Despite what is being tagged as a boon to taxpayers, the recent executive order from President Donald Trump may, in fact, end up costing taxpayers nearly $200.0 billion over the next decade, hike premiums, reduce healthcare outcomes, and potentially cripple the Affordable Care Act, a.k.a “Obamacare.”
On Thursday, the Trump administration said in a statement that it will end subsidies to insurers selling plans on the Obamacare marketplaces. The subsidies were used to help cover out-of-pocket expenses for low-income customers.
The cost-sharing reduction subsidies, or CSRs, apply only to the ACC enrollees who earn very little. Insurers are required to provide them automatically, regardless of if they get reimbursed or not. If the federal government chooses to end payments to the insurers, however, the companies may raise rates across the board in order to compensate for the increased hit. In fact, while the companies were unsure if the CSRs would continue or not, many had just raised premiums on customers in a preemptive move.
The non-partisan Congressional Budget Office (CBO) previously estimated that premiums for mid-tier plans would be hiked by about 20% next year if the federal payments are discontinued. To make matters worse, if the premiums are hiked, the federal government stands to lose hundreds of billions of dollars. Despite cutting costs by ending the CSR payments, the Obamacare legislation caps how much people using the service can pay for their premiums. Since the government subsidizes eight in 10 individuals in their exchanges, the cap wouldn’t allow many Americans to pay any more on premiums, instead deducting the extra cost from federal coffers
The CBO estimated that ending the CSRs would result in $194.0 billion in losses over the next decade as the subsidies increase.
As for consumers, those on the higher end of the income spectrum will end up paying more, as they are the few who do not receive Obamacare subsidies.
Furthermore, the fact that the directions are coming through executive orders, and not via legislation, has created uncertainty among insurers, as legal challenges are likely to be brought up against the executive order and are creating a murky picture of what the future of the exchanges will look like. The companies may respond to uncertainty by (again) raising premiums to compensate.
“Trump’s New Obamacare Killer to Cost Uncle Sam $194 Billion,” Bloomberg, October 13, 2017.
“A Stunning Blow to Obamacare,” The Atlantic, October 12, 2017.