On October 17, Senators Lamar Alexander (R., Tenn.) and Patty Murray (D., Wash.) reached an agreement to provide cost-sharing-reduction (CSR) subsidies to insurers on the exchanges established by the Affordable Care Act. (“Cost sharing” refers to copayments, deductibles, and the like; these subsidies reduced the amount of such charges that low-income individuals would be responsible for.) While they are not necessary for the exchanges to function effectively as high-risk pools, they are needed to maintain an entitlement that guarantees low out-of-pocket costs for low-income individuals. By itself, this is not an unreasonable use of taxpayer funds, but it makes little sense for the federal government to force people to enroll in subsidized plans when they would prefer to enroll in unsubsidized plans. The House GOP should therefore appropriate funds for CSRs only if this agreement includes authority for states to waive the individual mandate for individuals enrolled in the unsubsidized plans authorized by last week’s executive order.
When the Trump administration announced that it would stop paying subsidies for insurance companies to reduce cost-sharing for low-income individuals enrolled in the exchanges established by the ACA, it argued that Congress had never appropriated funds for this purpose. Maintaining that “the Government cannot lawfully make the cost-sharing reduction payments” in the absence of such appropriation, it called on Congress to step into the breach. The Democratic congressional leaders, Senator Chuck Schumer (New York) and Representative Nancy Pelosi (Calif.) issued a joint statement calling the move “a spiteful act of vast, pointless sabotage.”
Although the New York Times headline screamed, “Trump to Scrap Critical Health Care Subsidies,” the cost-sharing-reduction payments in question represent only 20 percent of federal subsidies for the exchange. The premium subsidies, which heavily subsidize plans covering 70 percent of medical costs for households earning less than 400 percent of the poverty level ($48,240 for individuals; $98,400 for a family of four), do not require annual congressional appropriations and will remain in place.
For individuals receiving premium subsidies but not cost-sharing-reduction subsidies, annual deductibles averaged $3,609 in 2017. This is similar (after inflation) to the $3,319 average deductible levels on the individual market before the ACA. If one merely seeks to guarantee the availability of exchange plans to individuals with pre-existing conditions, at rates similar to those that were paid by healthy individuals prior to the ACA, premium subsidies by themselves would be sufficient for the task. Various Republican proposals since 2008 have advocated high-risk pools, with this type of commitment in mind.
But CSR subsidies go beyond the limited objective of extending coverage to the chronically ill with pre-existing conditions, and seek to subsidize the health insurance of those (healthy as well as chronically ill) earning below 250 percent of the poverty level. CSRs further reduce average deductibles to $2,904 for individuals earning below $30,150; to $809 for those earning below $24,120; and to $255 for those earning between $12,060 and $18,090.
Last week President Trump issued an executive order that would allow insurers to guarantee renewability of actuarially priced plans through the Short-Term Limited Duration (STLD) market. These would restore the option for individuals to purchase unsubsidized plans similar to those available prior to the ACA, but those enrolled would still be forced to pay the ACA’s individual-mandate tax — a provision that sabotages the market, as some might say.
It has been argued that the individual mandate is essential to the stability of the exchange, necessary to prevent free-riding, and justified by a need to ensure a more equitable distribution of health-care costs. As an upcoming Manhattan Institute Issue Brief demonstrates, each of these claims is false.
The individual mandate is essentially a tax on poor Americans who lack employer-sponsored insurance.
First, it is subsidies, not the mandate, that guarantee whatever entitlement is provided through the exchange. These expand automatically to cover whatever “benchmark” cost is necessary to bring a plan to market.
Second, it can hardly be argued that individuals enrolled in actuarially priced and state-regulated STLD plans are free-riders on subsidized coverage made available through the exchange.
And third, the individual mandate is essentially a tax on poor Americans who lack employer-sponsored insurance. While individuals earning above $10,350 must pay a penalty that starts at $695 if they do not purchase overpriced insurance on the individual market, 79 percent of households hit by the tax earned less than $50,000. The inequity of this situation was aptly summarized in 2008 by Barack Obama, who argued: “If a mandate was the solution, we could try that to solve homelessness by mandating everybody buy a house.”
A reasonable case can be made for the GOP to support CSRs, which would extend exchange subsides beyond the level needed to sustain a high-risk pool; but not if this is combined with a mandate that penalizes them for seeking unsubsidized coverage that would meet their needs at less cost.
The House GOP should therefore consider the compromise proposed by Senators Alexander and Murray, but accept it only if states are allowed to waive the mandate for individuals enrolled in the STLD plans they regulate.