What Trump’s Obamacare Cost Sharing Subsidy Rollback Means to Health Insurers and the Middle Class

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My NPR All Things Considered Interview with Michel Martin:

We have one more conversation about healthcare. As we just heard, health insurers are trying to figure out what to do without the [cost sharing reduction] reimbursement from the government that the Trump administration says will no longer be paid. The question is, will insurers raise their rates or withdraw from the health exchanges created by the Affordable Care Act? For perspective on this, we called Robert Laszewski. He’s a former insurance executive who’s now a health policy consultant. Mr. Laszewski, thanks so much for speaking with us.

ROBERT LASZEWSKI: You’re welcome.

MARTIN: So based on your knowledge of the industry, what are the options that insurers are considering to deal with the lack of these subsidies?

LASZEWSKI: Well, actually, many of them have already raised the rates. They had to have their 2018 rates into the regulators and approved a couple of weeks ago, so most of them have already made some pretty significant rate increases – between 10 and 20 percent – assuming that Trump would cut off the subsidies. A few insurance companies and a few regulators did not do that. They did not allow for it. I think now what’s going to have to happen is these insurance companies today are having some pretty tense conversations with the regulators, saying, if you want us to stay in the market, you’re going to have to let us raise those rates 10 to 20 percent.

MARTIN: Is it possible or likely that some of these companies will just pull out? And can they do that even if they’ve already offered plans for the coming year?

LASZEWSKI: It is still possible for insurance companies to pull out. The contracts they have with the government have an out clause if there’s a major material change. So it’s possible. More likely, I think you’re going to see some regulators make some accommodations and allow for the higher rates to happen pretty quickly. I don’t think we’re going to see many, if any, pull-outs. Now we’ve got dozens of insurance companies involved, so I wouldn’t be shocked to see one do it. But generally speaking. The carriers have known this is coming, they know what kind of environment they’re in, and they’re pretty much pricing for it.

MARTIN: Let’s say for the sake of argument that companies do pull out of the exchange. Is there a tipping point at which the Affordable Care Act no longer effectively exists?

LASZEWSKI: Well, that’s possible if you had substantial carriers pull out in some of the larger markets – with any markets of any consequence with no insurance company. But I think we’re actually entering a strange period here. The insurance companies are figuring out how to make money in the Obamacare insurance exchanges. They just raise the rates. So the carriers – the insurance companies – are backing into a survivable market here. Run the rates up as high as you have to. They can at least break even. It becomes sustainable for the insurance company, but it’s a terrible situation for people who don’t get subsidies and have to pay the full cost.

MARTIN: So finally, before we let you go, are there other options on the table? Could Congress theoretically, anyway, pass some sort of a patch to fund these cost savings reimbursement?

LASZEWSKI: Absolutely. The Congress could pass legislation not only to fix the cost-sharing subsidy problem that Trump created but to fix a lot of other problems. Obamacare has some very serious architectural problems when it comes to the insurance exchanges. It needs an overhaul minimally. So the Congress could fix it, but here’s the problem – Trump would veto it [a short-term patch]. So I think we’re stuck in a really bizarre period right now, one where people getting subsidies are going to be OK. Even though [Trump] cut the funding to the insurance companies, they’re going to get their subsidies to help pay for it. But 44 percent of those in the individual market didn’t get a subsidy last year because they made too much money, and those people are really getting hurt.

MARTIN: That’s Robert Laszewski. He’s a health policy consultant, a former insurance executive. He was kind enough to speak to us by phone just outside Washington, D.C. Mr. Laszewski, thanks so much for speaking with us.

LASZEWSKI: You’re welcome.


In killing the cost sharing reduction (CSR) subsidies has Trump stopped what he has called an “insurance company bailout”?

The Obamacare statute requires the health plans to provide cost sharing reduction subsidies to reduce the deductibles and co-pays in the Obamacare compliant individual health insurance market for those who make less than 250% of the federal poverty level. It is a mandate. Funding a mandate is not a bailout. In Washington, DC we call failing to fund a mandate an unfunded mandate.

The low income people eligible for these subsidies aren’t hurt by Trump’s action––they still get their cost sharing reduction benefits and any increase in their premiums charged by the insurers as a result of Trump’s action will generally get absorbed by their federally provided premium subsidies.

But people in the individual health insurance market who make too much to get a subsidy––$48,000 a year for a single person and $98,000 a year for a family of four––have to pay the full premium including the bigger rate increase Trump’s action creates. Ironically, it is the middle class stuck in the Obamacare market that Trump is hurting by killing the CSRs.

How many people buy Obamacare compliant policies and don’t get a subsidy for their out-of-pocket costs and their premiums?

According to the Kaiser Family Foundation 6.7 million people out of a total of 15.4 million in the Obamacare compliant individual health market do not get any kind of subsidy. That is 44% of the total market.

I don’t see any evidence that Trump understands who he is hurting. Particularly when he argues he’s just ending an “insurance company bailout.”

He isn’t hurting the low-income people––by law they will get the CSRs while the additional premium cost that occurs when he fails to pay the insurers for them just gets picked up by Obamacare’s premium subsidy system that caps people’s out of pocket maximum premium.

He isn’t even hurting the insurance companies in the long-run by sticking them with this now unfunded mandate. Yes, they will take a big hit because they aren’t getting their CSR payments in October, November, and December to cover a benefit they are mandated to provide. But almost all of them can afford to just bridge themselves into 2018 where they’ll just ultimately raise the rates to cover the cost of providing the CSRs.

He’s really only hurting the middle class stuck in Obamacare, many of whom came to his campaign rallies complaining of the extraordinarily high cost of their individual health insurance and wanting Trump to do something about it.

He has. He just caused their rates to go up even higher.

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