Updated 4:31 pm August 16: On Wednesday, the White House said it would continue what's known as cost-sharing reduction payments to insurers for another month, buying President Trump some time to decide whether he'll continue the payments long-term or cut them off altogether.
The announcement came a day after the Congressional Budget Office released an analysis that found that ending the payments would increase the deficit by $194 billion over 10 years.
The cost is "eye-poppingly large," says Nicholas Bagley, a professor of health law at the University of Michigan. "This single policy could effectively end up costing 20 percent of the entire bill of the ACA."
Under the Affordable Care Act, the federal government reimburses insurance companies for the discounts on copays and deductibles they're required by law to give to low-income customers.
Trump threatened repeatedly to cut off the payments, which he has called "bailouts," during the unsuccessful effort by Senate Republicans to repeal and replace the Affordable Care Act, also known as Obamacare.
More recently, the president has remained mute on the topic, and insurers have been left to wonder, month-to-month, whether they will continue to receive the payments. On Wednesday, a White House spokesman said the administration will reimburse insurers for this month's discounts next week. Future payments remain in question.
Bagley says there is no good policy reason to cut off the payments. "If you can cover roughly the same number of people for about $200 billion less, why wouldn't you want to do that?" he asks.
Cutting the cost-sharing payments ends up costing the government more because insurance companies say they will raise rates in response.
The CBO report predicted that premiums for benchmark plans sold on the Affordable Care Act exchanges will rise about 20 percent next year and about 25 percent by 2020. The cost to consumers, however, would stay the same or even decline.
That's because under the Affordable Care Act, people with lower incomes who buy insurance on the exchanges get a tax credit, so their costs remain stable as a share of their income. When premiums rise, those government subsidies rise as well.
The CBO says for people with incomes below 200 percent of the federal poverty level, the out-of-pocket cost of insurance would remain about the same because of the bigger tax credits. For those with incomes between 200 percent and 400 percent of the federal poverty level, the cost to buy insurance could actually get cheaper.
Last year, about 85 percent of people who bought Obamacare insurance got a tax credit, according to the Centers for Medicare and Medicaid Services.
"The CBO analysis makes clear that ending cost-sharing subsidies would be a perfect example of cutting off your nose to spite your face," says Larry Levitt, a vice president at the Kaiser Family Foundation. "Premiums would rise, and the government would end up spending more in the end through tax credits that help people pay their premiums."
The CBO report confirms earlier analyses, including this one by Kaiser and this one from the consulting firm Oliver Wyman, that suggested eliminating the cost-sharing payments could make policies cheaper for some individuals.
Some insurers may decide to leave the ACA markets altogether if the subsidies were to disappear "because of the substantial uncertainty about the effects of the policy on average health care costs," the CBO says. The agency estimates about 5 percent of the population would not have access to insurance through the ACA markets next year if Trump ends the payments.
But the agency says insurers would come back over the next two years.
Timothy Jost, a professor emeritus of health care law at Washington and Lee University School of Law, says that picture may be a bit too rosy.
He says the CBO assumes that state insurance commissioners will allow insurance companies to set premiums in ways that would be most advantageous to them, thereby ensuring they continue to sell policies on the Obamacare exchanges. But that may not happen, Jost warns.
"CBO assumes that things will work out rationally, and there will be a smooth landing," he says. "It could be much more chaotic than that."
Last Friday, the Department of Health and Human Services extended the deadline for insurance companies to decide which health plans to offer on the Obamacare exchanges and what to charge.
The cost-sharing payments have been at the center of a political battle over the Affordable Care Act since before Trump took office.
House Republicans opposed to the health law sued then-President Barack Obama, saying the payments were illegal because Congress hadn't appropriated money for them. A judge agreed but allowed the administration to continue making the payments during an appeal.
Now that Trump is in the White House but GOP efforts to repeal and replace the Affordable Care Act have failed, many Republicans are urging the president to continue the payments rather than undermine the health care markets.
AUDIE CORNISH, HOST:
The Congressional Budget Office has weighed in on a health care proposal floated by President Trump. He's been threatening to cut off payments the government makes to insurance companies to lower the cost of co-payments and deductibles. Now, if he goes ahead, the nonpartisan CBO says it will cost taxpayers nearly $200 billion over the next 10 years. The new CBO report also says premiums would rise by about 20 percent, but that increase would be offset by higher government subsidies. To help us sort this out is NPR health policy correspondent Alison Kodjak. Welcome to the studio.
ALISON KODJAK, BYLINE: Hi, Audie.
CORNISH: So what exactly are these payments for?
KODJAK: Well, so the Affordable Care Act actually requires insurance companies to offer discounts to low-income customers. They offset their deductible and their co-payments. And the law says the government will reimburse the company for those costs. But Republicans have been opposed to these payments. They're known as cost-sharing payments. And the president has been threatening to cut them off on Twitter quite a lot this summer.
CORNISH: Now, if this increases the premiums and increases the federal deficit by - the precise number was 194 billion, what's the argument that the White House is making for cutting off the payment?
KODJAK: Well, one analyst I talked to said this plan doesn't actually meet any policy goals, assuming those are to increase access to health care or to cut costs. But one thing the president has said over and over is that he wants to let Obamacare implode. That would help him to be able to force a replacement of the program that he just doesn't like. So these threats to cut off the - these payments came in that context. But what we learned today from the CBO is that even getting rid of these reimbursements probably would not kill the Affordable Care Act, and it may actually help because it may lead more people to sign up for insurance.
CORNISH: What do you mean by that? I mean, why would it cost so much?
KODJAK: Well, so it would increase subsidies. Twenty percent of the entire - this is 20 percent of the entire cost of the Affordable Care Act, that $194 billion. And the Affordable Care Act design says people pay a specific share of their income toward health care premiums. So if the premiums go up, which they would under - if he cut these payments off, then the subsidies go up. And the government has to pay subsidies for a lot more people than it pays for these cost-sharing payments.
CORNISH: And before I let you go, you said this also might increase the number of people with health insurance. How would that work?
KODJAK: Well, that's because of those subsidies going up. So people, even those who didn't get the cost-sharing payment reductions, they would have a bigger subsidy to go shop for insurance. So they might find that the insurance is cheaper, and they could then maybe be lured into the markets and decide to buy insurance even if maybe in the past they thought it was a little too expensive.
CORNISH: To step back for a moment, were these payments supposed to be for the long term? Like, when the Affordable Care Act was set up, did they think, we're always going to be helping out the insurance companies?
KODJAK: Yeah. Yeah. Well, it was - it was not really helping out the insurance companies. It's really a pass-through to help those low-income people meet their medical costs. So if you buy a policy that has a $5,000 deductible, that doesn't make insurance very affordable. So these payments were to get the insurance companies to offer the same plan but with a lower deductible.
CORNISH: Oh, so they wouldn't just say, oh, these people are too sick or too poor. We want out of the system.
KODJAK: Right. It was just to help lower-income people to be able to afford their health care. So the president's called it a bailout, but really, it's a subsidy for lower-income people and not a subsidy for insurance companies.
CORNISH: That's NPR health policy correspondent Alison Kodjak. Alison, thank you.
KODJAK: Thank you, Audie.
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