President Trump finally made good on his promise to yank funding from a key set of Obamacare subsidies.
The administration announced late Thursday night that it would immediately stop supporting the cost-sharing subsidies that reimburse insurers for reducing the deductibles and co-pays of lower-income Obamacare enrollees. Trump has been paying the subsidies on a month-to-month basis, unnerving many insurers.
What does this mean for the nearly 6 million people who receive these subsidies? And what about the more than 10 million Americans enrolled in Obamacare?
The short answer: Insurers must continue providing these cost-sharing discounts -- even though they won't be paid for them. That's because the subsidies are required by the Affordable Care Act.
However, many carriers already anticipated Trump would eliminate the funding and are hiking premiums substantially for 2018. Enrollees who qualify for premium subsidies -- which are separate and unaffected -- won't have to pay much more, though they may need to switch plans to keep their rates steady. But middle-class Americans who earn too much to get premium subsidies could get walloped by higher rates.
For a more detailed answer, read on.
Only a few months ago, insurers warned that discontinuing the funding for cost-sharing subsidies could bring down Obamacare. They, along with governors, health care providers and lawmakers on both sides of the aisle, pressed Trump to continue making the payments to stabilize the individual market in the near term.
Now that the funding is terminated, insurers' reaction will vary, experts said. Many will continue offering coverage next year. Others, who didn't bake in the loss of funding, may try to raise rates or pull out. And plenty of lawsuits will likely be filed.
"It introduces a lot of chaos, but this doesn't threaten its future," Larry Levitt, senior vice president at the Kaiser Family Foundation, said of the Affordable Care Act. "Those insurers that have built in [the end of the funding] are totally fine. They really are."
Insurers that assumed the cost-sharing subsidy payments would be discontinued requested an additional 2% to 23%, according to a Kaiser Family Foundation analysis published in August.
Insurers finalized their premiums and signed contracts last month.
Carriers are levying the rate hikes in different ways. Some are spreading it out across all their plans, but others are limiting it to just silver-tier polices -- the plans eligible consumers must purchase to receive the cost-sharing subsidies. In California, for instance, insurers will levy a surcharge of up to 27% on silver-level plans.
Other carriers, however, did not build in a buffer in case Trump ended the payments. These insurers are in more of a pickle. Some may try to raise rates now, though this would have to be approved by regulators. Others may try to exercise a clause in their contracts that allows them to drop out if the subsidy funding disappears.
As for Obamacare enrollees, the impact also varies. More than eight in 10 are shielded from rate increases because they qualify for premium subsidies, which are not affected by Trump's move. Premium subsidies are advanced refundable tax credits.
Those who can't get premium subsidies could see substantial increases for 2018, which would come on top of big hikes levied for 2017. This would be particularly true if they select an insurer who raised rates across all their plans.
But unsubsidized consumers in some states could find a better deal if they shop for a bronze or gold plan offered by an insurer that loaded the rate increases into the silver policies. In Idaho, for instance, silver plan premiums will jump an average of 44%, but bronze plans are only going up 8% and gold plans 9%, on average.
Trump's decision, however, may not be the last word on the funding of the cost-sharing subsidies.
"So what happens now? Lawsuits, lawsuits, and more lawsuits," Nicholas Bagley, an assistant professor of law at the University of Michigan, wrote in a blog post Thursday night.
Insurers and state officials could sue the Trump administration for ending the payments. Already, New York Attorney General Eric Schneiderman, who is part of a coalition defending the subsidies, swiftly announced that the group would be taking action against Trump.
The cost-sharing subsidies have been at the center of a legal battle that dates back to 2014, when the House of Representatives filed a lawsuit against then-Health Secretary Sylvia Burwell. GOP lawmakers argued the payments were illegal because Congress never appropriated the money. A district court judge last year ruled in favor of the House, but stayed her decision. The Obama administration filed an appeal, which continued under Trump.
Ending the cost-sharing subsidy payments was only one of two moves Trump made Thursday to dismantle Obamacare in the wake of Congress' failure to repeal the law. The other was an executive order directing the Labor Department to study how to make it easier for small businesses, and possibly individuals, to join together and buy health insurance through nationwide association health plans. The department could give small employers more flexibility to offer group coverage across state lines, providing them with a broader range of policies at lower rates.
The aim of the order is to give Americans more access to lower-cost plans, but critics warn they may provide skimpier benefits. This is a greater threat to Obamacare's long-term health since it could siphon off young and healthy consumers from the Obamacare exchanges, leaving mainly older and sicker workers behind, Levitt said.