Trump Axes ACA Cost-Sharing Subsidy Payments to Insurers

Disclosures

October 13, 2017

In another body blow to the Affordable Care Act (ACA), the Trump administration announced yesterday that it would immediately stop reimbursing private insurers for reducing out-of-pocket expenses for lower-income individuals under the law.

President Donald Trump has said in interviews and tweets that the demise of these so-called cost-sharing reduction (CSR) payments would cause the ACA's health insurance marketplaces, or exchanges, to collapse, forcing Congressional Democrats to negotiate legislation to repeal and replace the law. The decision to end these payments to insurers, put at roughly $10 billion for 2018, follows the president's executive order yesterday to expand low-cost, low-benefit health plans that ACA supporters say will weaken the exchanges by diverting young, healthy Americans from them.

Trump summarized his strategy to dismantle the ACA, after Congressional Republicans tried and failed, by tweeting this morning: "The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!"

Most people enrolled in an individual or family health plan sold on an exchange receive a CSR, an income-based subsidy that reduces deductibles and other out-of-pocket expenses. Insurers have warned that if the government stops reimbursing them for providing these subsidies, they'll be forced to raise premiums in 2018, which would hurt individuals who do not receive a premium subsidy under the law, or else drop out of the exchanges, as other insurers have already done.

The Congressional Budget Office said in August that axing CSR payments to insurers would not kill off the exchanges, but would add $194 billion to the federal deficit over 10 years. That's because as premiums increase in response to the policy change, so do premium subsidies received by most enrollees.

Medical societies such as the American Medical Association (AMA) along with the hospital industry have pleaded with the Trump administration to continue funding the CSRs to preserve the exchanges and coverage for some 10 million people. The Senate Health, Education, Labor, and Pensions Committee has been working on bipartisan legislation to do just that, but its work was interrupted by yet another unsuccessful Senate Republican effort last month to repeal and replace the ACA.

The White House 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.

Yesterday, the administration exercised that option with an announcement from Eric Hargan, the acting secretary of Health and Human Services, and Seema Verma, the administrator of the Centers for Medicare & Medicaid Services. Hargan and Verma said the decision was based in part on a legal opinion from Attorney General Jeff Sessions.

"We believe that the last administration overstepped the legal boundaries drawn by our constitution," said Hargan and Verma. "Congress has not appropriated money for CSRs, and we will discontinue these payments immediately."

Court battles may prevent the Trump administration from following through, however. Today, California Attorney General Xavier Becerra announced that his state and 17 others, along with the District of Columbia, are suing the administration in the federal district court for northern California to keep the payments coming. Also today, New York Attorney General Eric Schneiderman announced that an almost identical state coalition would intervene in the appellate court case that originated with the House of Representatives to seek "emergency relief."

"[Trump's] move is unacceptable, it's cruel, and it's unlawful," Schneiderman said at a news conference. "This is simply an attempt to blow up the system."

Congressional Democrats echoed that assessment, saying Trump is trying to sabotage the ACA, but Congressional Republicans chalked up the cutoff of CSR payments as a win for the nation's constitution.

"Today's decision…preserves a monumental affirmation of Congress's authority and the separation of powers," said House Speaker Paul Ryan (R-WI). "Obamacare has proven itself to be a fatally flawed law, and the House will continue to work with the Trump administration to provide the American people a better system."

Medical Societies Urge an Immediate Legislative Solution

The cutoff of CSR payments to insurers quickly drew condemnation from a coalition of six major medical societies, which suggested in a news release that the Trump administration was deliberately trying to undermine the nation's healthcare system.  

"The decision…stands to hurt the most vulnerable individuals and families, raising cost for them and the federal government," said the coalition, which consists of the American College of Physicians, the American Academy of Family Physicians, the American Academy of Pediatrics, the American Congress of Obstetricians and Gynecologists, the American Osteopathic Association, and the American Psychiatric Association. The societies urged Congress to immediately restore the funding.

The AMA also called for a quick legislative solution to the crisis. AMA President David Barbe, MD, said in a news release that his group was "deeply discouraged" by the administration's decision on CSR payments, noting that it "creates still more uncertainty in the ACA marketplace just as the abbreviated open enrollment period is about to begin."

Similar outcries came from the American Nurses Association, the Federation of American Hospitals, the National Association of Insurance Commissioners, and America's Health Insurance Plans together with the Blue Cross Blue Shield Association. The latter two groups asserted that the CSR payments are not industry bailouts, but money "passed from the federal government through health plans to medical providers to help lower costs for patients who see a doctor to treat their cancer or fill a prescription for a life-saving medication."

The Question of Timing

The timing of the Trump administration's decision to stop the payments makes it particularly destabilizing, said Chris Sloan, a senior manager at the healthcare consulting firm Avalere.

Sloan told Medscape Medical News that health insurers participating in the ACA exchanges have already filed their 2018 premium rates with state and federal regulators (the deadline was the end of September). "There's a chance some states may reopen the rate process, but there's so little time before the open-enrollment period begins (on November 1)," Sloan said.

Some insurers will not suffer financially from the CSR cutoff, he said, because state regulators allowed them to set their 2018 premium rates high enough to make up for the anticipated loss of the money. Other insurers increased their rates to reflect general uncertainty about the ACA exchanges, while still others priced their policies assuming they would continue to receive the CSR payments, according to Sloan.

"It's not clear how many insurers accounted for the loss of the CSR payments so they would be okay next year," he said.

Insurers that set their premiums too low for 2018 face two choices — "eat the loss or drop out of the exchanges." The easiest time to drop out would be before anyone signs up for exchange plan coverage beginning on November 1, said Sloan. "So the next 2 weeks will be huge."

Decisions about participating in the exchanges next year and what premiums to charge would have been immensely simpler for insurers, Sloan noted, if the White House announcement on the CSR payments had come in August. "That's why the decision now is so interesting, and detrimental."

Trump's executive order to expand the availability of health plans with lower premiums and fewer benefits appears designed to create "escape routes" from the higher premiums the president is engineering on the ACA exchanges, said healthcare attorney Timothy Jost, an emeritus professor at Washington and Lee University School of Law in Lexington, Virginia. However, these escape routes won't materialize in time to matter much in the immediate future, said Jost, who blogs for Health Affairs.

Jost told Medscape Medical News that the executive order merely directs the Department of Health and Human Services, the Department of Labor, and the IRS to propose new regulations governing association health plans, short-term policies, and so-called health reimbursement arrangements in which employers help workers pay for medical services. The regulatory process requires a public comment period before anything becomes final. Jost said he doesn't expect any proposed regulation for ACA alternative plans to make it to the finish line before early next year. The enrollment period for ACA coverage in 2018 ends December 15, 6 weeks earlier than previous enrollment periods did.

Follow Robert Lowes on Twitter @LowesRobert

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