cost-sharing subsidies

Cost-Sharing Subsidies Stabilize the Insurance Market

Donald Trump, after mulling the issue for months, has decided to end the Affordable Care Act’s (ACA) cost-sharing subsidies, a move that could drive insurers from the market place and which will raise the cost of insurance, especially for those hovering at or just above the federal poverty line.

Cost-sharing subsidies make healthcare affordable for low-income consumers

These cost-sharing subsidies help consumers who earn between 100 and 250% of the poverty line afford copays and deductibles if they purchased select healthcare plans through the ACA exchanges.

The plans that qualify for cost-sharing subsidies tend to have high deductibles — the Silver Plan, for instance, had an average deductible of more than $3,000 in 2016 — that would otherwise render purchased insurance all but useless for low-income consumers.  Cost-sharing subsidies help make the Affordable Care Act affordable.

Payments, made directly to insurance companies, total around $7 billion a year.  Without these subsidies, health experts fear insurers would drop out of marketplaces.  Those that remain would have to raise rates to “cover the costs of reducing cost sharing while ensuring solvency.”

Ending cost-sharing subsidies leads to uncertainty

Before Trump announced an end to cost-sharing subsidies, uncertainty around future payments caused insurers to raise rates in case the administration cutoff reimbursements.  Insurance companies had to insure themselves against the possibility of the Trump administration signing an executive order; unfortunately, the premiums for that insurance fell on consumers.

That’s not all.  On top of insurers leaving the markets and premiums rising, ending cost-sharing subsidies would actually increase the deficit by $194 billion over 10 years.  This paradoxical finding by the CBO — federal spending actually rising by the president cutting some spending — will happen because of premium increases.  As premiums rise for those with low incomes, government subsidies will also rise, costing the government hundreds of billions over the course of a decade.

Trump’s decision and his rhetoric leading up to it have sabotaged the ACA and the healthcare markets by creating instability, discouraging insurers from entering the marketplace, raising premiums, and, as subsidies end, increasing the deficit.

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