The Congressional Budget Office (CBO) announced Tuesday afternoon that if President Donald Trump’s administration stops paying out Obamacare subsidies, the marketplace would be far less stable and will likely experience double-digit premium increases as a result.
The CBO reported Tuesday that premiums would rise 20 percent in 2018 and 25 percent in 2020. The non-partisan budget committee also projects that the federal deficit would increase by $194 billion from 2017 through 2026.
The changes in the number of uninsured Americans would be slightly higher in 2018 and, after a couple years of transition, would be lower in 2020, a CBO staff member told reporters. The CBO expects that out-of-pocket costs for obtaining an Obamacare Silver plan would decrease in 2020 if the administration enacted such a policy, which accounts for the higher number of insured consumers in 2020.
If Trump chose to stop funding Obamacare subsidies, it would give insurance providers a definite policy, which would work to reduce the uncertainty that currently clouds the marketplace, a CBO staff member explained on a call to reporters. Insurance companies exiting Obamacare, or greatly reducing their exposure to the state exchanges, have consistently noted uncertainty as to whether or not the administration would keep funding these subsidy payments as a primary reason for their withdrawal. (RELATED: Insurance Companies Ditching Obamacare Follow A Similar Pattern)
Some 5 percent of the nation would insurers in 2018, but, as markets adjust, nearly 100 percent of consumers would have at least one choice on the Obamacare state exchanges.
Insurers are required under the current system to provide cost-sharing reductions (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.
Due to the way Obamacare is structured, if the administration chooses to not reimburse insurers for CSRs, insurers will essentially be forced to increase plan premiums. Insurer providers 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). More people are eligible for PTCs than CSRs, which likely accounts for the CBO’s estimated substantive increases in federal costs.
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. Since silver plans are the benchmark for calculating PTCs, if silver plan premiums rise, so to do federal spending on premium tax credits.
The CBO estimates that cutting CSR payments saves the federal government $118 billion over the next decade, but results in $365 billion in premium subsidy payments.
Essentially, the net effect if Trump stops paying CSRs is increased government costs. Consumers purchasing insurance plans outside the Obamacare state exchanges are largely shielded from the projected premium increases.
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