However, any savings from ending the cost-sharing subsidies may be offset by a rise in premium tax credits.
One of the most contentious issues in the ongoing debate over healthcare reform is the future of the Affordable Care Act’s cost-sharing subsidies. Although President Trump agreed to fund the payments for August, he has repeatedly expressed an interest in ending them in an effort to compel lawmakers to craft an ACA repeal and replacement bill — the latest version of which was defeated in the Senate.
Recently, the Congressional Budget Office estimated the impact of halting those payments, which insurers receive to defray the cost of providing cost-sharing reductions for low-income enrollees. If the funding is cut off, premiums for low-cost silver plans on the ACA exchanges would rise by 20% next year and increase by 25% by 2020.
Savings Offset by Tax Credits
The government would save $8 billion next year and a total of $118 billion through 2026 by ending the cost-sharing subsidies. However, the CBO pointed out that a spike in premium tax credits could negate those savings.
Even without the federal payments, insurers are mandated by law to provide the subsidies to individuals who earn less than 250% of the federal poverty level. Under the ACA, the federal government compensates insurers for providing those subsidies, but without the federal payments, insurers would be forced to raise premiums.
Over the next decade, the CBO projected a net increase of $247 billion to fund the subsidies. It calculated that number by subtracting the $118 billion in savings created by eliminating the CSRs from the anticipated $365 billion rise in premium tax credits.
Currently, about six million people qualify for the CSR subsidies, which cost the government about $7 billion. Subsidy funding is expected to hit $10 billion next year, according to CNBC.
Impact on Enrollment
If the cost-sharing subsidies end, the CBO estimated that about 1 million more Americans would be uninsured next year. However, the agency projected that there would be 1 million fewer individuals without health insurance by 2020 if federal CSR funding ceases.
That’s because people earning between 200% and 400% of the poverty level would qualify for larger tax credits. Those tax credits would then enable them to purchase higher level bronze or gold plans that cover more medical expenses. For many, the state exchanges would suddenly become an attractive option.
As Larry Levitt, Senior Vice President at the Kaiser Family Foundation, told the Washington Times, people eligible for cost-sharing subsidies must enroll in silver plans. Yet those who qualify for premium subsidies but not CSRs can receive higher premiums subsidies and purchase bronze or gold plans. “This has the perverse effect of increasing subsidies people receive under the Affordable Care Act and increasing the federal cost of running the program,” he said.
What Happens Next
Sen. Lamar Alexander (R-TN), who has scheduled Congressional hearings on stabilizing the individual marketplace in September, has stated he would like to see Congress vote to guarantee the cost-sharing subsidy payment through 2018. Such a move would likely quell uncertainty among health insurance companies, several of which have announced their intention to leave multiple state exchanges due to a possible withdrawal of the federal payments.
Once again, insurance agents must closely monitor news about any changes in the ACA marketplace in their states. The loss of CSRs would mean roughly 5% of the U.S. population would have access to no insurers next year on the individual market. If the subsidies continue, that percentage drops to 0.5%, according to the CBO.
The fate of the subsidies could have a significant impact on any clients who obtain coverage from the ACA exchanges. Now might be a good time to explore other options and plan for any eventuality. No matter the debate, your clients still need medical insurance, and they look to you for expert advice.