CBO: Premiums would spike 20% in 2018 if ACA insurer subsidies pulled

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If payment of cost-sharing reduction subsidies, or CSRs, for insurers offering coverage on the Affordable Care Act (ACA) marketplace are terminated, premiums would be 20 percent higher on average in 2018 and federal spending would increase, but the ACA market would remain stable, according to the Congressional Budget Office (CBO).

The CSRs are paid to insurers in exchange for keeping deductibles and out-of-pocket costs lower for lower-income enrollees. When President Barack Obama was in office, House Republicans sued the administration for making the payments, arguing a congressional appropriation was required. A district court judge ruled in favor of the Republicans, and the Obama administration appealed. With President Donald Trump now in office, however, he could end the legal defense of the CSRs, leaving the district court ruling to stand and cutting off the payments. Sixteen state attorneys general have now intervened in the lawsuit to prevent him from terminating the subsidies.

If they were terminated, the CBO said insurers would react by raising premiums on the exchanges by an average of 20 percent next year and then rise to 25 percent by 2020. Some insurers would choose to exit the exchanges altogether, with the CBO estimating about 5 percent of the country’s population would live in areas with no ACA insurers. That would be a temporary change, the report said, with almost all areas having an available insurer again by 2020 after companies observe the changed market.

Most ACA enrollees would be shielded from premium hikes by additional tax credits for buying insurance, so cutting off the CSRs would increase the federal deficit by $194 billion by 2026. The number of uninsured, would increase by 1 million in 2018, then be reduced by 1 million compared to current law to 2026, because of how only silver-level plans qualify for CSRs. When rates spike for those plans, many customers would move to plans which could less of their health expenses (bronze-level plans) or more (gold-level plans), which would be less expensive than the silver-level coverage.

“As a result, more people would purchase plans in the marketplaces than would have otherwise and fewer people would purchase employment-based health insurance—reducing the number of uninsured people, on net, in most years,” the CBO report said.

The report used a scenario where subsidies would be pulled at the end of the calendar year, with the administration giving insurers enough time to price in the loss of the CSRs by announcing the change by Aug. 31. If the payments were terminated on a different timetable, such as after insurers were locked into rates which didn’t account for the loss of the subsidies, the CBO said insurers would suffer “significant financial losses.” Some companies would choose to leave markets mid-year, leaving more areas without an insurer and increasing the number of uninsured.