Eliminating Cost-Sharing Reductions

When the Affordable Care Act was created, it included a provision referred to as “cost-sharing reductions” for households that had an annual income 100-250% the federal poverty level (e.g., $24,600 to $61.500 for a family of four). The intent was to reduce out-of-pocket healthcare costs for low-income families by requiring insurance companies to reduce their costs for copayments, deductibles, prescriptions, or hospital visits. Since insurance companies are taking on this extra cost, the federal government has been providing them with subsidies to keep this program going. All in all, this has meant more affordable healthcare for those in financial need.

President Trump seeks to end this program. He and other members of the Republican party have been trying to eliminate these cost-sharing reductions (CSR), stating that they are illegal given that these payments to insurance companies have not been appropriated by Congress. A federal judge agreed with the Republican agreement last year, however the case is now waiting an appeal trial. In the meantime, the Trump administration has continued the subsidies to insurance companies all the while threatening to end them.

Ending these subsidies to insurers would have several negative consequences. First, the reduced payments may cause many insurers to exit the individual insurance marketplaces created by the ACA. It is estimated that this would leave 5% of the US population with no insurers in the individual marketplace. By contrast, if the subsidies were to remain, only 0.5% of the population would be left without an insurer in the individual marketplace. Second, ending the subsidy would likely require insurers (who remain in the market) to increase premiums by an estimated 19%. However, given the formula that calculates premium tax credits (another subsidy which helps low income families pay for health insurance—completely separate from the aforementioned CSR), the increased premiums would translate into larger tax credits given to low-income families. Essentially this means that low-income families would not be paying any more out-of-pocket. However, the additional cost to the federal government in increased premium tax credits would be greater than the savings from discontinuing subsidy payments to the insurers—meaning an additional cost to the US government of $2.3 billion dollars by ending these subsidies.

About 6 million Americans are covered by the cost-sharing reductions. Doctors, hospitals, and consumer groups have urged President Trump to continue the subsidies to insurers that keep this program afloat. Next month, Senator Lamar Alexander, chairman of the Senate Health Committee, will be holding hearings in an effort to produce a bipartisan plan to stabilize insurance markets and provide money for these subsidies.

References
  1. Pear R, Kaplan T. Trump Threat to Obamacare Would Send Premiums and Deficits Higher. New York Times. August 15, 2017. https://www.nytimes.com/2017/08/15/us/politics/cbo-obamacare-cost-sharing-reduction-trump.html
  2. Levitt L, Cox C, Claxton G. The Effects of Ending the Affordable Care Act’s Cost-Sharing Reduction Payments. Kaiser Family Foundation. April 25, 2017. http://www.kff.org/health-reform/issue-brief/the-effects-of-ending-the-affordable-care-acts-cost-sharing-reduction-payments/