The Potentially ‘Unconstitutional’ Obamacare Feature Everyone Is Ignoring

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Robert Donachie Capitol Hill and Health Care Reporter
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President Donald Trump and Speaker of the House Paul Ryan have said they are willing to let Obamacare “implode,” but doing so tacitly lets a potentially unconstitutional program continue.

Under the leadership of former Speaker John Boehner, the House filed suit against the Obama administration in 2014, claiming it was illegally reimbursing marketplace insurers for a little known feature of Obamacare: cost-sharing reductions (CSRs).

Insurers are required under the current system to provide CSRs to low and moderate income individuals who participate in the exchanges. To make consumers put more “skin in the game,” Obamacare effectively raised deductibles to levels that are tough for many Americans to meet without some financial support. CSRs were instituted to help insurers with the costs of the deductibles patients can’t otherwise meet.

How the program works is rather straightforward: Insurers cover the cost of the patient’s deductible and the federal government reimburses the provider for what they pay out.

Boehner, along with House leadership, felt that CSRs required an annual appropriation approved by Congress. The House argued that because Congress had never explicitly appropriated the funds for those payments, the administration’s actions were unconstitutional. After nearly two years of deliberation, Senior Judge of the U.S. District Court for the District of Columbia Rosemary M. Collyer concluded the House’s claim had legal standing and allowed the case move forward on May 12, 2016.

The Obama administration then appealed the decision. The case remains open, with no definitive ruling. Republicans have pushed back the court date twice. In February, Trump and Ryan got a hold approved until May 22.

A troubling result of the appeal and numerous Republican-led delays is that CSRs are still funded as they were when the Obama administration first appealed.

Trump and Ryan will soon have to come to a decision: pursue or withdraw the Obama administration’s appeal.

If the pair decide to forward the appeal and the 2016 ruling is upheld, Trump and Ryan would be one step closer to their goal of dismantling Obamacare.

Withdrawing from the appeal, however, could bring a host of economic and political problems upon the new administration. If Trump decides to let Obamacare “implode” and withdraws the appeal, he will effectively leave insurers with up to $7 billion in bad debt and consumers with backbreaking premiums.

As it stands, some $7 billion is allocated to CSRs this year and another $10 billion is slated for 2018.

The problem then for Trump and Republican leadership is that if they don’t fund the program for 2017, they put insurers who are already paying out billions in CSRs, in hot water, leaving them without any chance of reimbursement from the federal government. Even if Republicans decide to postpone decision-making until 2018, the same problem presents itself.

Due to the way Obamacare is structured, if Trump and Ryan choose to not reimburse insurers for CSRs, insurers would be forced to increase plan premiums. Insurers will not simply eat the difference between what the enrollee pays and what they are left to cover. The excess cost will be shifted to the larger consumer base through higher premiums, according to research by the Department of Health and Human Services (HHS) and the Urban Institute.

The resulting higher premiums would translate into higher federal costs, in the form of increased Premium Tax Credits (PTCs). The situation presents a fiscal policy dilemma for the federal government, as more people are eligible for PTCs than CSRs, which would lead to substantive increases in federal costs, Health and Human Services reports.

Obamacare insurance exchanges stratify health coverage options into tiers, which are defined based on their respective cost to insurers versus the consumer. The overwhelming majority of consumers–85 percent–have Silver plans, which also act as the base metric for calculating PTCs.

Silver plans have an actuarial value (AV) of 70 percent, meaning that the insurer covers 70 percent of all health care costs, while enrollees pay the remaining 30 percent through deductibles, copays and coinsurance.

If the federal government chose not to reimburse for CSRs, insurers would have to increase silver plan premiums to make up the difference. The majority of consumers selecting silver plans typically have “income levels that qualify them for CSRs, and the average AV of silver plans – taking into account CSRs – is about 85 percent,” HHS reports. If consumer preferences remain unchanged, premiums for silver plans would have to increase by over 20 percent to account for the change in AV.

Researchers warn that such a situation would drive a large swath of consumers to change their respective insurance plans, which would cause insurance providers to increase premiums for silver plans as much as 30 percent, or $1,040 per person on average, the Urban Institute reports.

One of the main problems with Obamacare are the skyrocketing premiums. Insurers pull out of marketplaces where it is not cost-efficient for them to provide services, and, as a result, consumers are left with fewer options at higher prices.(RELATED: White House: Obamacare Premiums Will Rise By Double Digits Next Year)

Trump and Ryan, following a humiliating defeat in Congress, have revamped their effort to repeal and replace Obamacare. White House officials and conservatives held meetings Monday to discuss the future of the Republican repeal effort. Ryan said Monday evening that any new plans are simply in the “conceptual stage right now,” and he did not provide a timeline for when the next bill would hit the House floor for a vote.

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