the staff of the Joint Committee on Taxation (JCT) took a look at the effect of terminating CSRs, the possibility of which has been posited by the President. Specifically, the CBO’s estimate assumed a policy where an announcement was made by the end of August 2017 (before insurers must finalize 2018 rate plans) that CSR payments would continue through December 2017 but not thereafter (CBO Report, August 15, 2017).

CSRs. Under sec. 1402 of the Affordable Care Act (ACA) (P.L. 111-148), insurers are required to offer lower cost plans that are adjusted based on income to purchasers on the health insurance marketplace. In exchange, the federal government provides "cost-sharing reduction" payments to the insurers to cover their costs for providing those plans. Whether these payments will continue, however, is far from certain. President Trump’s repeated criticism of the viability of the ACA made House Democrats so concerned as to whether payments will continue that they sent a letter to Trump urging him to keep making payments (see House Democrats demand Trump continue paying ACA cost-sharing reduction subsidies, May 31, 2017). Meanwhile, a long-standing suit brought by the House of Representatives challenging the legality of the CSR payments is still in abeyance since before the 2016 presidential election (see State AGs allowed to intervene in ACA subsidies case, August 9, 2017).

CBO’s findings. The CBO expects there to be effects on a number of areas should it be known by the end of August that the payments will not continue:

Market Stability. It is expected that because of market uncertainty, insurers in some states would withdraw or not offer nongroup market plans. The uncertainly may settle by 2020, with insurers having observed the operation of other markets and choosing to participate again. By then, about the same number of people would be living in areas with no insurers offering nongroup plans as under the current policy.

Premiums. Because insurers would still be required to offer lower cost plans under the ACA, with no payments coming from the government, premiums would increase for silver plans to cover the costs. Premiums for those plans would be 20 percent higher in 2018 and 25 percent higher by 2020. With increased premiums, tax credits would also increase accordingly, under the current policy.

Federal Budget. Between 2017 and 2026, the federal deficit would increase by $194 billion because federal subsidies for nongroup market purchasers would increase because more people would receive subsidies and subsidy amounts would be higher (amounting to $247 billion). More people would receive subsidies because, according to the report, while premiums would increase for silver plans, other plan premiums would remain roughly the same. People with higher incomes would be able to pay lower premiums for at least the same coverage and may opt not to purchase employer-based coverage. As a result, there may be fewer employers offering coverage to workers, so there would be higher Medicaid enrollment, causing federal Medicaid spending to increase by $7 billion.

Health Insurance Coverage. The number of uninsured would be slightly higher in 2018 (about 1 million higher) but would be slightly lower (about 1 million lower each year) because of more people purchasing plans in the marketplace than otherwise would have, because fewer people would purchase employer-based coverage.

ReportsLetters: CBOReports CostSharingNews HealthInsuranceExchangeNews IndividualMandateNews InsurerNews PremiumNews PremiumTaxNews NewsFeed FedTracker HealthCare TrumpAdministrationNews

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