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If Trump sabotages Obamacare, premiums will spike an extra 25 percent by 2020, CBO warns

  • The payments are to reimburse insurers for discounts in health costs offered to low- and middle-income Obamacare customers.
  • Insurers are projected to receive $10 billion in subsidies in 2018.
  • Premiums for 2018 already are higher in some cases because insurers fear the Trump administration will end the payments.

Obamacare premiums for the most popular types of plans will sharply increase — by an additional 20 percent next year, and by an extra 25 percent in 2020 — and the budget deficit also would spike if President Donald Trump ends key federal subsidies to the program, the Congressional Budget Office warned Tuesday.

The findings are certain to ratchet up pressure on Trump, and his Republican allies in Congress, to continue funding the payments to insurers. The payments reimburse them for discounts offered to most Obamacare customers in their out-of-pocket health costs.

Ending the payments would force insurers to increase Obamacare premiums to make up for the lost money, above and beyond the normal price increases expected each year.

The CBO estimated there would be 1 million more Americans without health insurance next year than there are now as a result of such a decision by Trump to end the so-called cost-sharing reimbursements.

But, by 2020, there actually would be 1 million fewer uninsured Americans because of that decision, the report said.

On top of that, killing those payments to insurers would result in an extra $194 billion added to the federal deficit, the CBO report said

While less money would be spent on the CSR payments, the government as a result would be required to spend even more money to offset the spike in premiums borne by most Obamacare customers, the office said.

The CBO report also found that if the subsidies paid to insurers end, as Trump has threatened, about 5 percent of Americans next year would live in areas that would have no individual health care plans being sold.

However, by 2020, most people would be able to buy such plans, according to the new report.

The White House immediately disputed the CBO's findings, saying the nonpartisan agency has been repeatedly wrong in the past in analysis of Obamacare programs.

"Regardless of what this flawed report says, Obamacare will continue to fail with or without a federal bailout," said White House spokesman Ninio Fetalvo.

"Premiums are accelerating, enrollment is declining, and millions are seeing their options dwindling," Fetalvo said. "This disastrous law has devastated the middle class, and must be repealed and replaced. No final decisions have been made about the CSR payments. We continue to evaluate the issues."

Trump has repeatedly threatened to end the billions of dollars in payments to insurance companies that sell individual health plans under the Affordable Care Act.

He has recently ratcheted up those threats on the heels of a humiliating loss in the Senate by Republican leaders to pass a bill that would repeal and replace major parts of the program.

The CBO report was prepared at the request of Democratic leaders in the House of Representatives who want the CSR payments to continue.

Leslie Dach, director of the Obamacare advocacy group Protect Our Care Campaign, said the CBO's report "is the latest confirmation that the Trump administration's plans to sabotage our health care will hurt millions of middle class Americans -- bringing substantial uncertainty to the health insurance markets and forcing even higher double digit premium hikes."

"President Trump seems to prefer playing political sabotage games over doing his job of lowering costs and improving our health care," Dach said.

The payments compensate insurers for discounts given to low- and middle-income Obamacare customers on their deductibles, copayments and other out-of-pocket health costs. More than 7 million Obamacare customers qualify for the subsidies.

The Kaiser Family Foundation found that for people who earn 150 to 200 percent of the federal poverty level, "the average deductible is reduced to $809, a savings of $2,800" each year by the subsidies.

Insurers have warned they will have to raise premiums sharply to make up for the loss of the CSRs if Trump cuts them off.

That's because the insurers must keep offering the discounts, by law, even if they do not get the money promised by the federal government to subsidize those discounts.

The subsidies are already projected to cost the federal government about $10 billion in 2018.

The ACA requires the government to subsidize the premiums of Obamacare customers who earn 100 to 400 percent of the federal poverty level. The value of the subsidies rises with the premiums.

However, unlike the premiums for the subsidies, the cost-sharing reduction payments to insurers are not explicitly guaranteed by the ACA.

That fact led the Republican-led House to sue the Obama administration for making the payments to insurers even after Congress did not appropriate money for that purpose.

A federal judge in 2016 upheld the House's challenge to the legality of the payments. But she agreed to let the reimbursements continue to flow to insurers as the Obama administration appealed her decision.

After Trump took office, he could have ordered that the appeal be dropped, and, as a result, allowed the payments to insurers to end. But neither he, nor the House, has made a push to end the appeal as it became clear that premium prices would spike dramatically if the payments ended.

Last month, the federal appeals court for Washington, D.C., said it would allow a coalition of 16 Democratic state attorneys general to intervene in the pending lawsuit that challenges the legality of the payments to insurers. The coalition wants the payments to continue.

The court's decision could keep the payments flowing to insurers, at least for while, until legal arguments are made by the coalition.

Uncertainty to date over whether Trump will guarantee the federal payments through next year has already led some insurers to seek higher prices for 2018 than they would otherwise have requested.

Big insurer Anthem said it would effectively abandon the Obamacare markets several states in 2018, partly as a result of uncertainty about the CSRs.

In May, Blue Cross Blue Shield of North Carolina asked for a nearly 23 percent increase in premiums next year. But the insurer at the same time said it would have requested an increase of slightly less than 9 percent if the cost-sharing reduction reimbursements were guaranteed.

Blue Cross Blue Shield later cut its rate increase request to 14.1 percent, which is still 5.3 percentage points higher than it would have been if the cost-sharing reduction payments were guaranteed.

The Cleveland Plain Dealer reported that Ohio insurers are filing sharply higher premium requests with state regulators in case Trump ends the CSR payments.

Insurers already were asking for price hikes averaging 20 percent or more for 2018. But regulators asked for new requests that assume an end to CSR payments and other factors. For example, Molina Healthcare of Ohio wants to add a 21.4 percent average price increase on top of its existing request for a 24 percent increase.

— Additional reporting by CNBC's Bertha Coombs.

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