CBO: Ending ACA Insurer Payments Would Add $194B to Deficit

Disclosures

August 15, 2017

The federal deficit would grow by $194 billion over 10 years if the Trump administration stops reimbursing private insurers for lowering out-of-pocket expenses for individuals under the Affordable Care Act (ACA), according to a report issued today by the Congressional Budget Office (CBO).

Meanwhile, the number of uninsured would increase by 1 million in 2018, but beginning in 2020 and through 2026, it would be 1 million less each year than under current law. And the ACA insurance marketplaces, or exchanges, would survive, according to the CBO report, which one expert considers "too optimistic."

Its findings may seem counterintuitive, but the CBO said that ending cost-sharing reduction (CSR) payments to insurers would force those that remain in exchanges to charge higher premiums — 20% higher on average in 2018. Most people covered through the exchanges receive premium subsidies in the form of tax credits, and those subsidies would increase in step with the premiums, shielding enrollees from financial hurt, but costing the federal government billions more, according to the CBO, which made its projections together with the Joint Committee on Taxation (JCT).

In addition, larger premium subsidies would make buying an exchange plan more attractive to some people, depending on their income, the CBO said. As a result, the number of exchange enrollees would increase, more than offsetting a dip in employer-based coverage, and result in fewer uninsured over the long haul.

The CBO predicts short-term pain, to be sure. Uncertain about how the loss of CSR payments would affect their business, insurers in some states would leave the exchanges, or else not enter them. Consequently, about 5% of Americans in 2018 would live in areas without a nongroup health plan to choose from, either inside or outside an exchange, the CBO said. However, the CBO and JCT expect that more insurers would participate in the exchanges by 2020 after having sized up the impact of the new CSR payment policy. "So people in almost all areas would be able to buy non-group insurance," the CBO said.

Pleading With the President

President Donald Trump has said in interviews and tweets that cutting off CSR payments to insurers — put at $7 billion this year — would cause the ACA exchanges to crumble. That prospect, also predicted by his opponents, supposedly would force Congressional Democrats to negotiate legislation to repeal and replace the ACA following the failure of the Republican-controlled Senate last month to achieve that goal.

CSRs amount to a subsidy that reduces deductibles and other out-of-pocket expenses for lower-income individuals who buy a silver-grade health plan, the most popular sold on ACA exchanges. Insurers have warned that if the government stops reimbursing them for providing these subsidies, they'll be forced to raise premiums in 2018 or else drop out of the exchanges.

Uncertainty about the future of CSR payments has already led some insurers to jack up their rates for 2018 just in case, and others to exit. To give insurers more wait-and-see time, the US Department of Health and Human Services extended a deadline to file revised premium rates for 2018 with states from August 16 to September 5.

Medical societies such as the American Medical Association along with the hospital industry have joined insurers in pleading with the Trump administration to continue funding the CSRs for the sake of preserving the exchanges and coverage for some 10 million people. It's the same argument made by Democrat and Republican governors as well as Sen. Lamar Alexander (R-Tenn), chair of the Senate Health, Education, Labor, and Pensions Committee, which plans to hold bipartisan hearings in September on how to stabilize the exchanges. Alexander says Trump should continue CSR funding through September and let Congress extend them through the end of 2018.

The president has the ability to cut off the money, based on a federal lawsuit filed by House Republicans, who argued that the payments to insurers were illegal because lawmakers never appropriated them. A federal district court judge agreed, prompting the Obama administration to appeal. The case has been on hold since then, but as the new defendant, the Trump administration can throw in the towel and abide by the lower-court ruling.

However, this option for Trump recently got more complicated. On August 1, the appeals court allowed Democratic attorneys general from 16 states to intervene in the case in an effort to save CSR funding.

An Iffy "Best-Case Scenario"

To healthcare attorney Timothy Jost, an emeritus professor at Washington and Lee University School of Law in Lexington, Virginia,The CBO report is a "best-case scenario where the only loser is the federal government and the taxpayers."

"I think the CBO is too optimistic," Jost told Medscape Medical News. He explained that some assumptions made by the Congressional number-crunchers may not pan out, leading to less stable insurance exchanges.

For one thing, the CBO forecast assumes that by the end of August the Trump administration would announce that CRS payments would continue through December 2017, but stop as of January 2018. Presumably, insurers would have time to adjust their premium rates accordingly for 2018. However, the CBO acknowledges that a decision to cut off payments may come after insurers set their rates for 2018, not before, said Jost, who writes about healthcare reform on the Health Affairs blog. Some insurers might flee the exchanges in the middle of 2018 in the face of significant losses. "That's more disruptive," said Jost.

Likewise, the CBO assumes that premium increases sought by insurers when they lose CSR payments in 2018 will be mostly confined to silver-grade plans, not bronze or gold plans, or nongroup plans sold outside the exchanges. However, state officials who have the final word on setting rates could apportion premium increases in other ways, upsetting the CBO's predictions on what people will buy or won't buy in the way of coverage. "Different states will do different things," said Jost.

Yet another troublesome assumption, he said, is that the Trump administration will continue to enforce the individual mandate to obtain coverage by collecting the tax penalty for noncompliance.

"I think it's a dangerous course to pursue, to cut off the CSR payments and hope for the best," Jost said. "I think there's a lot of room for a lot of disruption.

"Maybe things will settle down by 2020 or 2026, but there could be some mighty big bumps in the road before we get there."

Follow Robert Lowes on Twitter @LowesRobert

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