CBO: If Trump kills Obamacare subsidies, expect premiums and deficit to soar

Donald J. Trump

In a report that aligns with predictions by health insurers and groups such as the Kaiser Family Foundation, the Congressional Budget Office on Tuesday forecast that ending cost-sharing reduction (CSR) subsidies under the Affordable Care Act not only would raise premiums for some low-income Americans, but also increase the federal deficit by $194 billion by 2026.

Congressional Democrats had asked both the CBO and the Joint Committee on Taxation to estimate the effect of cutting CSRs after this December – as President Trump has threatened – on the federal budget, health insurance coverage, market stability and premiums.

If CSR payments end, “CBO and JCT expect that insurers in some states would withdraw from or not enter the nongroup market because of substantial uncertainty about the effects of the policy on average health care costs for people purchasing plans.”

By next year, 5 percent of Americans would live in areas with no insurers serving the individual market, although more insurers were expected to be serving those markets by 2020 after they adjusted to the new market conditions, the report noted.

As Paul Demko reported for Politico, insurers rely on the subsidies to reduce out-of-pocket costs for individual low-income Americans who get their insurance on a ACA marketplace. “Insurers have already cited uncertainty surrounding the funding as a reason for big premium increases for 2018,” Demko wrote. “Health plans might decide to bolt the Obamacare markets altogether if the payments go away. They have until late September in most states to make final decisions about 2018 participation.”

If Trump follows through on his threat to end CSR payments, many Americans would be left with no insurance options, Ricardo Alonso-Zaldivar explained in an article for the Associated Press. Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation, told Alfonso-Zalvidar that, “ending the payments to insurers would introduce more chaos into an unsettled market, and perversely end up costing the federal government more in the end.”

Uncertainty over the possible repeal of CSRs factored into a preliminary filing by Horizon Blue Cross Blue Shield of New Jersey (the state’s largest health insurer) to propose an average rate increase of 22 percent next year, Susan K. Livio and Jonathan D. Salant reported for NJ.com. A Horizon spokesman told them that without the ACA uncertainty, the insurer only would have proposed a single-digit rate increase.

The federal government failing to make the CSR payments also would increase the federal deficit by $194 billion from this year through 2026, the two agencies predicted. The deficit would rise for two reasons, they wrote:

  • The average subsidy per person would be higher;
  • More people would receive subsidies in most years.

At Vox, Sarah Kliff summed up the report succinctly:

“It will cost the federal government nearly $200 billion to end the cost-sharing reduction subsidies. For that extra spending, the federal government would have a market with higher premiums and less competition. Trump talks a lot about making deals. This does not sound like a very good one.”

Update: On Wednesday, a White House spokesman said that the Trump administration would pay CSRs for August.

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