CBO: Eliminating Cost-Sharing Reduction Payments Will Increase Premiums by 20%


Eliminating the Affordable Care Act’s cost-sharing reduction payments will cause premiums to increase by 20 percent next year and may cause some insurers to withdraw from the exchanges, according to a report from the Congressional Budget Office.

Cost-sharing subsidies were put in place by Obamacare to rein in the cost of out-of-pocket expenses for lower-income individuals by reimbursing insurers.

The payments have been put into question since the House Ways and Means and the Energy and Commerce committees investigated the source of funding for the subsidies and said they were unconstitutional. The committees said the Obama administration was funding the program without a permanent appropriation from Congress and filed a lawsuit challenging the payments.

Since then, it has been unclear whether the Trump administration will continue to fund the payments. The Congressional Budget Office evaluated how insurers would respond if they didn’t receive the funding.

According to the report, if the payments are not made, premiums for silver plans would rise by about 20 percent next year and by about 25 percent by 2020.

In addition, the CBO says some insurers will drop out of the exchanges or decide not to enter due to uncertainty, which would mean about 5 percent of people would live in an area where there is no choice on the exchanges next year.

“Decisions about offering and purchasing health insurance depend on the stability of the health insurance market—that is, on the proportion of people living in areas with participating insurers and on the likelihood of premiums’ not rising in an unsustainable spiral,” the CBO said. “Several factors may affect insurers’ decisions to not participate—including lack of profitability and substantial uncertainty about enforcement of the individual mandate and about future payments for cost-sharing reductions.”

According to Sally Pipes, president of the Pacific Research Institute, Republicans should not let the latest CBO report derail their efforts to eliminate Obamacare’s cost sharing reduction subsidies.

“For starters, cost-sharing reduction funds—which total $7 billion for fiscal year 2017—are simply unconstitutional,” Pipes said. “They were never appropriated by Congress. And the Constitution is clear that the executive branch cannot spend money unless Congress has authorized it to do so. But President Obama made one of his many administrative decisions to pay out the subsidies without authority.”

Pipes also makes the point that insurers are increasing premiums due to the Affordable Care Act’s mandates that have caused them to lose money.

“Additionally, insurers aren’t hiking premiums primarily due to uncertainty over CSRs,” she said. “They’re doing so because Obamacare’s incoherent mandates have caused large losses for insurers. Under Obamacare’s ‘guaranteed issue’ mandate, insurers must offer coverage to all comers. And the law’s ‘community rating’ rule mandates that insurers charge all people of the same age the same premium, regardless of health status or history.”

“According to a recent analysis of insurance markets in four states conducted by McKinsey for the Department of Health and Human Services, these two mandates were responsible for between 41 percent and 76 percent of premium increases between 2013, pre-Obamacare, and 2017,” Pipes said.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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