Senators Lamar Alexander and Patty Murray reached a bipartisan deal on Tuesday to reinstate subsidies paid to insurers for lowering costs on certain low-income insurance enrollees. This “cost-sharing” process is a one-two step: One, a carrier reduces the amount of health expenses a particular plan-holder has to front, and two, the government reimburses the carrier for doing it. There’s a catch here: Both of these things are required by law.
So when the Trump administration announced it would discontinue making the payments to insurers, the president was not ending the relief insurers provide to the people they cover. There are some economic implications to what the president’s team did, but not as many as there have been reported. More than anything, this—like the claim that one Republican health reform plan would “kick” 24 million people off their policies, or the Pollockesque messiness of interpreting the term “preexisting conditions”—is another misunderstanding in the health reform debate that has led Democrats, Republicans, and media alike to make inaccurate assertions.
First: These insurance subsidies are not “bailouts,” as the president, Sen. Rand Paul, and other Republicans have stated.
“Bailout” implies that the recipient of government money made a misjudgment and needs emergency help. As it relates to this specific matter—lowering the out-of-pocket costs of about 5.9 million Americans on the individual market, as of February—the likes of Aetna and Cigna are not acting rashly. They’re complying with the law. Obamacare mandates that insurers discount the health expenses of people and families earning between 100 percent and 250 percent of the federal poverty level who pay premiums for a benchmark “silver” plan. This is called a “cost-sharing reduction” (CSR).
Second: Trump did not end CSRs, as some Democrats and media claim.
A headline on Thursday from NPR reads, “Trump Administration To End Obamacare Subsidies For The Poor.” Another on Friday from ABC News reads, “Trump to end Obamacare subsidies that help low-income Americans.” I don’t mean to pick on either of these outlets; the “glass houses” adage will apply to journalism until the robots take all our jobs, and this is complicated stuff. But implying that the administration terminated aid to the end recipient in this arrangement—human beings, not the carriers who cover them—is flatly incorrect, and implies a more consequential act from the White House. Again, insurers must chip in extra funds for the relevant enrollees whether Washington, D.C., reimburses them or not. Following the money, the relationship here concerns the feds and the insurers, not the feds and the folks the insurers cover.
Third: This leads to the most complex ramification of ending the CSR payments: How the carriers react. In one scenario, an insurer says it anticipated the reimbursements ending and factored that into its request to the state for a premium hike. A well-reported, in-depth story from the News & Observer (Raleigh, N.C.) documents one such example with Blue Cross and Blue Shield. This would have no bearing on CSR-covered expenses, like coinsurance and what an individual pays before a deductible kicks in. It also should have no bearing on the amount of premium an enrollee ultimately pays: If Blue Cross and Blue Shield raises premiums, an enrollee’s premium tax credit from the government increases accordingly, and the two offset, as Avik Roy writes. (There is disagreement about how much more, if at all, this would cost Washington relative to continuing the CSR reimbursements.)
Some insurers also have threatened to exit the exchange if they don’t receive the government payments. It makes economic sense that a company forced to cover people at a loss lacks incentive to participate in a market. If the company can’t recoup the loss somehow, it bolts.
While the president’s rationale for ending the payments, which he has called a “gravy train,” appears political, the decision has a strong legal justification—a judge agreed with the House of Representatives’ contention that it hadn’t appropriated the money for these subsidies, and the ruling was stayed pending appeal from the Obama administration last year. This is the purview of the court system, not a Twitter spat or a noisy news panel.
From a policy standpoint, the bottom line is this: The CSR requirements are one more Obamacare mandate intertwined with a web of them. Many conservatives, in good faith, want this one implemented consistently with the law. But the real-world angle is that some Obamacare opponents, short of being able to address their concerns legislatively, want to rip as much circuitry from the machine as possible in the hope it goes up in smoke. This is cynical. Repealing and replacing Obamacare ought to be a policy-minded effort aimed at maximizing outcomes for vulnerable Americans. As it often is with Washington, regardless of the party in charge, those same Americans are again subject to the whims of people whose one and only game is politics.
