The Congressional Budget Office weighed in Tuesday with another of its long-awaited analyses of aspects of repealing or tinkering with the Affordable Care Act. This time the topic is the ACA's cost-sharing reduction subsidies, which reduce deductibles and co-pays for the lowest-income buyers of health coverage on the exchanges.
The CBO's findings are timely because the so-called CSRs are the subsidies that President Trump continually threatens to withhold, as a tool for forcing Obamacare to "implode." And, as expected, the CBO finds that canceling the subsidies would be a disaster — but for Republicans favoring that approach, not Democrats.
Its conclusion is especially germane to the question of what congressional Democrats should trade in return for a GOP agreement to keep the CSRs funded. Earlier this month, healthcare analyst Avik Roy argued that Republicans should demand lots of concessions, including repeal of the individual mandate and enactment of "premium-lowering regulatory reforms." Roy didn't specify these, but Republicans have talked about paring down the ACA's list of essential health benefits, such as maternity, hospitalization and prescription coverage, which are mandated to be offered by any qualified health plan.
The CBO's analysis, however, suggests that Democrats should take Michael Corleone's approach from "The Godfather, Part II." His line to a corrupt senator overplaying his hand was: "My offer is this: nothing."
Obamacare supporters haven't fully internalized this reality. The Democratic National Committee responded to the CBO report by quoting the agency as finding that if cost-sharing reduction subsidies were ended, millions of Americans would face skyrocketing premium increases of 20% by 2018 and 25% by 2020. Actually, the CBO didn't say that. The premium increases it cited were gross increases, not factoring in premium subsidies, which would reduce the actual impact in many cases to zero.
Health insurance expert David Anderson of Duke got it exactly right: "Democrats have no reason to trade CSR funding for policies that they don't prefer," he observed. "Inaction gives them an incredible policy victory. Conservatives are the ones who need to make concessions to fully fund CSR."
The fallout from CSR cancellation already is visible in early rate requests filed by insurers in several states. California insurers are seeking an increase averaging about 12.5% for next year — but almost double that if the CSRs are ended. Those rates are pre-subsidy, and Covered California, which manages the state's insurance exchange, said that the average buyer could avert all or most of the increases through the subsidy and smart shopping.
The CBO says its analysis is based on the assumption that CSRs would be paid through the end of this year, but not thereafter. If the scenario changes — say the payments are cut off in midyear, after insurers already have set their annual premiums and signed up customers, the results could be more dire. In that event, however, Republicans would probably be blamed for the resulting market carnage, since it would be associated directly with GOP action.
Before we get into the counterintuitive details, a quick primer.
Cost-sharing reductions are offered to buyers in the individual market with incomes between 100% and 250% of the federal poverty limit. For a family of four, the eligible income range is $24,600 to $61,500. These subsidies are in addition to the ACA's premium subsidies, which cover those with incomes up to 400% of the poverty level, or $98,400 for a family of four. Unlike the premium assistance, which technically is paid to the policyholder, the CSRs are advanced to the insurers based on the co-pays and deductibles they would otherwise charge. About half of all buyers of ACA plans are eligible for the CSR assistance, and about 90% receive premium subsidies.
The subsidies this year are expected to come to $7 billion, to be paid to insurers covering 7 million customers. The subsidies are authorized under the healthcare act, but House Republicans filed a lawsuit in 2014 asserting that because the money hadn't been specifically appropriated, paying the money is illegal. They won the first round in U.S. District Court last year, but the judge stayed her ruling pending an appeals court decision.
Since his inauguration, Trump has dithered over whether to pay out the subsidies and continue fighting for them in court. On occasion, he's threatened to kill the payments as a bargaining chip to force Democrats to negotiate an Obamacare repeal. Periodically, the plaintiff and government lawyers have to return to the appeals court to ask for a three-month hold in the case; the next scheduled appearance is Aug. 20. Recently, 17 states and the District of Columbia won the right to step in to defend the CSR payments if the Trump administration tries to withdraw from the case.
The CBO found that canceling the CSR subsidies might drive some insurers out of the individual market because of "uncertainty about the effects of the policy on average healthcare costs for people purchasing plans." Those facing higher deductibles and co-pays might be less inclined to buy coverage. Regions with about 5% of the U.S. population might end up with no insurers in the individual market next year, the agency said. But by 2020, enough insurers would return to the market that almost no one would be left without insurance availability.
Insurers would, however, raise premiums to compensate for the loss of subsidies for deductibles and co-pays. It's likely that insurers would load these higher premiums onto silver plans, the only plans that provide CSR subsidies. That would drive up gross premiums for silver plans by 20% next year, compared to their expected level without a policy change.
But because premium subsidies are tied to buyers' incomes and rise as premiums rise, the subsidies would also increase — in fact, more Americans would be eligible. The CBO reckoned that many silver-plan buyers receiving subsidies would pay net premiums "similar to what they would pay if the CSR payments were continued." Some buying skimpier, bronze plans, would receive sufficient subsidies to cover premiums and some of their deductibles and co-pays too. "The average subsidy would be greater, and more people would receive subsidies in most years."
The federal government, however, would take a hit. Over 10 years, the CBO said, canceling the CSR payments would increase the federal deficit by $194 billion. So much for the fiscally responsible Republican Party.
The picture could be materially different if Trump follows through on his threat to cancel CSRs immediately. Any decision to terminate CSRs after insurers had begun charging premiums based on continued CSR funding, the CBO said, would cause them "significant financial losses." Some would leave the marketplace immediately, leaving their enrollees without coverage in the middle of the year and causing a spike in the ranks of the uninsured.
Is Trump prepared to explain the consequences to the public? It's doubtful. Many congressional Republicans know that for Trump to cancel the CSRs in midstream would hand them a poisoned chalice. Sen. Lamar Alexander (R-Tenn.), chair of the Senate Health, Education, Labor and Pensions Committee, told Roy he favors an affirmation by Trump of the CSRs at least through September, followed by congressional extension of the CSRs for one year. That would provide sufficient stability, Alexander said, to persuade the insurers to lower their rates.