Late on Thursday, the Trump administration announced that they will end the cost-sharing reductions (CSR) subsidies to plans sold on ACA exchanges. Health insurers selling plans on state and federal exchanges are required to offer plans with reduced deductibles and copayments, and the ACA provides for insurers selling these plans to receive CSR payments to offset the resulting costs. Top officials from the U.S. Department of Health and Human Services (HHS), citing a Department of Justice (DOJ) analysis finding no legal basis for the expenditure of funds, announced that the payments would be cut off immediately. The move also comes on the same day that President Trump signed an executive order that addressed health insurance plans.
These payments have long been a subject of debate. In August of this year, the Congressional Budget Office (CBO) released a report on the effects of ending CSR payments. In the report, the CBO predicted that premiums for benchmark plans on the exchange would rise 20 percent in 2018 and by around 25 percent by 2020. However, CBO noted that for many individuals, out-of-pocket costs would remain around the same or even decrease because they will receive larger tax credits, which the ACA provides to people purchasing insurance on the exchanges who have lower incomes. Overall, the CBO report indicates that terminating CSR payments will end up causing premiums to rise and government spending to increase.
Congressional Republicans have argued that the ACA does not include specific language providing appropriations that would cover the cost to the government. President Obama, however, continued to fund the payments, using money from other sources. Republicans in the House of Representatives sued HHS over these payments during President Obama’s second term, arguing that the ACA created the subsidies but that Congress needed to approve them in a separate spending bill, which was not done. The case was still pending before the U.S. Court of Appeals, but House Speaker Paul Ryan said in a statement that the administration was dropping its appeal of the lawsuit.
Despite prior partisan disagreement, these payments are currently part of bipartisan negotiations in the Senate Health, Education, Labor and Pensions (HELP) committee. These negotiations are an attempt to put forth a market stabilization package that was expected to include CSR funding. Both HELP Committee Chairman Lamar Alexander (R-TN) and ranking member Senator Patti Murray (D-WA) have stated that the payments should not be ended, but they have been unable to reach a final agreement.
In previous months, President Trump had threatened to end these subsidies, but never made good on the threat. In response to this uncertainty, some health insurers chose to increase their premiums by as much as 20 percent for 2018 marketplace plans. Some states specifically directed insurance companies to add a surcharge in case CSR payments were not made. However, in other states, insurers will still have to offer the discounted plans while not receiving any reimbursement.
The administration’s actions are likely to be met with pushback. Health plans could sue the administration to force the payments, which they have previously done when Republicans tried to cut off federal funding to the ACA. America’s Health Insurance Plans (AHIP) and the Blue Cross Blue Shield Association (BCBSA), two leading trade groups for health insurers, released a joint statement critical of the administration’s decision, saying it will make it harder for patients to access needed care. In addition, Democrats in Congress have criticized the administration’s actions, calling it sabotage.
In addition to the above, the 2018 Qualified Health Plan Certification Agreement between insurers in most states and CMS acknowledges that insurers had submitted plans for 2018 under the assumption that CSRs would be paid. Accordingly, the Agreement stipulates that if these payments are ended, CMS acknowledges that the insurer may have cause to terminate the agreement and exit the exchange. At this point it is unknown how many, if any, insurers will exit exchanges as a result, but given that approximately 1/3 of counties have a single insurer offering exchange plans, this could result in certain areas being left with no plans available through the ACA exchanges.
Moving forward, Congress could decide to appropriate funds for CSR payments. As mentioned, the payments have been part of bipartisan talks about efforts to stabilize the insurance marketplaces. In addition, state attorneys general are also likely to become involved since the D.C Circuit granted permission for states to intervene in the House Republicans’ lawsuit. The Attorney General of New York has already indicated that he will take steps to defend the subsidies and that a lawsuit could be imminent.