The White House has announced that it will discontinue cost-sharing reduction payments to insurance companies. Fifteen states and the District of Columbia have already sued to block this action.
Under the Affordable Care Act (ACA), individuals with incomes under 250 percent of the federal poverty level can receive Silver plans on the Exchanges that have reduced deductibles and other forms of cost sharing. The ACA calls for the government to reimburse insurance companies that offer these policies for the reductions in cost sharing.
When Congress refused to appropriate the money to reimburse the insurance companies for these cost-sharing reductions, the Obama Administration decided to make the payments anyway, on the grounds that the ACA called for the payments. The House of Representative sued the Obama Administration, arguing that the payments were illegal because they had not been properly appropriated.
A federal district court agreed with the House, but stayed the order pending appeal. The Trump Administration had been continuing the payments on a month-by-month basis, but has now decided to drop the appeal.
Earlier this year, the U.S. Court of Appeals for the District of Columbia Circuit ruled that a coalition of state attorneys general can defend the payments. The attorneys general are seeking a temporary restraining order, a preliminary injunction and a permanent injunction requiring that the cost-sharing reduction payments continue to be made.
The Congressional Budget Office has analyzed the effect of terminating the payments and concluded that it will drive up premiums for individual health insurance policies, particularly for Silver plans.
As premiums go up, so will the subsidies for people earning less than 400 percent of the federal poverty level. It is quite possible that the government will pay more in increased subsidies than it will save by not making the cost-sharing reductions. Individuals earning too much to get a subsidy will be hit with large increases in premiums.
California’s Exchange, Covered California, had already decided to impose a 12.4 percent surcharge on Silver plans in anticipation of the discontinuance of the cost-sharing reductions. In some other states, premium increases of 20 percent or more have been reported due to the uncertainty regarding cost-sharing reductions.
It is possible that some insurance companies will decide to drop out of the Exchanges as a result of this action, while others that had not increased rates in anticipation of this action will seek immediate increases in rates that have already been filed.
Continuing the cost-sharing reduction payments had been a centerpiece of Congressional bipartisan efforts to strengthen the Exchanges, but efforts have faltered as no compromise seemed possible. The announcement that the payments will be discontinued may rekindle efforts to reach a compromise in Congress.