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What Happens if President Trump Stops Subsidizing Insurers

For months on the campaign trail, Donald Trump repeatedly labeled Obamacare a “disaster” and promised to repeal and replace it. After taking office, President Trump has made health care reform the centerpiece of his legislative agenda. In March, he worked with House Speaker Paul Ryan to draft the American Health Care Act, and although it failed to secure enough support for a House vote, a revised version finally passed the House of Representatives in May.

As his repeal and replacement efforts mature, President Trump has been less willing to support the present system created by the Affordable Care Act. That may be why he has threatened to stop making payments known as “cost-sharing subsidies” to health insurance companies that assist low-income enrollees maintain their health coverage. Trump has made it very clear that he thinks Obamacare is dead, and he obviously feels that there is no reason to prop up a failing system and that may include paying more than $7 billion in cost-sharing subsidies.

Political Pushback

In response to Trump’s threat, major industry groups including the American Medical Association, the U.S. Chamber of Commerce, and America’s Health Insurance Plans sent a letter to Congress strongly urging them to continue making these payments. They argued that these payments are an important consumer protection that prevents double-digit increases in health insurance premiums.

Health Insurance Subsidy Level by income chart

Insurance companies have already issued warnings that such draconian steps by the Trump administration will result in large premium hikes. For example, the Massachusetts Association Health Plans stated that premiums would rise dramatically if the federal government cut off payments of $63 million in 2017 and $125 million in 2018. The alternative, if these subsidized health plans become financially unviable, would be stop making certain plans available on the health exchanges.

Unexpected Consequences

If the President follows through on his threat of not paying cost-sharing subsidies to insurers, there could be some be some surprising results. A new study by consulting firm Oliver Wyman suggests that this move could actually add to the number on Obamacare.

This is based on the financial mechanism of the Affordable Care Act. Cost-sharing subsidies—the type of subsidies that the President is referring to—only help enrollees on “silver” health plans, the second cheapest type. These cost-sharing subsidies refund insurers for discounts on deductibles and co-payments.

What to Do If Your County Only Has One Insurer

If the government stops making those payments, insurers will likely raise the premiums to make up the cost differential. Under the Affordable Care Act, if the premiums on health plans rise—Kaiser Family Foundation estimates the cost increase would be $2.3 billion—then the government MUST raise the amount it subsidizes the national health exchanges. Ultimately, the injection of billions of dollars into the Obamacare market would not only help those already on ACA plans, but may also entice more people to enroll.

Legal Challenge

In 2014, the U.S. House of Representatives brought a lawsuit against the then-Health and Human Services Secretary Sylvia Burwell, contending that these cost-sharing subsidies had not been authorized by Congress. Last year, the district court ruled in favor of the House and ordered these payments to stop. However, the judge stayed the decision when the Obama administration appealed.

Early in 2017, the Trump administration along with the U.S. House of Representatives asked for a delay to consider how to proceed with the lawsuit. The administration is now thinking over if it will continue with the cost-sharing subsidies while it pursues an Obamacare repeal. Many leading Republican lawmakers like Senator Lamar Alexander and Rep. Mark Meadows have pushed for the administration to continue making such payments to help maintain the financial stability of the insurance markets.

In late May, the Trump administration filed for a 90-day delay on the ruling by the United States Court of Appeals for the District of Columbia Circuit. They justified the delay by stating that the White House and the House of Representatives needed to discuss if potential legislative action might eliminate the need for a judicial decision.
Immediate Future of Cost-sharing Subsidies

The White House announced that it would make subsidy payments through May of 2017, but it would not confirm that they would continue making payments through the rest of the year. This continuing uncertainty has roiled the insurance industry which is deeply concerned about the coming months. Insurance spokespersons have called this uncertainty “the single most destabilizing factor in the individual market, and millions of Americans could soon feel the impact of fewer choices, higher costs and reduced access to care.”

This has drawn sharp criticism from Democrats who argue that the Trump administration is intentionally setting up the health exchanges to fail. Republicans say that these actions merely reveal the flaws in a health insurance system that is already on the verge of collapse.

There is good reason why the Trump administration is dithering. If it promises to make more payments, then it is essentially supporting a “disaster.” It could even be argued that the Trump administration is wasting taxpayer dollars if it continues making these cost-sharing subsidies. Furthermore, it would run counter to their mission to repeal and replace the Affordable Care Act. Finally, President Trump has suggested that he could withhold subsidies as a negotiation tactic to force Democrats to make concessions.

On the other hand, if the government fails to live up to its responsibilities and insurers do raise premiums, then the Republican Party could be labeled as the ones that took health coverage from Americans. This could prove especially problematic in upcoming elections, where Republicans are looking increasingly vulnerable.

It remains a mystery how the administration will ultimately decide. With a President who has shown a willingness to buck conventional procedure, the administration could easily decide to abandon millions of low-income Americans. What may be a compelling factor is the efforts by Congressional lawmakers to repeal and replace Obamacare. If the House and Senate can forge a legislative package that is signed by the President, the issue of cost-sharing subsidies may be utterly moot.

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