President Trump escalated his petty, vindictive, and self-defeating campaign to sabotage the Affordable Care Act on Thursday night, as the White House announced it would halt subsidy payments to insurers that are considered key to making the law work as designed.
This is the move health-care wonks have long referred to as Trump’s nuclear option on Obamacare, the most straightforward way he could try to short-circuit the law and plunge the country’s individual insurance markets into chaos (for indeterminate political gain). The president has threatened such a move on and off for months now—usually while claiming, disingenuously, that Obamacare was about to collapse on its own.
The good news is that the insurance markets in many—maybe most—states will probably survive this latest attack. In the long term, it’s possible some Americans will actually get a better deal on coverage and (if you believe Congress’s official forecasters) and the number of people with coverage may increase a bit, though at the cost of many billions to the government. But the immediate fallout won’t be pretty.
The subsidies that Trump is now cutting off are known, in bureaucratese, as cost-sharing reduction payments. Insurers receive them in return for capping out-of-pocket expenses for lower-income customers who buy coverage on Obamacare’s insurance exchanges. Carriers are required by law to offer these discounts, and the government payments are simply meant to cover their outlays on the back end. Trump has tried to label this system an insurer “bailout,” which is obviously nonsense. It’s just one more, slightly complicated way the ACA was designed to bring down the price of health care for working-class families.
Even though the Affordable Care Act very explicitly mandates that the government make these payments, the trouble is that Congress never technically got around to appropriating the money to fund them. And in a lawsuit brought by House Republicans, a federal judge ruled that the Obama administration’s decision to keep the subsidy money flowing to insurers anyway was, in fact, illegal. While the case was on appeal, Trump won the presidency, giving him the option of tipping over insurance markets by dropping the Obama administration’s defense and halting the payments. In its statement Thursday, the administration said it was cutting off the subsidies after deciding that they were simply unlawful—which might be more believable if Trump hadn’t spent months treating them like a political chess piece. In any event, here we are.
The big-picture problem is that while insurers are legally required to keep offering discounted coverage to poorer customers, the government is now refusing to pick up the tab like it promised. Worse yet, companies can’t necessarily raise their premiums in response, because they’ve already signed their final paperwork to offer coverage on the exchanges. As a result, some carriers stand to lose a lot of money; the Congressional Budget Office recently projected that the subsidies would be worth about $8 billion in 2018. This will almost surely lead some carriers to bail on the marketplaces entirely, taking advantage of clauses in their contracts that allowed them to stop doing business on the exchanges if the cost-sharing subsidies were discontinued.
But the damage is going to vary from state to state. In some parts of the country, insurance commissioners planned ahead and took steps to shelter their markets from Trump’s wrath. One group simply assumed that Trump would hit the kill switch and let insurers price that risk into all of their plans. In other states, insurers were allowed to specifically increase the premiums for silver-tier plans—which are the only ones directly affected by the subsidy issue. Another group, including California, took a cunning, sort of complicated approach that Charles Gaba of ACASignups.net calls the “silver switcheroo,” a maneuver that could actually let insurers recoup their costs without costing customers any extra money.
Unfortunately, Gaba and his collaborators think that about 14 states set their rates assuming that, for all his bluster, Trump would just keep paying the subsidies—which, in retrospect, was a bit like staying home with a category 4 hurricane on the way. And given that some of those states, like Arizona, have had trouble in the past finding insurers to cover all of their residents, it seems likely that carriers will decide to pack up and head out. If they do, you could see a lot of bare counties dotting the country, meaning Americans in those places won’t be able to buy insurance at all on Obamacare’s exchanges. When the Congressional Budget Office estimated the effects of killing the cost-sharing subsidies, it projected that 5 percent of the country would end up in such a predicament during 2018. Because of Trump’s timing, and the fact that many insurers have already finalized their prices, that analysis might not be spot-on, but it gives you a flavor for the trouble ahead.
In states where the marketplaces don’t collapse outright, however, Trump’s attempt to bomb Obamacare into rubble might have a weird upside for some customers. At least, it will for those who receive tax credits from the government to buy insurance, meaning anybody who earns under 400 percent of the poverty line. (To be extra clear, we’re not talking about the cost-sharing subsidies that Trump just killed anymore. We’re talking about the premium tax credits that go directly to consumers, which are going to keep flowing. This is your reminder that Obamacare is a technocratic mille-feuille of confusing policy elements.)
Because Obamacare’s premium subsidies cap the cost of insurance as a percentage of a household’s income, people who receive them won’t have to worry about their monthly premiums going up. Even better, they may be able to upgrade their insurance for cheap, or even get a free plan. That’s because the value of the ACA’s tax credits are based on the cost of silver coverage—the health plans insurers in many states raised prices on in anticipation of Trump’s move. Since silver plans are now quite expensive, the value of subsidies should also shoot up, and in some cases may be high enough to let customers buy a more comprehensive gold plan, or nab a free bronze plan with more limited benefits.
Of course, people who don’t receive subsidies won’t see those benefits, and some could up paying much more for their health plans. But in some markets they might not; states like California are allowing insurers to sell silver coverage for less money off of the official exchanges, where they won’t be required to offer the discounts on out-of-pocket costs to low-income customers that are at the center of this mess. That could protect families that lack tax credits from getting victimized in this mess.
The odd upshot of all this is that, thanks to Trump’s attempt to destabilize Obamacare, it may be a better time than ever for some Americans to sign up. This has important implications for the future of the law, if Congress can’t get its act together to pass some sort of compromise restoring the cost-sharing subsidies (which Trump has reportedly said he’d be open to, making his precise political motivations here even more inscrutable than usual). Because many customers may end up getting a better deal on insurance in the new, nonsensical health-care system Trump just plunged us into, the CBO thinks that carriers will adjust their business plans, start selling nationwide again, and after a brief uptick, the number of uninsured will actually fall by about 1 million. The major downside is that Washington will add an extra $194 billion to the deficit over a decade, thanks to the higher cost of subsidies.*
So, if you believe the Congressional budget office, Obamacare could be in for a period of short-term mayhem and long-term (if awkward) stability. Should we take their word for it?
It’s hard to say. The problem is that, at this point, it’s impossible to look at any one of Trump’s moves to sabotage Obamacare in isolation. He hasn’t merely smashed one of the law’s key buttresses. He’s slashed the outreach and advertising budgets, signed an executive order aimed at deregulating the insurance markets by administrative fiat, and generally done everything in his power to create an air of uncertainty around the insurance market seemingly in order to drive out insurers. In some parts of the country, the exchanges might be resilient enough to survive all of that. But is it possible Trump’s combined assault will fatally undermine them a couple states? I wouldn’t be surprised.