President Donald Trump’s decision to halt a series of payments to health insurers could eventually affect millions of Americans who buy coverage through one of the Affordable Care Act’s exchanges or on their own, directly from insurers.
But for now, at least, the decision is likely to affect one group in particular. And it’s not the group you might expect.
The payments, known as “cost-sharing reductions,” or CSRs, reimburse insurers for special plans they offer to low-income consumers. Those payments, worth $7 billion this year alone, have been the subject of an ongoing legal dispute over whether the federal government has authority to spend that money.
A federal district judge issued an initial ruling blocking the payments in 2015, but an appeal on the case is pending ― and in the meantime, the president basically gets to decide whether to make the payments. President Barack Obama said yes. Now Trump is saying no.
Because low-income consumers are the primary beneficiaries of the payments Trump just stopped, many politicians and pundits are saying it’s low-income consumers who will have to pay more for their coverage. That’s not correct. For the time being, the people who end up paying more will tend to be middle- or upper-middle-class consumers.
That’s because, by eliminating those insurance payments, Trump will trigger an increase in another form of financial subsidy that the Affordable Care Act created. And that leads to some counterintuitive results.
How the system is supposed to work
Health insurers selling through one of the Affordable Care Act’s exchanges, whether it’s healthcare.gov or one of the state exchanges like Covered California, offer plans in four different tiers: bronze, silver, gold and platinum. Bronze is the least generous. It’s basically a catastrophic plan where, except for three routine doctor visits per year, beneficiaries pay every medical bill until they hit a high deductible. Platinum plans look like a really generous employer plan, with low co-pays and deductibles.
These plans are available to anyone buying health care on the exchanges. People whose incomes are below 400 percent of the poverty line ($98,400 for a family of four) qualify for tax credits that discount some or all of the premiums. The tax credits get bigger as premiums do, in the hopes of keeping insurance affordable. The formula for determining those tax credits uses the premiums for a “typical” plan ― which, for each market, the law defines as the second-cheapest silver plan on the exchanges.
These insurers sell other plans, too ― among them, a special set of silver plans that come with lower deductibles and co-payments. These are available only to people with incomes below 250 percent of the poverty line, or $61,500 for a family of four. The Affordable Care Act requires insurers to offer these plans, which are more expensive to provide because they cover more. The CSR funds are supposed to reimburse the carriers for that extra cost.
There’s one more kind of plan insurers offer: plans that they sell directly to consumers, through their own websites, or through insurance brokers. On paper, many of these plans look like the ones insurers sell through the exchanges, with one critical difference: People who buy them can’t get the tax credits that discount premiums. They will pay the full sticker price, however high it gets. Not surprisingly, most of the people buying coverage this way make too much to qualify for tax credits anyway.
How the system will work now
That’s how everything is supposed to work. But now, thanks to Trump stopping the CSRs, insurers have a problem. By law, they still have to offer those special silver plans with low deductibles and low co-pays to the people who qualify for them. And without the CSRs, they are going to lose money on these plans.
In response, insurers are raising premiums, but not necessarily on all plans. Working with state regulators, the majority of insurers have decided to increase only the prices of their silver plans ― and in many cases only those plans they sell through the exchanges. (At the moment, nobody has a reliable count of exactly how many.) The tax credits increase right along with the premiums for the silver plans, so people buying them won’t have to pay more. Prices for the other plans aren’t changing.
And here’s the truly bizarre part: People who qualify for the premium tax credits can use those tax credits to buy any plan they want. With much bigger tax credits, some of them will discover that a more-generous gold plan costs less than they would pay for a less-generous silver plan.
This setup, which some analysts are calling the “silver switcharoo,” sounds like a great deal ― except, perhaps, for taxpayers, because the new federal spending on larger tax credits is likely to exceed any savings from cutting off CSRs. But there’s a lot more to the story.
Not every insurer and state is approaching the problem this way. In places where insurers raise premiums on all plans, consumers at higher income levels will certainly end up paying more for equivalent plans ― and many of them already pay extremely high premiums for their coverage.
The long-term damage Trump’s decision could have
To be clear, insurers don’t seem particularly happy about this situation. They are losing CSR payments for October, November and December of this year and it’s too late to increase premiums in response. The big carriers can absorb that pretty easily. They can even sue the government, because the law entitles them to the payments even if Congress never appropriated the funds. But smaller insurers will have a harder time with the losses, and they can’t wait two years or more for a case to work its way through the courts.
Regardless, Trump’s decision has gotten their attention ― and not in a good way. It’s the clearest signal yet that he has zero interest in making the newly reformed insurance markets work and that, as former White House adviser Steve Bannon admitted over the weekend, Trump is actively trying to “blow up” the markets.
Providing insurance through the Affordable Care Act has not been an easy endeavor. Healthy people aren’t enrolling in the numbers everybody had hoped, making it difficult to balance the books. Officials in many states have been uncooperative or downright hostile. And, at the behest of congressional Republicans, the federal government failed to make another set of payments that insurers were supposed to get.
A critical mass of insurers has remained in the program because, as of this year, their financials were finally improving and they could see the makings of the stable, profitable market that the law’s architects always envisioned. But that future was dependent on an administration that wanted the program to succeed. The Trump administration feels differently, and insurers will be thinking about that, hard, in the spring when they make their decisions about whether to stay in the program for 2019 and beyond.