With prospects dim for a complete repeal, the future of the ACA may be tied to the Trump Administration’s ability to undermine it. Indeed, the Administration may soon try to throw the program into enough turmoil that Republican voters will pressure their representatives to fix it this fall. But will it work?
Two potential tactics in particular are worrying insurers as they prepare their rates for 2018: the possible suspension of the “cost-sharing reductions” (CSRs), payments made to insurance companies to reduce costs for low-income consumers; and a refusal to enforce the individual mandate, either by not encouraging people to sign up or by not collecting the fines they’re supposed to pay if they don’t.
On the face of it, both seem like credible threats. Without subsidies, insurers may raise prices or drop out of certain markets entirely. If these payments are suspended, the CBO projects an average premium increase of 20 percent for silver plans in 2018 (the insurers won’t have to submit their final rates until this fall). The individual mandate, meanwhile, was designed to keep younger, healthier patients in the market—without them, insurers are left with a sicker, older pool of patients. The result is the same; insurers either raise prices or drop out.
This past week, the Kaiser Family Foundation published a survey of a selection of major cities in twenty different states, plus Washington, DC, in which insurers planning to raise their rates attributed their decision to fears about the suspension of CSRs and the individual mandate. The survey found that “Insurers assuming the individual mandate will not be enforced have factored in to their rate increases an additional 1.2% to 20%. Those assuming cost-sharing subsidy payments will not continue and factoring this into their initial rate requests have applied an additional rate increase ranging from 2% to 23%.”
But will the results really be as catastrophic as the Trump Administration might hope in order to force Republicans’ hand in Congress? A recent CBO report on the estimated effects of the suspension of CSRs suggests it may cause turbulence in the market, but only for a short time. Though a few insurers would leave, by 2020 coverage should bounce back. The critical part that the Administration may not account for is that though premium prices will rise, only a fraction of the individual market goes without any kind of offsetting subsidy (about 6.7 million people). Low-income consumers, the majority of the market, receive help by way of premium tax credits, not just the CSRs. Without CSRs, insurance companies will certainly increase their prices. But since the premium tax credits are tied to those prices, they’ll rise as well.
The thing is, the White House can’t do anything about those premium tax credits going up without Congress. And the budget hit for the Federal government will be substantial. While those in the lowest income bracket (100 to 200 percent of the Federal poverty line) will pretty much break even as the tax credits take over from the CSRs, the CBO report says that “increases in premium tax credits for those with income between 200 percent and 400 percent of the FPL would substantially exceed the small reductions in CSR payments for this group.” The result: a $6 billion increase in the deficit next year, and $21 billion in 2020. Worse, from the Administration’s point of view, the suspension could actually be an upside for Obamacare: The expansion of premium taxes could attract people to the exchanges and away from employer health plans.
And what about the individual mandate, without which, people often warn, there may be the dreaded death spiral? Well, recent research concludes that the individual mandate isn’t doing all that much for the moment. The penalties have been too low to make a difference one way or another, at least until this past year. While they are slated to increase, Trump has pledged himself to ending Obamacare sooner rather than later, so waiting until the mandate has a substantial effect and then refusing to enforce it is not a useful strategy.
It’s hard to game out what will happen here; there is still too much uncertainty. But Trump may not have as much leverage over his congressional colleagues as he hopes—or as much support from the public.