Opinion: Bailout talk poisons the efforts to fix Obamacare problems

President Trump and other top Republicans are trotting out a new phrase in their rhetorical war on the Affordable Care Act: “insurer bailout.” That’s how they want you to think about a number of the steps Congress may need to take to stabilize the Obamacare insurance markets that are struggling in some states.

Foremost among these steps is funding the “cost-sharing reduction” subsidies that the ACA requires insurers to provide low-income customers who aren’t covered by group plans at work. The ACA also requires the federal government to reimburse insurers for these subsidies, which total about $7 billion a year. Yet Congress’ spending committees balked initially, leading the Obama administration to pay insurers out of the money provided for other ACA subsidies.

Trump has threatened several times not to continue that practice, which one federal court has ruled illegal (but stayed the ruling pending appeal). But contrary to some critics’ rhetoric, reimbursing insurers is no more a “bailout” than it is when the Department of Transportation pays for the road and bridge repairs it orders. Insurers provide the subsidies because Congress ordered them to, with the promise that they would be repaid.

And besides, if the federal government stops paying for the subsidies, insurers won’t simply swallow the cost. They’ll pass it along to their customers in the state Obamacare exchanges, in the form of higher premiums.

This is where it gets interesting. Cost-sharing subsidies are offered only to consumers on the exchanges who sign up for a “Silver” plan, which covers 70% of the average customer’s total annual medical expenses. Peter Lee, executive director of Covered California (this state’s Obamacare exchange), said average premiums for Silver plans will go up almost twice as much next year — 25% — if the feds end reimbursements for the cost-sharing subsidies than if they don’t. That’s because they’ll be hit with a special surcharge of 12.4% to cover the cost of those subsidies.

Most people won’t actually pay that surcharge, however, at least not out of their own pockets. As in many Obamacare exchanges, more than 85% of Covered California’s customers are low- to moderate-income consumers who have their premiums capped by the ACA. They are guaranteed federal premium subsidies large enough to limit their monthly insurance payments to no more than 9.7% of their income. As a consequence, any increase in premiums will simply result in the federal government paying more.

And in California, at least, consumers in the non-group market who aren’t eligible for premium subsidies can avoid the surcharge by buying a plan in a different tier (e.g., a less comprehensive Bronze policy or more expensive Gold plan) or by buying the equivalent of a Silver plan outside of the exchange.

In other words, if federal taxpayers stop repaying insurers for the cost-sharing subsidies, the expense will largely be passed along … to federal taxpayers. In one pocket and out the other.

So who is getting bailed out here?

Simply reimbursing insurers for the cost-sharing subsidies won’t be enough to stabilize the non-group insurance markets in every state. The administration has to commit to enforcing the requirement that adult Americans obtain insurance — a mandate it has threatened frequently. And in some smaller states, the federal government may need to resume the reinsurance program that helped cover the cost of covering the sickest residents.

That, too, has been deemed a bailout by Republican critics. But just that sort of mechanism was included in both the House and Senate GOP healthcare bills. Although it was called a “state stability and innovation fund,” the point was to use taxpayer dollars to defray the inordinate costs imposed by the small percentage of enrollees needing the most expensive treatment. The Senate bill went further, adding tens of billions of dollars above and beyond what the House proposed to help pay these costs.

It’s hard to see any real difference between these proposals and the reinsurance “bailout” mechanism in the Affordable Care Act that Sen. Marco Rubio (R-Fla.) led the charge to kill in 2015. And at the end of the day, it’s not insurers who would be rescued — it’s their customers, who would otherwise have to pay higher premiums.

Republicans recognized as much in their Obamcare “repeal and replace” proposals. They need to maintain that focus in order to stabilize the Obamacare exchanges and spare consumers — and taxpayers — the toll of higher premiums.

jon.healey@latimes.com

Twitter: @jcahealey