The Trump administration will immediately stop making critically important payments to insurers who sell Obamacare health plans, a bombshell move that is expected to spike premium prices and potentially lead many insurers to exit the marketplace.
The decision to end the billions of dollars worth of so-called cost-sharing reduction (CSR) payments came after months of threats by President Donald Trump to do just that. The news came only hours after Trump signed an executive order that Obamacare advocates said could badly harm the individual insurance marketplaces.
Advocates, along with insurers, health-care provider groups, patient groups and officials in many states, have expressed concerns for months that the cost-sharing reimbursements would be cut off by Trump.
Senate Minority Leader Chuck Schumer, D-N.Y., sharply criticized Trump in a series of Twitter posts late Thursday.
Two months ago, the Congressional Budget Office estimated that individual health plan premiums would be 20 percent higher than originally projected if the payments ceased. It also projected that premiums would be 25 percent higher than they otherwise would be by 2020, and that the federal deficit would be increased by almost $200 billion if the subsidies ended.
The payments, worth $7 billion or so to insurers this year and up to $10 billion or more next year, reimburse insurers for discounts in out-of-pocket health costs they give to low-income Obamacare customers. The discounts must be offered by law.
However, congressional Republicans successfully challenged in a lawsuit the Obama administration's decision to make the reimbursement payments to insurers without getting the express budgetary authorization from Congress.
Now, both California Attorney General Xavier Becerra and New York State Attorney General Eric Schneiderman said they would file lawsuits seeking to prevent Trump from ending the subsidies.
The two were part of a group of 18 state attorneys general who were given permission this year to intervene in the pending appeal of the federal court decision that had ruled the payments were illegal given their lack of congressional authorization.
Source: Congressional Budget Office analysis "The Effects of Terminating Payments for Cost-Sharing Reductions," August 2017
More than half of the people who buy Obamacare plans on government-run exchanges qualify for reduced out-of-pocket health charges that the CSRs subsidize. Those customers have relatively low incomes.
A greater number of people, about 85 percent of all Obamacare exchange customers, qualify for subsidies that reduce their monthly plan premiums. Those subsidies, in the form of federal tax credits, are not at risk from the Trump administration action on CSRs.
In fact, those premium subsidies will offset the price hikes that are expected from the CSR cutoff for millions of people. That is, the value of the tax credit-based subsidy rises in step with premium prices — so if premiums go up, so do the subsidies.
Customers of Obamacare plans who do not receive premium subsidies, however, will be hit with the full effect of the CSR-related price hikes.
Still, the relationship between the two subsidies is why Trump's decision to kill the CSRs will cost the federal government more than if he had continued making the payments.
Here's what the White House said on the subsidies:
Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare. In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments. The United States House of Representatives sued the previous administration in Federal court for making these payments without such an appropriation, and the court agreed that the payments were not lawful. The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system. Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people.
Without the reimbursements, insurers are expected to raise the prices of their health plans significantly to offset the loss of the money they have received for years.
Trump's threat to end the CSRs had already led insurers in a number of states to request higher premiums for 2018 plans than they otherwise would have requested. On Wednesday, California's Obamacare marketplace imposed an average 12.5 percent surcharge on many health plans for next year because of the potential cutoff for the CSRs.
A leading Obamacare advocacy group, the Protect Our Care Campaign, said, "The President of the United States is now running a daily campaign to sabotage the health care of the American people.''
''Nonpartisan analysts say canceling these payments means making people pay 20% higher premiums,'' said Brad Woodhouse, campaign director at Protect Our Care.
"The Trump administration and every Republican in Congress who lets him do this is now responsible for every rate hike people see for the foreseeable future. They broke it, they own it."