The Congressional Budget Office (CBO) has estimated that ending cost-sharing reductions would increase medical insurance premiums for silver plans in the marketplaces by 20%.
The Affordable Care Act requires insurers to offer plans with reduced deductibles, copayments, and other means of cost sharing to some of the people who purchase plans through the marketplaces established by that legislation. The size of those reductions depends on those people’s income. In turn, insurers receive federal payments arranged by the Secretary of Health and Human Services to cover the costs they incur because of that requirement.
The Republican-controlled House of Representatives sued President Obama over these payments for cost-sharing reductions (CSRs), claiming the funds were not properly appropriated. A federal judge ruled in favor of the House, but stayed the order pending appeal. The Trump Administration is in a position to drop the appeal and has called the payments a “bailout” for insurance companies. The Trump Administration has a deadline of August 20 to appeal or request another delay.
At the request of the House Democratic leadership, the CBO and the staff of the Joint Committee on Taxation (JCT) estimated the effects of terminating payments for CSRs. In particular, the agencies analyzed what would happen if CSR payments end in 2018.
Because they would still be required to bear the costs of CSRs even without payments from the government, participating insurers would either drop out of the marketplaces or raise premiums of “silver” plans to cover the costs. In order to qualify for CSRs, most enrollees must purchase a silver plan through a marketplace in their area, generally have income between 100% and 250% of the federal poverty level, receive premium tax credits toward the silver plan, and not be eligible for other types of coverage, such as employment-based coverage or Medicaid. According to CBO and JCT’s projections, for single policyholders, gross premiums (that is, before premium tax credits are accounted for) for silver plans offered through the marketplaces would, on average, rise by about 20% in 2018 and rise slightly more in later years. Premiums for other plans would rise a few percent during the next two years.
About 80% of the people who purchase health insurance through the marketplaces receive a subsidy. If premiums increase, the amount of the subsidy will increase for these people, meaning that the increased premiums would be paid by the federal government, leading to an increase in the deficit.
Implementing the policy would increase the federal deficit by $194 billion from 2017 through 2026, CBO and JCT estimate. Total federal subsidies for health insurance in the individual marketplace would increase for two reasons: the average amount of subsidy per person would be greater, and more people would receive subsidies in most years.
As a result of the increase in total subsidies under the policy, CBO and JCT project these outcomes, compared with what would occur if the CSR payments were continued:
- The fraction of people living in areas with no insurers offering individual policies would be greater during the next two years and about the same starting in 2020;
- Gross premiums for silver plans offered through the marketplaces would be 20% higher in 2018 and 25% higher by 2020—boosting the amount of premium tax credits according to the statutory formula;
- Most people would pay net premiums (after accounting for premium tax credits) for individual insurance throughout the next decade that were similar to what they would pay otherwise;
- Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026; and
- The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.
Those effects are uncertain and would depend on how the policy was implemented.
The Senate Health Committee chairman, Lamar Alexander (R-TN), has said he will hold hearings the first week of September on a bill to continue the CSR payments. Insurance companies have a deadline of September 5 to finalize their premiums for 2018. Given the uncertainties surrounding the CSR payments, many insurance companies are likely to increase premiums, just in case the payments are not continued.