End to “cost-sharing reduction” payments by feds means what?
Donald Trump made perhaps the most immediately consequential health policy decision of his presidency late Thursday, when his administration announced that it will no longer make so-called “cost-sharing reduction” payments to insurers.
What are these payments and what are the consequences of ending them? Here are some answers.
The cost-sharing reduction payments, or CSRs, are subsidies that under the ACA insurers are required to provide to low-income customers in order to make insurance more affordable. These subsidies are only for people who buy insurance in the individual market, which means they buy coverage on their own instead of getting it through their employer or the government. The individual market insures about 8 percent of Coloradans.
The CSRs are different from the better-known subsidies for people in the individual market — the tax credits that the federal government pays to reduce people’s premiums. Instead the CSRs are for only the lowest-income people in the individual market and help pay deductibles and other out-of-pocket costs. About 33,000 people in Colorado receive help from the CSRs, according to the Kaiser Family Foundation.
They would have cost
Under the Obama administration and the Trump administration until Thursday, the federal government had been reimbursing insurers for providing the CSRs. The government was expected to spend about $7 billion on them in 2017, according to the Congressional Budget Office. That annual cost would have risen to about $16 billion in 2027 had the payments been left in place.
Without federal reimbursement for the CSRs, insurers have repeatedly said they will have to make up their costs by raising premiums on everyone. The budget office has estimated that premiums for some plans in the individual market would rise by as much as 20 percent if the CSRs are ended and other changes to the law aren’t made.
In Colorado, the Division of Insurance has said that premiums in the individual market will be 27 percent higher in 2018, but that assumed the CSRs would be paid. Without the CSRs, the division announced Friday that premiums will be an additional 6 percentage points higher, on average, in 2018 — meaning the total increase over 2017 will be about 33 percent. Some individual insurers will see additional increases as high as 14 percentage points, the division has previously said. No insurers will leave the market in 2018 as a result of the higher rates, though.
These increases do not take into account the federal tax credits that help people pay for premiums, which would also increase as a result of higher premiums.
As premiums rise, the Affordable Care Act’s tax credits also rise for many people to help keep the upfront cost of insurance in check. This dynamic means that some people in the individual market will see their premiums drop as a result of the CSRs being discontinued, assuming no other changes to the law are made.
For instance, the CBO has estimated that under current law a 40-year-old person making $34,000 a year would receive a $3,450 tax credit in 2026 to buy a bottom-level plan, resulting in them paying $2,050 in premiums for the year. Without the CSRs, that person’s nominal premium for the same plan would rise by $500 per year. But the tax credit that person receives would increase by $1,400, resulting in that person paying $1,150 — or $900 less — in premiums for the plan.
The people who would face the brunt of the premium increases are those who make too much money to qualify for tax credits. In an extreme example, the CBO estimates a 64-year-old person who makes $68,200 and buys a mid-level plan in 2026 would pay $15,300 in premiums and receive no help from tax credits under current law. If the CSRs aren’t paid, that person still wouldn’t receive a tax credit, but the premiums would rise to $19,200 — or $3,900 more per year.
Some insurers have said they would consider exiting the individual market altogether if the federal government stops reimbursing for the CSRs. When the CBO looked at the issue in August — before 2018 plans had been finalized — it estimated that ending the CSR payments then would cause enough insurers to leave the market that about 5 percent of the nation wouldn’t have any insurer to choose from in the individual market next year. That would mean about 1 million more people without insurance in 2018 than if the payments remain in place, according to the CBO’s analysis.
In the long term, though, the CBO found that more people would likely be insured because the increased federal tax credits would make the cost of an individual-market plan more appealing.
Because the federal government will spend more on tax credits without the CSR reimbursement in place, the budget office estimates that ending the CSRs will grow the federal deficit by $6 billion in the first year they are ended and by a total of $194 billion over the first decade.