Health and Science

Federal government could add more than $2 billion in costs if it cuts this type of Obamacare aid

Key Points
  • A Kaiser Family Foundation analysis finds the government could be hit with $12.3 billion in extra Obamacare-related costs in 2018 if it stops spending $10 billion in one type of financial aid for Obamacare customers.
  • The government would see net spending rise by $2.3 billion more next year.
  • Over the next decade, the government would be on the hook for an extra $31 billion if the aid for low-income customers' out-of-pocket health expenses is ended.
Health care activists lift signage promoting the Affordable Care Act during a rally as part of the national 'March for Health' movement in front of Trump Tower on April 1, 2017 in New York City.
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Acting billions-wise could turn out to be billions-foolish.

A new analysis finds that the government could be hit with $12.3 billion in extra Obamacare-related costs in 2018 alone if it stops spending $10 billion in one type of financial aid for Obamacare customers. That means the government would see net spending rise by $2.3 billion more next year.

And over the next decade, the government would be on the hook for an extra $31 billion if the aid for low-income customers' out-of-pocket health expenses is ended, the Kaiser Family Foundation analysis finds.

The study comes days before the fate of the so-called cost-sharing reduction subsidies could be decided by Congress.

More than 7 million Obamacare customers get cost-sharing reduction aid, which Republican congressional leaders have said they would like to eliminate as part of their Obamacare replacement bill.

Kaiser's findings reflect the fact that changing one part of Obamacare's financial formula tends to affect other parts of that formula.

Kaiser found that insurers would have to raise premiums for individual "silver" health plans nationally by an average of 19 percent next year in order to offset their costs from issuing the cost-sharing reduction subsidies without being reimbursed by the federal government.

Because those premiums would rise, so would the government's costs from subsidizing those premiums for Obamacare customers, Kaiser noted.

And those extra costs would more than eat up the savings that the government would see from ending subsidies for out-of-pocket expenses, the health policy research group noted.

During a Commonwealth Fund briefing for reporters on Monday, Deep Banerjee, director and sector lead at S&P Global, said that uncertainty about the fate of the CSRs could lead more insurers to decide to drop out of the Obamacare markets altogether next year.

And that, Banerjee said, could increase the number of counties with just one insurer selling Obamacare plans, or lead to some counties having no insurer at all selling such plans.

Last week, a group of leading insurers and health-care providers wrote President Donald Trump and urged him to work with Congress to continue funding for the CSRs, which they said would "help stabilize the individual" insurance market this year and next.

The Affordable Care Act currently offers two often-generous types of financial aid to people who buy individual health plans on government-run Obamacare marketplaces, such as HealthCare.gov.

The first type is subsidies for premiums. People who earn between 100 and 400 percent of the federal poverty level are eligible for those subsidies, which lower how much they have to pay to maintain their insurance coverage from month to month.

The value of the premium subsidies increases with the price of the premiums. In other words, the more insurers charge customers for premiums, as a rule, the more the government pays out in subsidies. And the less a persons' income, the higher their subsidies.

The second type of aid is the cost-sharing subsidies. That aid reduces the amount of money that customers have to spend personally, in deductibles, copayments and coinsurance and out-of-pocket limits, when they visit the doctor, fill a prescription, or get other health services.

Cost-sharing subsidies are only available to people who earn between 100 and 250 percent of the federal poverty level, and who buy so-called silver Obamacare plans. Silver plans cover, on average, 70 percent of their customers' health costs. Customers who do not receive cost-sharing aid being responsible for the cost of services beyond that.

CSRs can sharply reduce the actual health costs borne by lower-income Obamacare customers.

Sara Collins, a vice president at the Commonwealth Fund, during a presentation on Monday noted that for customers who earn between 100 and 150 percent of the poverty level, the CSRs can result in those customers having to personally pay just 6 percent of their health services' costs.

Qualified customers who earn more than 150 percent of the poverty level get less in CSRs, but still end up paying less out-of-pocket health costs than do silver plan customers without CSRs.

The CSRs currently are at risk for several reasons.

Last year, a federal judge ruled in favor of the House of Representatives, which had sued the Obama administration over funding of the CSRs.

The House argued that money on the subsidies could not be spent, because Congress never authorized their appropriation.

The Obama administration had appealed that ruling. But the election of Obamacare opponent Trump as president created the possibility that Tump could choose to drop that appeal, and effectively end the CSRs.

And, "The Trump administration could stop making payments at any time," said Timothy Jost, a professor at Washington and Lee University School of Law, and an Obamacare expert, on Monday.

However, even if government spending on the CSRs ended, insurers selling Obamacare plans would still have to offer the cost-sharing discounts to qualified customers. That would mean insurers would have to eat their costs unless they raised their premiums to offset them.

Trump hasn't dropped the appeal, despite threatening to use continued funding of the CSRs as a bargaining chip to get Democrats in Congress to approve funding for a border wall with Mexico. No wall funding could mean no funding for CSRs, Trump has suggested.

There has been no evidence that the bargaining position by Trump is working, even as the threat of a government shutdown looms at the end of this week if Republicans cannot reach a spending deal with Democrats.