This is the web version of VoxCare, a daily newsletter from Vox on the latest twists and turns in America’s health care debate. Like what you’re reading? Sign up to get VoxCare in your inbox here.
Trump’s stance on insurance “bailouts” is completely incoherent
President Donald Trump keeps insisting: He does not want health insurers to get an Obamacare bailout.
Trump is referring here to Obamacare’s cost-sharing reduction subsidies. These are payments the federal government sends to insurance companies to subsidize co-payments and deductibles for low-income enrollees.
Trump announced last week he would stop making these payments. But let’s be clear: That decision will cause the federal government to spend billions more subsidizing insurance companies, not less.
The reasons for this are complex. I want to walk through them clearly because it shows who gets hurt by the Trump decision, who (surprisingly) gets helped, and how the government can end up spending more money by ending a subsidy program.
Obamacare has two different subsidy programs.
- Premium subsidies reduce the cost of monthly premiums for Obamacare enrollees who earn less than 400 percent of the federal poverty line. These subsidies are structured so that an individual is only expected to pay a certain percentage of her income on monthly premiums. Someone who has earnings at 200 percent of the federal poverty line (about $24,000) is only expected to spend 4 percent of her income on premiums. That works out to $80 per month. The government pays the rest. The actual price of insurance is irrelevant to this enrollee (although it matters a great deal to the federal government, which is picking up a bigger tab when premiums are higher.) Trump has not touched these subsidies.
- Cost-sharing reduction subsidies reduce copayments and deductibles for a smaller group of Obamacare enrollees. They only go to people who earn less than 250 percent of the federal poverty line (as opposed to the premium subsidies, which go up to 400 percent). This population gets premium subsidies and cost-sharing reduction subsidies. The idea behind this subsidy program is to make sure that low-income Americans can actually afford to see a doctor when they gain coverage.
Trump has said he will discontinue the second subsidy program. But insurance companies are still required by law to provide these subsidies to their low-income enrollees. They cannot jack up the deductibles on someone who earns 200 percent of the poverty line, even though the government has stopped providing the money.
Insurance companies don’t want to lose money. They need a way to offset the sudden loss of billions in government funds. So, they looked for other levers to pull. And many settled on raising premiums as a way to recoup those lost funds.
As Dylan Scott wrote in a longer piece this morning, many insurers tacked on anywhere between a 10 and 30 percent premium increase to account for this loss of funds.
And that takes us back to the first subsidy program. When premiums go up, it means that the federal government has to spend more money on subsidies. It has to spend a lot more money on subsidies because that program covers people with higher incomes.
This is how ending the cost-sharing reduction program actually increases federal spending on insurance subsidies. The Congressional Budget Office estimates that the decision will lead to $194 billion more sent from the federal government to subsidize the health plans that participate in Obamacare.
This also means that the people who receive cost-sharing reduction subsidies are still going to get them. Health plans understand they are required to make those payments. I haven’t heard a single one say that they are going to suddenly pull away the co-payment and deductible subsidies from their low-income customers. They will make those payments — they will just jack up their premiums in order to have the money to do so.
The people who will be most hurt by this action are, somewhat ironically, high-income Obamacare enrollees. People who do not receive federal subsidies have to pay the full cost of their premium increase. If premiums go up by double digits, people above the cut off for subsidies (400 percent of the poverty line) will have to pay that double-digit increases.
Some states are doing creative things to prevent these situations (limiting the premium increases, for example, to the plans that people with subsidies are likely to buy). But some states aren’t. And in those places, some people might lose insurance.
CBO estimates that insurance coverage will decline by 1 million with the end of the cost-sharing subsidies.
The Trump administration is not ending insurance subsidies. Instead, they have created a policy where they spend more money to insure fewer people — something you probably won’t see on the president’s Twitter feed.
Chart of the Day
Two weeks before open enrollment, awareness remains low. The Kaiser Family Foundation finds that many uninsured Americans as well as Obamacare enrollees are unaware of the upcoming open enrollment period, which will run from November 1 to December 15. Read more here.
Kliff’s Notes
Your daily top health care reads, with research help from Caitlin Davis
News of the day
- “Trump appears to back further away from bipartisan health-care push”: “President Trump appeared to distance himself further from a bipartisan Senate health-care effort Wednesday, warning against “bailing out” insurance companies.” —Sean Sullivan and Juliet Eilperin, Washington Post
- “Manchin ties repeal of opioid enforcement law to budget fight”:“Manchin, whose state has been hit particularly hard by the opioid crisis, has filed an amendment to the fiscal year 2018 budget supporting repeal of the law, which was signed by President Obama in April 2016 after passing the House and Senate with little fanfare.” —Jordain Carney, the Hill
- “Amid ACA Turmoil, Insurers Brace for Drop in Enrollment”: “With enrollment for 2018 Affordable Care Act health-insurance plans starting in just two weeks, insurers are bracing for a drop-off among consumers put off by higher rates, confusion about the law’s standing and a shorter window to choose coverage.” —Anna Wilde Mathews, Wall Street Journal
Analysis and longer reads
- “Both Democrats and Republicans say Trump forced health care deal”: “Senate Republicans and Democrats both agree President Trump’s decision to end the Affordable Care Act cost-sharing reduction subsidies gave a heightened sense of urgency to bipartisan negotiations to stabilize the individual market, resulting in the deal announced yesterday. But each side says the president’s decision left them better off, and that they ended up with the better deal.” —Caitlin Owens, Axios
- “Chasing Millions In Medicaid Dollars, Hospitals Buy Up Nursing Homes”: “In a rule released last year, the federal Centers for Medicare & Medicaid Services announced that it would gradually force states to shift to payment systems that tie such reimbursements to quality of care. Michael Grubbs, an Indiana health consultant, said that rule does not stop the Indiana hospital funding program, but it’s unclear that it will last.” —Phil Galewitz, Kaiser Health News
- “2017 healthcare mergers, acquisition activity set to outpace 2016, Kaufman Hall finds”: “Transactions among larger and like-sized organizations are rising as health systems across the country look to build scale and new capabilities for an uncertain healthcare environment,” said Anu Singh, managing director of Kaufman Hall, in a statement.” —Jeff Lagasse, Healthcare Finance
Join the conversation
Are you an Obamacare enrollee interested in what happens next? Join our Facebook community for conversation and updates.
See More:
