The federal government may pay an extra $1,040 per enrollee if the House's lawsuit against Obamacare succeeds in stripping funding for the law's cost-sharing reductions, a new analysis finds.
A brief released Wednesday by the center-left think tank Urban Institute concluded that an abrupt halt of payments to insurers for covering low-income enrollees could lead them to pull out of the marketplace or mean enrollees paying higher premiums.
The lawsuit argues the funds for the cost-sharing reductions were never fully appropriated by Congress. A federal judge ruled last fall that the lawsuit could move forward, and the next step is a ruling on the merits of the case.
If the funding was taken away, it could have lasting ramifications for Obamacare, as the law requires the cost for health insurance be reduced for enrollees with incomes below 250 percent of the federal poverty level, Urban said. That means insurers would have to pick up the tab.
The nonpartisan Congressional Budget Office estimated that the government will pay $13 billion in cost-sharing reductions in 2020. The cost-sharing reductions are separate from the income-based tax credits given to enrollees to help pay down the cost of insurance.
The Urban Institute assumes the federal government will pick up the tab through higher tax credits, with Obamacare silver plans bearing the brunt of the cost. The popular silver plan is the second tier of Obamacare plans, with bronze being the cheapest and gold the most expensive.
"We find that premiums for silver marketplace plans will increase $1,040 per person on average," the brief said. "This premium increase would, on average, make silver plan premiums higher than those of gold plans."
For a 40-year-old person who gets coverage for one person, that would result in a $387 per month premium. That is about the same cost of a gold plan premium of $380 per month, the brief said.
That could lead to higher tax credits for enrollees since they must pay more for his healthcare, which leads to higher government costs, the think tank said.
"Our best estimates indicate that federal governments costs would increase $3.6 billion per year (computed in 2016 dollars) and $47 billion from 2016 to 2025 if there is a finding for the plaintiff," the brief said.
But that assumes the insurer would stay in the Obamacare marketplace.
Several major insurers have already complained about Obamacare profitability.
UnitedHealth, the nation's largest insurer, said it lost $720 million last year in the individual market that is comprised of mainly Obamacare. The insurer said last fall that it is considering leaving the marketplace if the financials don't turn around.
Cigna also recently said that it hasn't made any money in the Obamacare marketplace but remains committed.
The Urban Institute said the timing of any potential change to the cost-sharing reductions is critical.
If payments are stopped in the middle of a plan year, insurers would have to figure out if they want to remain in the marketplace or pick up the tab.
Many states require an insurer to give notice before exiting a marketplace so "such a change in the middle of a policy year could create chaos for enrollees and significant financial losses for insurers," the brief said.
If the stoppage were delayed until the end of a policy year, then insurers could get approval from state regulators for new rates that incorporate the cost-sharing reductions, the think tank said.
To get its findings, the Urban Institute used a model to simulate the elimination of the cost-sharing funding. The think tank assumed insurers wouldn't drop out and would attempt to recoup the cost by building it into silver plan premiums.