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Reimbursement Feature

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CBO: Ending CSR Payments Jacks ACA Premiums

Robin Young • Thu, August 24th, 2017

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If Trump follows through on his promise to terminate Cost-Sharing Reduction (CSR) payments to insurance companies, then insurance companies will likely raise Affordable Care Act (ACA) insurance premiums an average of 20%—according to an August 2017 analysis from the Congressional Budget Office (CBO).

Furthermore, say CBO’s analysts, premiums for silver plans would be 25% higher by 2020 and halting payments would actually increase the federal deficit by $194 billion through 2026.

Short and Sweet Background

The Affordable Care Act requires insurers to offer plans with reduced deductibles, co-payments to people who would not otherwise be able to afford health insurance. In turn, the Secretary of Health and Human Services (HSS) sends Cost-Sharing Reduction payments to insurers to cover the costs they incur because of that requirement.

Insurers have been pleading to HSS and its new commissioner, Tom Price, for clarity on whether they’ll continue to receive the payments, which total about $7 billion for fiscal 2017.

The payments have been made on a month-to-month basis, so far. Trump, however, threatened to halt the payments, calling the money “bailouts” for insurance companies.

The CBO Analysis

About 5% of the U.S. population live in areas that would have no insurers in their market in 2018.

By 2020, though, say the CBO and Joint Committee on Taxation (JCT) analysts, more insurers would likely participate in offering insurance plans.

That’s the good news.

If the CSR is eliminated, however, insurers would raise premiums of “silver” plans to cover the costs. “Silver plans” are those insurance plans designed to cover people whose incomes are 100% and 200% of the federal poverty level (FPL), receive premium tax credits toward the silver plan, and not be eligible for other types of coverage, such as employment-based coverage or Medicaid.

Without the CSR, the silver health insurance policy premiums for single people would rise, on average, by about 20% in 2018 relative to the amount in CBO’s March 2016 baseline and rise slightly more in later years.

Premiums for non-silver health insurance plans would rise a few percent during the next two years, on average, above the increases already projected in the baseline in response to uncertainty among states and insurers about how to respond under the policy.

Tax Credits

One offset to the higher health insurance premium is the tax credit available to silver plan holders. Higher premiums would trigger higher tax credits.

According to CBO’s and JCT’s projections, many people eligible for the credits with income between 100% and 200% of the FPL—who, under the baseline, receive most of the cost-sharing reductions paid—would use their increased tax credits to purchase the same silver plans with low cost sharing that they would purchase under the baseline, and they would pay net premiums (with the tax credits factored in) that were similar to what they would pay if the CSR payments were continued.

Alternatively, they could buy insurance that covered less of their health care expenses, and in many of those cases, the tax credits would cover the premiums entirely. Because CBO and JCT anticipate that most insurance commissioners would eventually permit insurers to substantially increase the gross premiums for silver plans in the marketplaces and not to do so for other plans, almost all people at other income levels would then buy other plans.

Cutting CSR Would INCREASE the Federal Deficit

Implementing the policy would increase the federal deficit, on net, by $194 billion from 2017 through 2026, CBO and JCT estimate.

Total federal subsidies for health insurance—the sum of the premium tax credits and the CSR payments—would increase for two reasons: The average amount of subsidy per person would be greater, and more people would receive subsidies in most years.

Because the tax credits would increase when premiums for silver plans rise, the agencies estimate that the average subsidy per person receiving premium tax credits to purchase health insurance would increase.

These higher tax credits would roughly offset the reductions in CSR payments.

Consumers who are purchasing non-silver plans (people whose income between 200% and 400% of the FPL) would receive tax credits which SUBSTANTIALLY exceed the CSR payment reductions.

Not surprisingly, the CBO and JCT project that more people would purchase non-silver plans and fewer people would purchase employment-based health insurance!

Overall Effects

As a result of the increase in total subsidies under the policy, CBO and JCT project that if CSR payments are terminated the following is likely to occur:

  • The fraction of people living in areas with no insurers offering non-group plans would be greater during the next two years and about the same starting in 2020;
  • Gross premiums for silver plans offered through the marketplaces would be 20% higher in 2018 and 25% higher by 2020—boosting the amount of premium tax credits according to the statutory formula;
  • Most people would pay net premiums (after accounting for premium tax credits) for non-group insurance throughout the next decade that were similar to or less than what they would pay otherwise—although the share of people facing slight increases would be higher during the next two years;
  • Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026; and
  • The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.

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