April 26, 2017

Study: Eliminating ACA cost-sharing payments could cost federal government billions

Daily Briefing

    Eliminating the Affordable Care Act's (ACA) cost-sharing subsidies could increase federal spending by $2.3 billion in 2018, according to a Kaiser Family Foundation (KFF) analysis released Tuesday.

    Trump admin offers insurers no clarity on ACA cost-sharing payments

    The ACA calls for the federal government to subsidize insurers for cost-sharing reductions that help low-income consumers pay for out-of-pocket health care costs—such as coinsurance and copayments. However, the House in July 2014 authorized a lawsuit against former President Barack Obama's administration contending that Congress never authorized the Department of Treasury to actually make those payments to insurers.

    The Trump administration has until next month to decide whether to continue to defend the cost-sharing payments in court, but in the interim, insurers and health care organizations have urged the administration to explain how it will approach the payments, which insurers say are essential to stabilizing the ACA's exchange markets. CMS Administrator Seema Verma during a meeting with insurers last week offered no clarity on whether the administration will continue making the cost-sharing payments.

    Democrats had called for Republicans to include money for the ACA's cost-sharing subsidies as "mandatory funding" in the federal spending measure. However, House Speaker Paul Ryan (R-Wis.) on Wednesday said the cost-sharing payments would not be included in the final bill. "Obviously, CSRs—we're not doing that. That is not in an appropriation bill. That's something separate that the administration does," Ryan said.

    Analysis details

    For the analysis, KFF researchers used several projections they made about the exchange market as a basis to estimate how ending the cost-sharing payments could affect federal spending and the market overall. Those projections included:

    • An estimated 19 percent average increase in premiums for silver-level exchange plans that insurers would need to offset the elimination of cost-sharing payments;

    • An estimated average increase in premium tax credits U.S. residents who purchase exchange plans can receive under the ACA to help offset their premium costs; and

    • An estimated total number of people who received premium tax credits in 2017, which the researchers based on the 10.1 million U.S. residents who signed up for exchange plans during the ACA's last open enrollment period, reduced by about 17 percent to account for the difference between individuals who signed up for plans and actually completed the enrollment process.

    Findings

    The researchers estimated that, if their projections are correct, discontinuing the cost-sharing payments could reduce federal spending by $10 billion in 2018. However, that reduction would be offset by a 23 percent net increase in federal spending on premium tax credits in 2018, assuming insurers would continue to sell exchange plans and increase premiums to offset losing the cost-sharing payments.

    Analysis: Individual health insurance market shows signs of stabilizing

    According to the analysis, higher federal spending on the tax credits ultimately would result in a federal government spending net increase of about $2.3 billion in 2018, and a net increase of about $31 billion from 2018 to 2027.

    Discussion

    Former Congressional Budget Office Director Douglas Holtz-Eakin, who was not involved with the study, said the researchers' estimates demonstrate "what's at stake: double-digit premium increases and more money out of the [federal government] not less." He added that the estimates could be "conservative," meaning government spending could be even higher than the researchers projected if the cost-sharing subsidies are eliminated.

    Larry Levitt, a SVP at KFF and a co-author of the study, said eliminating the cost-sharing subsidies either "ends up costing the federal government more money, or there's chaos that leads to people losing their health insurance." He added, "Ending cost-sharing subsidies would send a signal to insurers that the … administration and Congress are not looking to make the [exchanges] work," and "the likely result would be that insurers would not stay in the [exchanges] and raise premiums, but would instead create a stampede for the exits"  (Radnofsky/Peterson, Wall Street Journal, 4/26; Abutaleb, Reuters, 4/25; Groppe, USA Today, 4/25; Alonso-Zaldivar, AP/Sacramento Bee, 4/25; Nather, "Vitals," Axios, 4/25; Kaiser Family Foundation analysis, 4/25).

    What does health care reform beyond the ACA look like? Join us on May 2nd

    Stuart Clark, Managing Director

    The first part of the Health Care Advisory Board’s latest “State of the Union” explores what the Trump administration and GOP-controlled Congress will mean for the future of coverage expansion, payment reform, and federal entitlement programs.

    The presentation provides an objective analysis of the next era of health care reform, unpacking the potential futures of Medicare, Medicaid, and the private insurance market—and what those changes would mean for provider strategy. The presentation also includes a detailed assessment of the accomplishments, shortcomings, and unintended consequences of the Obama-era reforms.

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