Pacific Research Institute

Withholding CSR Funds Could Push More Health Plans Out

HealthLeaders Media

If President Trump follows through with his suggestion that he might withhold subsidy payments to insurers as a way to force Democrats to the negotiating table, the move might have little effect on his political opponents but push struggling health plans out of the ACA marketplace.

The president indicated in an interview with the Wall Street Journal last week that he was considering not making the cost-sharing reduction (CSR) payments that insurers depend on to recoup the cost of covering very low income consumers. 

The goal would be to pressure Democrat leaders to negotiate on overhauling or repealing the Affordable Care Act, he said, but it could have more effect on insurers than politicians.

There is nearly universal support for continuing the CSR payments among healthcare stakeholders, and many Republican leaders have been favorable as well, notes Joel Ario, managing director with the consulting group Manatt Health.

That may make it difficult to get a majority vote in the House Republican caucus, he says.

"The president is unlikely to gain any leverage with the Democrats by holding out since he pretty clearly will be blamed for the fallout if he cuts off the payments, especially now that he has acknowledged that he could keep the payments flowing.""In that context, the decision may well come down to President Trump, who has multiple ways to keep the payments flowing including simply deciding to continue the lawsuit or agreeing to further delays with the House Republicans," Ario says.

The fallout could be severe, Ario says, with insurers on the edge deciding not to participate in 2018 and those that remain having to raise rates an estimated 19% to cover the shortfall. 

Ironically, most of that cost would be borne by the federal government in the form of higher tax credits, but the process would be messy and the resulting destabilization would not bode well for future efforts to make bipartisan changes to the ACA, Ario says.

CSR Payments Unconstitutional?

Some Republicans have challenged the CSR payments as being unconstitutional because the funds were not appropriated, but the government has set a precedent by making the payments, says Sally C. Pipes, CEO of the Health Care Policy at the Pacific Research Institute.

The insurers have lost so much money on the exchanges because the "young invincibles" didn't sign up in the numbers necessary to compensate for the older and sicker customers, and the cost of insuring very low income people only added to the financial burden, Pipes notes. The CSR payments at least helped some insurers keep their heads above water, she says.

"It's unfortunate that they made these payments when they hadn't been appropriated because now we're in a mess," she says. "A number of insurers have said they're going to cut way back again next year as far as participating in the exchanges, and in the case of Humana they're not going to be in any exchanges. If Trump withholds the CSR payments, there probably will be even more insurers who say they are going to get out of the exchange market."

Taking the payments away could push some insurers to concluding they just can't make the numbers work.

"It could lead to a faster death spiral of Obamacare," Pipes says.

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