Stopping payments for the Patient Protection and Affordable Care Act (PPACA) cost-sharing program could save $10 billion but would cost an additional $12.3 billion in premium tax credits––an estimated net increase of $2.3 billion (23%) in federal spending on marketplace subsidies––in 2018 if insurers continue to participate in PPACA marketplaces, according to a new analysis from the Kaiser Family Foundation.
A lawsuit by House Republicans has successfully challenged the legality of the cost-sharing subsidies, which were established to reduce out-of-pocket costs for PPACA marketplace enrollees with lower incomes. With the lawsuit temporarily on hold, the Trump administration and Congress are in a position to determine whether to continue the payments, which go to insurers to reimburse their costs for providing the cost-sharing reductions.
The new analysis examines potential financial implications if the government stops cost-sharing reduction payments to insurers.
Without the payments, the analysis found, the average PPACA marketplace premium for silver plans would need to rise by 19% in 2018 for insurers to offset the lack of funding. Estimated premium changes vary for the 38 states that used healthcare.gov in 2016, ranging from 9% in North Dakota to 27% in Mississippi.
Changes to silver plan premiums in PPACA marketplaces would affect how much the government owes to eligible enrollees in tax credits. Meant to reduce monthly insurance costs for people with lower incomes (from 100% to 400% of the poverty level), PPACA premium tax credits are tied to the premium for the second lowest-cost silver plan in each geographic area.
According to the analysis, the government would owe an estimated additional $12.3 billion in tax credits in 2018 if cost-sharing reduction payments end and if insurers choose to continue offering plans in PPACA marketplaces. The government would save $10 billion from stopping the payments, resulting in a net increase in federal costs of $2.3 billion. Extrapolating to the 10-year budget window (2018–2027) using the Congressional Budget Office’s projections for cost-sharing reduction payments, the net increase in federal costs would be $31 billion.
President Trump has threatened to withhold the subsidy payments to force Democrats to the negotiating table on House Republicans’ plan to overhaul the PPACA.
He has also said he would approve the subsidies if Democrats agree to provide cash for his proposed border wall with Mexico as part of efforts to pass a government funding bill this week and avert a shutdown. Democrats have rejected the conditional offer. If no deal is made, parts of the federal government will grind to a halt at 12:01 am on Saturday, April