The Hidden Cost and Expense of Thumbing Your Nose at Obamacare

16th Oct 2017

The administration’s decision to stop reimbursing insurers for discounts on co-payments and deductibles, that they are required by law to offer to low-income consumers, will cause problems, but not in the way that you might expect.   The reimbursements are known as cost-sharing reduction payments or CSRs. Tim Jost (professor emeritus of law at Washington and Lee University), in speaking to NPR stated that “ending the CSR payments is another sign that President Trump is doing what he can to undermine the stability of the individual market under the ACA.”  The problem the Administration encounters is the payments are required by law and cannot be eliminated through an executive order.  What is happening is the President will withdraw the money providing the subsidies, but the participating companies must still grant them to eligible participants.

As you have surmised by now, the money then has to come from somewhere.  If you have been paying attention at all, you know that the insurance companies do not like taking a loss… though this could be one unlikely option.  The other option would be to increase premiums to the unsubsidized members.  These are represented largely by older insured individuals.  It is probably not surprising to hear that the industry had anticipated such an action by the white house and have already begun raising the premiums on the unsubsidized group.  This is not all due to evil conniving on the part of Insurance companies.  Most states have early deadlines for when rate changes must be submitted to each state’s regulatory agency.  These deadlines occur in late summer.  So, in anticipating some move by the administration, many insurance companies have proactively proposed premiums rate increases for approval by their state.  NPR states that “the (President’s) decision will most directly affect middle-class families who buy their own insurance without financial help from the government. Consumers who earn more than 400 percent of the federal poverty level — an individual with an income of about $48,000 or a family of four that makes more than $98,400 — will likely see their costs for coverage rise next year by an average of about 20 percent nationwide.” People with lower incomes will most likely be unaffected since the ACA, also known as Obamacare, provides government subsidies — in the form of tax credits — that ensure out-of-pocket insurance costs remain stable.  “So, when premiums rise, those tax credits rise in tandem.”  It is also possible that some insurance companies rather than raising premiums on their members could pull out of the market and no longer participate.  There may be some loss to the market of insurance providers, but those who have been participating have been finding ways to make Obamacare fruitful.  This has been largely through premium adjustments to the non-subsidized members.

These statements are supported by the Congressional Budget Office.  CBO reported back in August that they “expect that insurers in some states would withdraw from or not enter the nongroup market because of substantial uncertainty about the effects of the policy on average health care costs for people purchasing plans. In the agencies’ estimation, under the policy, about 5 percent of people live in areas that would have no insurers in the nongroup market in 2018. By 2020, though, insurers would have observed the operation of markets in many areas under the policy and CBO and JCT expect that more insurers would participate, so people in almost all areas would be able to buy nongroup insurance (as is projected to be the case throughout the next decade under CBO’s baseline projection.”

In a strange twist of fate, this money-saving measure as proposed by the White House would actually increase the federal deficit, on net, by $194 billion from 2017 through 2026, CBO and JCT estimate that the average amount of subsidy per person would be greater, and more people would receive subsidies in most years impacting these costs and because the tax credits would increase when premiums for silver plans rose, the agencies estimate that the average subsidy per person receiving premium tax credits to purchase nongroup health insurance would increase as well. Last year, 85 percent of people who bought Obamacare insurance got a tax credit, according to the Centers for Medicare and Medicaid Services.   NPR concurred with this estimate saying that “Ironically, the decision to end the $7 billion-a-year cost-sharing payments is likely to cost the federal government more than if they had just made the payments — nearly $200 billion over 10 years. “

The estimates imply that as a result of the increase in total subsidies under the policy, CBO and JCT project these outcomes, compared with what would occur if the CSR payments were continued:

  • The fraction of people living in areas with no insurers offering nongroup plans would be greater during the next two years and about the same starting in 2020;
  • Gross premiums for silver plans offered through the marketplaces would be 20 percent higher in 2018 and 25 percent higher by 2020—boosting the amount of premium tax credits according to the statutory formula;
  • Most people would pay net premiums (after accounting for premium tax credits) for nongroup insurance throughout the next decade that were similar to or less than what they would pay otherwise—although the share of people facing slight increases would be higher during the next two years;
  • Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026; and
  • The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.

This was not the only attack the administration made on Obamacare, the decision to end the cost-sharing payments came right on the heels of the executive order hoping to make it easier for people and small businesses to buy cheaper health insurance policies through trade groups and professional associations. These groups offer plans at a fraction of the premium of other plans, including Obamacare plans.   Because of their low premiums and high deductibles, this move has a high likelihood of attracting young healthy individuals away from the Obamacare plans, leaving those plans to those with the more severe health issues, and the elderly.  The trade group plans would also likely have fewer benefits that younger and healthier people can manage given their robust health as a group. To the younger population, the cost savings would be worth the gamble. This, of course, would result in higher premiums, yet again, for the older and those with chronic illness.

Another irony that seems to be missed by the administration, or perhaps the allure of Obamacare bashing made the blind to their impact, but the people most impacted negatively by these moves are the independent businessman and other people who fit into the Trump supporting demographic.  As of this writing.

Thomas Valentine
Texas Insight