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Politics & Policy

The Real Problem with Trump’s Ending of Insurer Subsidies

There’s been a lot of panic and confusion on the left since the announcement last night that Trump will end the federal government’s (illegal) payment of “cost-sharing reduction” (CSR) subsidies for insurers. But perhaps the panic should be more on the right. There are unintended consequences here that I discussed in August, and that are worth reiterating today.

Here’s the tangled web of policies this decision takes place in: Obamacare requires insurers to give special breaks on cost-sharing (deductibles and the like) to lower-income folks who sign up for “Silver” plans. The government is supposed to reimburse the insurers for this cost, but Obamacare didn’t provide funding and Congress has refused to as well. Therefore, when the federal government stops funding the subsidies illegally, insurers will have to provide these discounts out of their own pockets — and you can bet they’ll raise premiums on Silver plans to compensate.

The problem is that other federal subsidies are tied to, you guessed it, Silver-plan premiums. So according to the CBO, while there will be some instability for a couple of years as everyone adjusts to the new reality, there won’t be a cost increase for enrollees in the end. In fact, people who get Bronze or Gold plans will benefit; their own premiums won’t go up, but their subsidies will rise with Silver premiums. The federal government will actually spend more money, and more people will be insured. That kind of sounds like a victory for the Left to me.

Here’s a handy collection of bullet points from the CBO’s report on this subject:

‐ The fraction of people living in areas with no insurers offering nongroup plans would be greater during the next two years and about the same starting in 2020;

‐ Gross premiums for silver plans offered through the marketplaces would be 20 percent higher in 2018 and 25 percent higher by 2020 — boosting the amount of premium tax credits according to the statutory formula;

‐ Most people would pay net premiums (after accounting for premium tax credits) for nongroup insurance throughout the next decade that were similar to or less than what they would pay otherwise — although the share of people facing slight increases would be higher during the next two years;

‐ Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026; and

‐ The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.

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