CBO: Killing cost-sharing subsidies would hike silver plan premiums and deficit

If President Donald Trump were to follow through on his threats to cut federal cost-sharing subsidies, health insurance premiums for silver plans would soar by an average of 20 percent next year and the federal deficit would rise by $194 billion over the next decade, the nonpartisan Congressional Budget Office said last week.

The change would not be expected to have much long-term effect on the number of uninsured people, according to the analysis. But it could cause a shift in which plans are popular with marketplace customers as insurers realign some of their prices to defray the loss of the federal payments, the CBO said. Surprisingly, some customers might find better deals by looking at higher-end products.

The cost-sharing subsidies are paid directly to insurers to help cover out-of-pocket costs, such as deductibles and copayments, for people who earn between 100 and 250 percent of the federal poverty level and who choose a marketplace silver plan. About 7 million consumers receive the benefit.

These payments are separate from the subsidies offered as tax credits to help consumers pay their marketplace plan premiums, which are available to people earning up to 400 percent of the poverty level.

The CBO estimated that the federal government would spend $8 billion on the cost-sharing subsidies in 2018, if they are continued.

The loss of the payments would be expected to have minimal effect on the number of uninsured people over the next decade, CBO said. That is because the CBO predicts that insurers would raise their premiums on silver plans to make up for the loss of the federal payments, which insurers would still need to give to those customers. That price increase would spur a rise in the premium tax credits, too. The higher tax credits would, in turn, make the marketplace plans more attractive for some lower-income Americans who have not been customers.

Most states would let insurers compensate for the termination of payments by raising premiums substantially for silver plans offered through the marketplaces, the CBO said.

CBO officials based their estimates on a model in which the administration continues the payments through this year but tells insurers by the end of this month that the subsidies would be discontinued in 2018. Different timing would produce different outcomes, but CBO staff said the results would be less destabilizing for the marketplaces if a decision is announced before insurers set their rates by Sept. 5.

The CBO estimate of the effect of ending the cost-sharing payments on premium hikes nearly matches what independent nonpartisan experts previously predicted. The Kaiser Family Foundation earlier this year predicted that premiums would rise an average of 19 percent. (Kaiser Health News is an editorially independent program of the foundation.)

The payments have faced a legal challenge from House Republicans for several years, and Trump has threatened to drop the funding as part of his effort to let the “health care law implode.”

But the administration has continued paying the subsidies month to month as it waited for Congress to overhaul the Affordable Care Act. The Senate failed to pass a bill in July, and it’s unclear if congressional Republicans will renew that effort this fall.

“If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!” Trump tweeted at end of July.

“The CBO’s report once again exposes the vast cynicism of President Trump’s threats to purposefully raise Americans’ health costs by cutting off cost sharing reduction payments,” House Minority Leader Nancy Pelosi said in a statement. She called on Republicans to drop the threats to the cost-sharing subsidies to “stabilize the markets, and lower costs for all Americans.”

Cost-sharing payments were included in the health law as a way to make insurance more affordable.

Amid all the uncertainty about these payments and the administration’s efforts on marketplace enrollment, insurers are running out of time to plan for next year. Some have dropped out of the market, citing financial losses as claims for medical care exceeded their expectations.

The increase in the federal deficit cited by the CBO would be a result of the expected higher premiums. For people getting subsidized coverage, that added expense would be borne by the federal government and their costs would be little changed, the CBO said.

“When the premiums for the benchmark plan go up, the amount of the tax credits goes up, and the amount of the premiums paid by an enrollee who is eligible for the credits is generally unchanged,” the CBO pointed out in its report.

Gross premiums for marketplace silver plans, which cover 70 percent of the value of the insurance, would be 20 percent higher in 2018 and 25 percent higher by 2020 — boosting the amount of premium tax credits, according to the statutory formula.

But the CBO predicted that insurers would not raise the premiums for their bronze plans or gold plans. Therefore, some customers getting the higher tax credits could find a better deal with higher-value gold plans, which cover 80 percent of the value, according to the analysis.

For example, according to the CBO estimates, the premium for a silver plan for a 40-year-old earning $34,100 (225 percent of the poverty level) in 2026 would run from $6,500 to $8,200 because of the loss of cost-sharing subsidies. Her premium tax credit would also increase from $3,450 to $4,850, so her net premium cost would go up from $3,050 to $3,350. But a gold plan would cost $7,900, so after she applied her tax credit to that, she would be able to buy the gold plan for $3,050, or $300 cheaper than the silver plan.

“Gross premiums for gold plans would eventually be lower than those for silver plans,” CBO said.

The CBO analysis was requested by House Democratic leaders.

Kaiser Health News, a nonprofit health newsroom, is an editorially independent part of the Kaiser Family Foundation.