Nancy Pelosi asked the Congressional Budget Office to do an analysis of what would happen if Donald Trump were to follow through on his threat to withhold government payments to insurance companies that make it possible for lower-income folks to afford health insurance with the Affordable Care Act. That analysis was released yesterday, and while it wouldn’t actually kill Obamacare, it would make insurance on the individual exchanges a lot more costly, with premiums going up sharply. And in some sad news for the greatest deal-maker ever, withholding the payments wouldn’t save the government money; it would actually cost about $200 billion. If that sounds nuts, it’s because Donald Trump is really very, very bad at killing Obamacare.
As Vox’s Sarah Kliff explainers here, the funds Trump wants to withhold, called “cost sharing reduction” (CSR) subsidies to insurance companies, are just one of the two ways the federal government subsidizes health insurance for lower-income people on the individual exchanges:
- Premium subsidies, which reduce the cost of monthly premiums for Obamacare enrollees who earn less than 400 percent of the poverty line
- Cost-sharing reduction subsidies, which reduce the cost of copayments and deductibles for Obamacare enrollees who earn less than 250 percent of the poverty line
The premium subsidies are tethered to how much Obamacare enrollees earn. They cap how much a given enrollee is expected to spend on his or her monthly premiums. Someone who earns 200 percent of the poverty line, for example, is expected to pay 6.4 percent of her income on premiums to purchase a midlevel plan. The government kicks in the rest.
CBO says the loss of the CSR payments would force insurance companies to raise premiums on “silver” plans about 20% right away, and more in later years. This is where the tax credits — which the president can’t unilaterally end the way he can the CSRs — would become a big factor. Since those credits kick in to ensure lower-income policyholders don’t have to pay more than a given percentage of their income — you know, the affordable thing — the government would pick up the bulk of the increased premium costs for most folks, resulting in about $194 billion extra in new subsidies. Bummer for Donald Trump: If he chops the CSR payments (which he misleadingly calls a “bailout for insurance companies), he’ll end up costing the government a lot MORE to pay for ACA insurance. Kliff sums it up pretty succinctly:
It will cost the federal government nearly $200 billion to end the cost-sharing reduction subsidies. For that extra spending, the federal government would have a market with higher premiums and less competition. Trump talks a lot about making deals. This does not sound like a very good one.
Oh, yes, and while Trump hopes ending the CSRs would cause Obamacare to “implode” — you know, because it would anyway, he’d just give it a little push — the CBO report actually forecasts that wouldn’t happen either. Insurance would get a lot more expensive for people who make too much to qualify for subsidies, and subsidizing the higher premium costs with locked-in tax credits would result in higher deficits. The disappearance of CSR subsidies would result in some short-term market chaos, with about 5 percent of Americans living in areas with no plans available at all on the exchanges “because of substantial uncertainty about the effects of the policy,” but no implosion or death spiral, at least not according to CBO’s projections. Things would be unsettled in 2018-2019, but after insurance companies figure out how their rates would need to be restructured, the individual market would stabilize:
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[.]
Further, the report says that while some people would choose not to buy insurance at all, the overall uninsured rate would actually go down because the increased subsidy payments would lead to about a million more people being insured by 2020. In other words, eliminating the CSRs would make premiums jump, but the built-in protections of the tax subsidies would shield most individual policyholders — it would just cost a hell of a lot more for the government. You’d almost get the impression the ACA was designed to be fairly robust or something. A year of hearings, input from stakeholders, and debate probably helped there.
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