A group of moderate Republicans was pushing this week to include legislation for “stabilizing” Obamacare within a spending bill that funds the government beyond its latest shutdown deadline of Friday night. The lawmakers’ proposal contains new money subject to abortion funding restrictions—a nonstarter with Democrats—as well as economic provisions that members of both parties don’t like. Its chances of being approved whole are nil.
But one of the legislation’s centerpieces pertains to a recent controversy among health policy activists: government payments to insurers that lower out-of-pocket costs to certain Obamacare enrollees, in accordance with the law. President Trump announced in October that he would discontinue these reimbursements for “cost-sharing reductions” (CSRs), amid a court battle over their constitutionality. Progressive policy activists decried Trump’s move as sabotage, citing the Congressional Budget Office’s review of it as evidence. As the Center for American Progress’s Topher Spiro, a leading member of this group, tweeted: “Oct. 12, Trump defaulted on ACA payments for cost-sharing subsidies. CBO: +1 million uninsured, 20% premium increase, insurer exits.” Summing up its interpretation of the CBO’s findings, there would be “Severe Harm If Trump Halts Health Cost-Sharing Payments,” the Center on Budget and Policy Priorities concluded.
These roundups weren’t limited to the left: The U.S. Chamber of Commerce headlined its takeaway “CBO Confirms the Devastation of Terminating CSR Payments,” noting that “insurance premiums will rise 20 percent next year” as a result of Trump’s decision—without noting key context up-front. Yet media everywhere ran with that number in headlines: the Wall Street Journal, the Washington Post, the New York Times (each of which has terrific health care coverage).
Months later, it’d follow that the activists against the elimination of the reimbursements would support the effort from Sens. Lamar Alexander and Susan Collins and Reps. Greg Walden and Ryan Costello to undo the damage that the change in policy caused. Except they aren’t—because there is no damage. Instead, there are benefits to consumers: Those who are eligible for Obamacare’s tax credits are receiving a higher subsidy, because of how the insurance market responded to the government’s change in direction. “Funding CSRs is bad policy at this point,” Spiro said all the way back in January, a stance he maintains today. The reasons why are complicated. But for the purposes of this story, they’re reasons the CBO itself anticipated—in the very same document many used last year to foretell of disaster.
The CBO’s top-line findings in its August review of Trump’s order were these: The action would increase the deficit by $194 billion over the next decade and the uninsured population by 1 million in the first year after implementation. But after 10 years, the total uninsured would decrease by 1 million, relative to current law—hardly the disastrous scenario imagined by opponents of cancelling the CSR payments. How could this be? Because of the way Obamacare is designed to compensate for rising premiums.
The “tiers” of insurance offered under the law are based on cost-sharing. A bronze plan will cover, on average, 60 percent of an enrollee’s covered health expenses, and the enrollee is responsible for the other 40. At the silver tier, that divide goes to 70/30, and 80/20 for gold, and 90/10 for platinum. Silver coverage is the Obamacare benchmark—the tier at which enrollees are eligible for cost-sharing reductions, and the tier off of which Obamacare’s tax credits are calculated.
These two characteristics of silver plans are crucial to understanding the market. Without CSR reimbursements, insurers remaining on the exchange are incentivized to raise the premium of their silver plans to compensate for the loss. But instead of harming enrollees, the CBO itself explains, “When premiums for silver plans increase under the [Trump] policy, tax credit amounts per person for purchasing insurance in the non-group market would increase because the credits are directly linked to those premiums.” First, the insurer offsets its loss for a lack of government CSR subsidies by hiking silver-tier premiums. Next, the government offsets the additional cost to the silver-tier enrollees by increasing their level of tax credit.
Now recall that the law’s tax credits are calculated based on silver plans—and “can then be applied toward any other plan sold through the Marketplace (with the exception of catastrophic coverage),” a helpful explainer from the Kaiser Family Foundation states. With a higher tax credit, each non-silver plan tier becomes more attractive to consumers. It’s feasible in some markets that lower-quality bronze plans then would have no premium, and higher-quality gold plans actually would be cheaper than silver plans. (The Times’s Margot Sanger-Katz and Kevin Quealy explain this phenomenon here.) Depending on the dynamic of how many insurers leave the market and how many stay and adjust accordingly, cutting off the CSR payments could have a net positive outcome for consumers on the exchange (of course, at a financial cost to the government).
The Urban Institute underscored such a possibility in a recent interview with 10 insurers from 28 states and Washington, D.C. “Early data from a handful of the state-based marketplaces suggest that this shift [away from silver plans] did, in fact, occur,” it reported. “Several insurers were concerned about proposed federal legislation to restore CSR funding. They noted that many consumers are now ‘getting a good deal,’ thanks to higher premium tax credits, and that restoring CSRs would cause considerable confusion during the 2019 open enrollment season and lead to sticker shock for consumers who had switched to gold- or bronze-level plans this year. Restoring CSRs ‘is not helpful at all,’ said one representative.”
Regardless if progressives now opposed to CSR reimbursements are merely surprised by this complex turn of events, at least one takeaway is clear: No CBO report is safe in the hands of the general public. It was wildly off interpreting the agency’s score of the House Republican health care proposal—a bad bill that deserved defeat on the merits of policy, not of slapping a misleading statistic into every news-cast and -paper in America. This latest demonstration of misinterpreting data ought to compel more people at least to take the CBO seriously when it says in its reports that “its estimates are inherently imprecise.”
