Ending one of the private insurance subsidies created by Obamacare to help more than 7 million people pay for their coverage would end up costing — not saving —the federal government money, according to an analysis from the nonpartisan Kaiser Family Foundation released Tuesday.
That’s because stopping subsidies for out-of-pocket costs like deductibles would indirectly increase the cost of a broader subsidy that helps reduce monthly premium costs.
The government would end up paying 23% more than they would save from ending the cost-sharing subsidies, which are the subject of a lawsuit filed in 2014 by congressional Republicans against the Obama administration.
The Trump administration has been temporarily continuing the subsidies while the lawsuit continues.
President Trump has indicated he wants to use the subsidies as a bargaining chip to bring Democrats to the table to support the GOP effort to rewrite the Affordable Care Act. He also suggested on Twitter Sunday that Republicans could include the subsidies in a budget bill needed to keep the government operating beyond Friday if Democrats agree to fund a border wall between the U.S. and Mexico.
The uncertainty around both the subsidies and the ACA in general comes as insurance companies are deciding what rates to charge for next year, and if they even want to continue offering plans on the exchanges created by the law.
“With each passing day, the uncertainty and lack of clarity increases the chance of insurers existing,” Kaiser Family Foundation Senior Vice President Larry Levitt said earlier this month.
A coalition of health industry and business groups already warned the administration that higher premiums that would result from ending the cost-sharing subsidies, which would hurt both taxpayers and the Obamacare customers who don’t qualify for assistance.
“There’s just been a unanimous expression of concern to Congress,” said Timothy Jost, a health-law professor at Washington and Lee University. “The consequences of not solving the problem are pretty dire.”
The issue affects the more than 12 million Americans who buy insurance through the individual marketplace instead of through an employer or a government plan like Medicare and Medicaid.
The ACA created premium subsidies for people earning up to 400% of the federal poverty level — about $64,960 for a family of two.
For those earning up to 250% of poverty, insurers have to offer plans with reduced deductibles and co-payments. The Obama administration paid insurers an average $1,136 last year for each customer eligible for the extra help.
But the GOP-controlled House sued the Obama administration in 2014, arguing lawmakers never approved the funding for the payments. While a district court judge ruled in favor of the challenge, the payments are continuing as the case is being appealed. The next court date is May 22.
If the subsidies are halted for 2017 plans, insurers would get stuck with the bill.
In addition to the short-term funding issues, there’s the long-term uncertainty. The GOP bill to rewrite Obamacare would both end the cost-sharing subsidies and cut funding for the premium supports. That bill was pulled from the floor in March and it’s unclear if Republicans can sufficiently modify it to gain enough support to pass.
If the rest of the ACA stays in place but the cost-sharing subsidies go away through the lawsuit or action by the Trump administration, insurers would raise premiums an estimated 19% to offset that loss, the Kaiser Family Foundation estimates. Because premium supports are tied to the cost of premiums, the federal government would end up spending a net increase of $2.3 billion more next year.
And that assumes insurers are willing to stay in the market if the cost-sharing payments are eliminated.
“Ending cost-sharing subsidies would send a signal to insurers that the Trump administration and Congress are not looking to make the marketplaces work,” Levitt said. “The likely result would be that insurers would not stay in the marketplace and raise premiums, but would instead create a stampede for the exits.”