Covered California made it official Thursday: The Trump administration's waffling will raise health insurance premiums an additional 12.4% for many Californians not covered by large employer plans. In some cases, the Trump-induced surcharge will be 27%. Those increases are on top of an average premium increase of 12.5% due to other factors.
In other words, premium increases will be twice as high next year for many Californians, simply because the Trump administration (and Congress) won't commit to reimbursing insurers for the payments the government requires them to make.
But don't cry for these people. Most of them won't feel the increase. Instead, the higher costs will be passed on to you, Mr. or Ms. Taxpayer.
Ouch. At issue is the administration's refusal to commit to making the "cost sharing reduction" payments that the 2010 Affordable Care Act requires. Under the ACA, insurers must slash the out-of-pocket payments demanded from customers with very low incomes. The law also requires the federal government to reimburse insurers for these reductions, which are expected to total about $7 billion this year.
It's a simple idea: If you want healthcare to be accessible to all Americans, you'll need to help those living near the poverty line with more than just their premiums. They can't afford the deductibles and co-payments most policies charge, preventing them from obtaining care. Hence the cost sharing reductions.
The problem is that Congress (under partial and then full GOP control) didn't put up the money to reimburse insurers, leading the Obama administration to fund the payments out of the pot for premium subsidies. Although the House of Representatives sued (successfully) to stop the administration from making the payments, the ruling is on hold pending an appeal. The Trump administration has kept them going on a month-to-month basis, even as it has regularly threatened to terminate them.
Remember, insurers still have to make the cost-sharing reductions regardless of what Washington does. So as the open enrollment period approached for 2018, they had a choice: Act as if the reimbursements won't end, or assume they will and raise premiums to compensate for the loss — or stop selling policies through Covered California and the other Obamacare exchanges.
To avoid the latter scenario, Covered California persuaded insurers to impose a surcharge just on the "silver" tier policies eligible for cost-sharing reductions (that is, the policies that cover about 70% of the average customer's projected medical expenses). This surcharge will range from 8% to 27%, depending on the insurer, with an overall average of 12.4%.
The arrangement — unique to California, and a credit to the state Legislature's decision to make the exchange an active negotiator for consumers — is designed to minimize the cost to customers. The vast majority of those hit with the surcharge (78%, by Covered California's count) won't pay it. That's because they receive ACA subsidies that limit their premiums to a fixed percentage of their income, which means the subsidy will increase to absorb the surcharge. And that, in turn, means that the cost of the surcharge will be passed on to taxpayers.
The Californians who buy silver-tier policies through Covered California but do not qualify for subsidies will feel the sting of the surcharge. That's about 65,000 of the exchange's 1.4 million enrollees. But those who buy virtually identical policies outside Covered California won't face the surcharge, which is a pretty strong incentive to bypass the exchange. In fact, insurers are encouraging consumers who don't qualify for premium subsidies to do just that.
In sum, the administration actions are shifting the burden of the cost-sharing reductions from taxpayers to insurers to consumers, the vast majority of whom will pass the cost back to taxpayers. The money flows in a big circle, albeit probably in a way that winds up costing the taxpayers more. (By the Congressional Budget Office's calculation, ending the reimbursements outright, rather than just leaving them in limbo, would cost the taxpayers $194 billion over 10 years.)
So why is the Trump administration doing this, again? Some Republicans say the reimbursements are a "bailout" for insurers, which is every bit as accurate as saying the Defense Department's payments for weapons and supplies are a bailout for defense contractors. If critics want to stop the reimbursements, they should repeal the requirement that insurers give low-income customers a break on their out-of-pocket expenses. Failing that, the administration — or better yet, Congress — needs to commit to paying the reimbursements and stop the senseless cost-shifting.