With repeal and replace dead at the moment, Republicans in Congress and in the White House now have to make a choice in how to deal with Obamacare. Do they attempt to manage it as best as possible, limiting the impact of a failing system on constituents, knowing that will reduce the political incentives for eventually replacing it with something that can gain 50 votes in the Senate? Or do they actively undermine it where possible, accelerating the collapse but taking the blame for the pain it will cause?
A decision point on strategy will come very soon. Thus far, Donald Trump has opted to continue the Obama administration’s policy of funding the cost-sharing reduction (CSR) program the Affordable Care Act (ACA). The program reimburses insurers for offering lower premiums and/or deductibles on the Silver-level plans within the exchanges. Trump has suggested that this won’t go on forever, especially since he is loathe to take any action that keeps Obamacare afloat, let alone approve spending on it beyond what it already gets through statutory mandates.
A report this week from the CBO might give the president little choice in the matter. That’s ironic, considering his party took Barack Obama to court over the payments, a case that has yet to reach its conclusion. And the unintended consequences of a refusal to make the payments might be even more ironic.
The CSR program exists to make the Silver plans more accessible to lower-income Americans, typically between 100-250 percent of the federal poverty level. It lowers the out-of-pocket costs for qualifying enrollees of these Silver plans by directly subsidizing insurers for the out-of-pocket costs that Silver plans must limit to qualify. These subsidies help keep the premiums on Silver plans from rising – more so than they already have, of course.
That benefited the Obama administration in two key ways. First, the ability of lower-income enrollees to access better coverage boosts political support for Obamacare. Second, because the ACA calculates premium subsidies through the Premium Tax Credit program based on the premiums of the second-lowest Silver plan in each exchange, the CSR subsidies at least indirectly lower the statutorily mandated premium subsidies paid by the federal government. Both worked so well that Obama insisted on funding the CSR program even when Republicans in Congress refused to appropriate the funds for it, which touched off a lawsuit over the constitutionality of Obama’s use of funds.
Trump could moot this dispute at any time by refusing to make the CSR payments to the insurers. However, the CBO report predicts a number of unintended consequences if he does. It could save $118 billion in CSR payments over the next decade, but insurers – still stuck with the statutory requirement to lower out-of-pocket costs in Silver plans – would have to raise their premiums by as much as 25 percent, the CBO predicts. Enrollees only pay a set fee for insurance at all levels based on their income, benchmarked on the Silver plan, so taxpayers would end up footing the bill not just for the increased subsidies on these specific Silver plans but all plans. That would increase subsidies by $365 billion in the same time period, resulting in a net increase of deficit spending of nearly $200 billion.
Oddly enough, while taxpayers would lose the most in this exchange, lower-income Americans would gain the most benefit. E21’s Charles Blahous walks through the CBO’s examples that show dramatic reductions in premium payouts for older consumers opting to buy Gold level plans, in some cases paying nothing at all. “It is interesting, precisely because it is so counterintuitive,” Blahous concludes, “that CBO has projected that terminating CSR subsidies would actually lead to the federal government spending more money, providing low-income people with more affordable insurance coverage options, and even increasing insurance enrollment.”
Rather than hasten Obamacare’s collapse, the CBO also notes, the changes that come from eliminating funding for CSRs might actually make the system more stable. “[T]he nongroup insurance market would also continue to be stable in most areas of the country,” CBO concludes, in part because state insurance commissioners would have significant incentive to approve premium increases. “Many insurance commissioners would favor that increase,” the report notes, “because it would result in larger increases in premium tax credits for people in their states and, thus, lower net premiums paid by enrollees than alternatives that insurers might propose.”
The report highlights one underlying fact: there are no shortcuts to replacing Obamacare. The window for simple repeal passed in 2012, when Republicans lost the presidential election prior to the full rollout of the ACA in October 2013. Now that Obamacare has seriously distorted markets and set up expectations of federal government relief on health insurance, Congress and the White House must come up with a plan that unwinds the worst aspects of Obamacare while ensuring that the act of replacing it with a market- and state-based system does not do more damage than the system currently in place.
The CBO report had one immediate effect. After its release on Tuesday, the White House told NPR on Wednesday that it planned to make the August payments on CSR subsidies. Perhaps reality has dawned on Republicans in Washington DC, just in time for a new effort at replacing the ACA.