President Trump delivered a surprise to health insurers — he ended billions of dollars in illegal federal payments to them.
These payments are Obamacare’s “cost-sharing reduction” subsidies, or CSRs. They’re intended to reimburse insurers for covering out-of-pocket healthcare expenses for certain low-income exchange enrollees.
Attorneys general from 18 states and the District of Columbia sued to temporarily block the president’s move, claiming that it would destabilize the exchanges by forcing insurers to hike premiums — or exit the market altogether. They lost their fight this week, when U.S. District judge for the Northern District of California, Vince Chhabria, an Obama appointee, ruled against them, calling their case “counterproductive.”
In reality, Obamacare’s own regulations are to blame for the dire state of the exchanges. Even billions in taxpayer funds for insurers are insufficient to shore them up.
Obamacare orders insurers to cover out-of-pocket expenses like co-pays and deductibles for exchange customers who make between 100 percent and 250 percent of the federal poverty level. That’s between $24,600 and $61,500 for a family of four. These cost-sharing reductions are only available on silver plans, which must cover 70 percent of the average beneficiary’s expected claims. About 6 million people qualify for the subsidies.
Obamacare intended to make insurers whole by reimbursing them for these expenses. But Congress never appropriated money for the purpose.
That didn’t stop the Obama administration from making the payments — which amounted to $7 billion last year — in direct violation of the Constitution. The Trump administration initially followed suit, until announcing in October that it would cut off the subsidies.
A bipartisan group of two dozen senators has responded with the Bipartisan Health Care Stabilization Act of 2017 — legislation that would appropriate between $25 billion and $30 billion for CSR payments for two years. “In my view, this agreement avoids chaos,” said Sen. Lamar Alexander, R-Tenn., chairman of the Senate Health, Education, Labor, and Pensions Committee and one of the bill’s chief sponsors, along with Sen. Patty Murray, D-Wash.
But chaos is unlikely. Insurers are required to cover those cost-sharing reductions, regardless of whether the federal government pays them for doing so. Without those payments, however, insurers are sure to raise premiums. Indeed, the latest data from HealthCare.gov reveal that insurers will hike silver premiums 34 percent without the subsidies this coming year.
Many people shopping on the exchanges won’t notice the difference. In 2016, 85 percent of those who purchased coverage through the marketplaces received a federal tax credit to help offset their premiums. Those tax credits are pegged to their income and the cost of a benchmark silver plan. As premiums for silver plans go up, so too will people’s tax credits.
Some exchange shoppers may be better off without the CSRs. If premiums for the benchmark silver plan approach those for gold plans, which cover 80 percent of expected claims, then shoppers may be able to get more generous gold coverage at no additional cost to them.
Or they could potentially get bronze coverage, which covers 60 percent of expected claims, for free.
Proponents of the CSR payments say that ending them will raise federal spending by $194 billion over 10 years, thanks to those increased premium tax credits. Those who don’t receive tax credits will also have to shoulder much higher premiums on their own.
But it’s not as if the CSRs kept premiums down while the government was paying them. Premiums have more than doubled since 2013, the year before Obamacare went into effect. This year alone, they rose an average of 25 percent.
Obamacare bears responsibility for these surging premiums — in particular its guaranteed issue and community rating regulations. The former requires insurers to sell to all comers, regardless of health status or history. The latter bars them from charging the old any more than three times what they charge the young.
McKinsey, a consultancy, examined rate hikes in four states where premiums had doubled or tripled between 2013, pre-Obamacare, and 2017. The study found that guaranteed issue and community rating were responsible for between 44 percent and 76 percent of the premium hikes those states saw.
It makes little sense to funnel billions in taxpayer dollars to insurers in order to offset the higher costs that Obamacare’s many mandates have brought about.
The best way to stabilize the insurance exchanges is to reduce the cost of insurance. Repealing Obamacare’s cost-inflating mandates would do just that.
Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in health care policy at the Pacific Research Institute.