If you’re like me and read the headlines about how the Trump administration announced that, on top of the executive order on Obamacare that the president signed yesterday, they are ending the cost-sharing subsidies (CSR), you might have assumed that Obamacare is doomed. But there’s a whole lot more to the story than that.
It is important to note that CSR refers to subsidies paid directly to insurance companies in order to make premiums more affordable to low income people who purchase plans on the Obamacare exchanges. This has nothing to do with the subsidies individuals receive, based on income, to purchase insurance. It is also important to know a few other things about how this all works:
- Obamacare plans are divided into four groups—bronze, silver, gold and platinum—based on what is called their “actuarial value.” For example, bronze plans cover approximately 60 percent of total medical costs, with individuals paying the remaining 40 percent via things like deductibles and co-pays. For the remaining groups, silver plans cover 70 percent, gold 80 percent, and platinum 90 percent.
- CSR subsidies are provided for silver plans.
- The subsidies individuals receive (federal tax credits) are benchmarked to silver plans, regardless of the actuarial value of the plan an individual purchases.
- If insurers raise premiums as a result of the loss of CSR’s (which many have already factored into their 2018 rates), tax credits will increase to cover those costs.
Kevin Drum has a nice summary of the four things that will happen as a result.
- The increased tax credits make up for the higher silver premiums. The net cost of silver policies will stay the same.
- The tax credits go up enough that bronze plans become free for some people. This will attract more people into the Obamacare marketplaces.
- The net cost of a gold plan is less than a silver plan. For many people, this means they can switch to gold plans with a higher actuarial value and actually save money compared to silver.
- Outside of Obamacare, insurance companies will offer different policies that don’t include CSR. So for folks who don’t use Obamacare, the cost of insurance won’t change.
The CSR subsidies are estimated to cost the federal government somewhere in the neighborhood of $8 billion a year. Back in March, the Kaiser Family Foundation estimated how ending CSR subsidies would effect the federal budget.
We estimate that the increased cost to the federal government of higher premium tax credits would actually be 23 percent more than the savings from eliminating cost-sharing reduction payments. For fiscal year 2018, that would result in a net increase in federal costs of $2.3 billion. Extrapolating to the 10-year budget window (2018-2027) using CBO’s projection of CSR payments, the federal government would end up spending $31 billion more if the payments end.
Looking at it that way, Trump just increased the amount of money the federal government will spend to make health insurance more affordable on the Obamacare exchanges. David Anderson took a pretty deep dive into explaining all of this and ended with how it could effect individuals.
Right now the benchmark plan for people making over 200% FPL is a plan that they are paying $140 or more for a plan with a $3,000 or more deductible. This is better than nothing but it is still under-insurance and not particularly helpful for people. In a Silver loaded CSR universe [what Trump just triggered], the typical Gold plan will have lower premiums after the subsidy and a $1,000 deductible with a $1750 out of pocket maximum. That is truly useful insurance for far more people.
These analysts aren’t suggesting that Trump’s decision to end CSR subsidies is actually a good thing. The downside is that it creates chaos for insurers, who might be more likely to leave the exchanges. According To CBO, the exchanges would be fairly unstable for five years, but after that, they predict that a million more people would have health insurance.
It’s clear that Donald Trump doesn’t have a clue about how this action will affect things. On that score, I agree with Paul Krugman.
No amount of wonkish policy analysis explains Trump's health care actions. It's all about this. https://t.co/bN7HckhAeD
— Paul Krugman (@paulkrugman) October 13, 2017
There are times when this president’s impulsivity, ignorance and drive for revenge are completely destructive. I assume that is what he intends by stopping the CSR subsidies. As it turns out, it could be a mixed bag.