Under Obamacare, insurers are required to provide “cost-sharing reduction” (CSR) — lower deductibles and so on — to lower-income enrollees who buy plans classified as “Silver” in quality. The government is supposed to reimburse the companies for the cost of doing this.
Obamacare itself didn’t provide the money, however. That was supposed to be handled through the annual appropriations process — and Republicans refused to cough up the funds when they gained control of Congress. The Obama administration simply paid the insurers anyway, sparking a lawsuit, and now Trump has threatened to cancel the payments as a way of encouraging Congress to pass a new health-care law.
A new CBO report underlines some of the unintended consequences of doing that.
Basically, Obamacare’s subsidies are pegged to the price of the second-cheapest Silver plan in each market. If these payments are cut off, but insurers are still legally required to provide the cost-sharing reductions, insurers will simply raise Silver premiums to compensate — 20 percent next year and 25 percent by 2025 — and government subsidies will rise in turn.
This will be especially beneficial to enrollees slightly higher on the economic ladder, who receive subsidies but aren’t eligible for cost-sharing reduction — and therefore don’t have to buy Silver plans. Their subsidies will rise along with Silver premiums, but they’ll choose to buy Bronze or Gold plans instead, whose premiums won’t be much affected. Some people will even find that a Gold plan is cheaper than a Silver plan because Gold enrollees don’t have to, in effect, help pay for other people’s CSR.
Indeed, thanks to more generous subsidies even for people whose premiums will be unaffected, total health-insurance enrollment will actually rise slightly by 2026. Overall, the federal deficit would increase almost $200 billion over ten years.
All this ties in nicely to a point that Robert Laszewski made here on NRO earlier this month. The subsidized portion of the individual market is self-stabilizing to some degree, in a perverse sort of way, because when insurers get in trouble they can just raise premiums and thereby soak up more government money.