New CBO Analysis: Cutting Subsidies Would Backfire on Trump

By Wendy Netter Epstein 

The cost-sharing reduction payments are an essential component of the ACA.  These payments reduce out-of-pocket costs for lower income enrollees so that individuals can actually use their insurance coverage and not be prevented from seeking care because of a high deductible or a copay they can’t afford.  President Trump has been threatening since he took office to end these payments.  And there is at least some possibility that he has the authority to do (see House v. Price).

Politically speaking, Trump’s goal in threatening to end these payments is either to hasten what he sees as the inevitable demise of Obamacare—or at least to use the threat of ending the payments to hold the feet to the fire of those who have resisted “repeal and replace.”  Either way, Democrats have widely condemned Trump’s threats and the instability they cause in the market.

But last week, the CBO analyzed the effect of ending these payments.  And it was illuminating.  Even if these payments end, the law requires that qualified individuals continue to receive the discounts.  Insurers just won’t get reimbursed by the federal government for giving them.  But this won’t necessarily cause insurers to leave the market, making it crash and the ACA to implode, as Trump seems to hope and as many experts have predicted.  Rather, the CBO predicts that most insurers will stick around and respond instead by raising premiums to make up the shortfall.  For a benchmark plan, this means rates would rise by an estimated 20% next year and about 25% by 2020.

Although no one wants to see premiums rise, most enrollees would not actually see a difference in what they have to pay.  That’s because of the tax credits.  When premiums increase, government subsidies must increase to cover the difference.  So most enrollees wouldn’t actually be harmed.  Individuals who purchase policies on the Exchanges but don’t qualify for the tax credits would see their rates go up, and that is certainly not a good thing, but it’s a relatively small percentage of people who fall in this category because 83% of individuals who buy plans on the Exchanges receive tax credits.

Although the ACA won’t implode, what will happen?  Here’s the kicker.  The CBO predicts that the federal deficit will increase by $194 billion over 10 years. The increase will be caused by the federal government having to allocate additional funds to cover the increased tax credit burden.  Essentially, ending the cost-sharing reduction payments just causes the federal government to have to pay more to support low income individuals.

What the CBO describes is therefore the antithesis of a policy that traditional Conservatives would support.  Ending the cost sharing reduction payments—something that won’t happen at least this month but the administration has given no guarantees past that—just means that the federal government must increase its social safety net.

This analysis should really give pause to Speaker Paul Ryan in his pursuit of the litigation in House v. Price.  That’s the lawsuit that the GOP-controlled House filed in Nov. 2014 arguing that the executive branch lacks the constitutional authority to make the cost-sharing reduction payments absent an explicit appropriation from Congress.  Despite questions of standing and other hurdles to winning this litigation, Ryan has resolved not to drop the lawsuit.  In light of the CBO analysis, he should reconsider.  Even a win, should he get to that point, would ultimately be a loss.

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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