20% premium spike likely if subsidies end
Insurance premiums for health plans in the individual market would jump 20 percent in 2018 if the federal government stops funding billions of dollars in payments to insurance companies that help lower health care costs for poor Americans, according to an analysis released by the Congressional Budget Office on Tuesday.
The subsidies, known as cost-sharing reductions, amount to about $7 billion each year and are paid to insurance companies as part of the Affordable Care Act. Insurers pass on the savings to consumers, who buy plans on the insurance exchanges and can as a result get lower insurance deductibles, co-pays, prescription drug costs and other out-of-pocket costs.
Ending the payments would add $194 billion to the federal deficit in 2026, the analysis found.
The 20 percent premium increase would apply to the most common type of health plan purchased on the exchange, called the silver plan. This is the type of plan that consumers must buy in order to qualify for cost-sharing subsidies. Individuals who make between 100 and 250 percent of the federal poverty level — about $12,000 to $30,000 a year — are eligible for these subsidies.
Many health experts consider the subsidies a critical component of the Affordable Care Act because they help make out-of-pocket health costs more affordable for the poorest Americans. The payments have become a central point of contention between the health law’s proponents and the Trump administration, which has repeatedly signaled it may end the payments, which President Trump considers a “bailout” for insurers.
The legality of the subsidies has been in question since House Republicans in 2014 filed a lawsuit to halt them, arguing that Congress never properly appropriated the money. The suit is on hold before a federal appeals court. The outcome is largely in the hands of the Trump administration, which has the power to continue or stop the stream of money. The administration has been authorizing the payments on a month-to-month basis, but has not committed to funding them longterm.
In California, more than half of the 1.4 million residents who buy health insurance on the state exchange, Covered California, make use of the cost-sharing subsidies.
Covered California officials this month announced a contingency plan for 2018 that assumed the cost-sharing subsidies would be halted. That plan would result in a 25 percent premium increase for affected consumers who buy the silver plan — an additional 12.4 percent jump on top of the 12.5 percent average premium increase for the entire state. The extra 12.4 premium increases will not take effect if the subsidies continue.
Halting the cost-sharing subsidies would add to the federal deficit because the federal government would actually have to pay more in premium tax credits to consumers who seek health coverage on insurance exchanges, the budget office found. This is because under the Affordable Care Act, consumers can only spend a certain percentage of their income on health care. If insurance premiums were to rise 20 percent, the federal premium subsidies would have to go up as well.
Stopping the costsharing payments would result in 5 percent of U.S. counties having no insurance options in the individual market next year because some insurance companies would withdraw from the exchanges in 2018, the analysis found. But by 2020, insurers would participate in nearly all areas. This is largely because of timing: Insurers need to know now whether they will receive the subsidies next year because they are in the midst of setting their 2018 rates. After 2018, some insurers would likely enter those markets.
California is not expected to have any bare counties in 2018. Ninetysix percent of consumers who buy insurance through the state exchange will have at least two plans to choose from next year. Four percent, about 60,000 people who live in in Inyo, Mono, San Luis Obispo and Santa Barbara counties, will have just one plan available.
Health insurers, consumer advocates, state officials and some Republicans have pressed for the payments to continue, to help stabilize the exchanges.
Congressional Republicans should consider a short-term appropriation, of no more than two years, for the subsidies, said Lanhee Chen, a health policy research fellow at the Hoover Institution and former policy director for Mitt Romney’s 2012 presidential campaign. Chen is part of a bipartisan group of experts that is urging Congress and the administration to continue the subsidies, enforce the Affordable Care Act’s individual mandate and give states more flexibility in running their Medicaid programs.
“A failure to (continue the subsidies) would, I believe, result in difficulties for subsidized individuals, as well as serious political consequences for Republicans going forward and in the 2018 election cycle particularly,” Chen said. “Ideally, this extension would be coupled with systemic reforms, such as greater flexibility around state innovation.”
But Freedom Partners, the conservative Koch Industries-backed group, said Congress should repeal the Affordable Care Act altogether instead of “continuing to paper over the law’s fundamental failures with billions of tax dollars.”
“These payments aren’t ‘stabilizing’ the market, they’re subsidizing special interests,” spokesman Bill Riggs said in a statement.