The CBO Report on Cost Sharing Reduction Subsidies Explained
NOTE: See also, the Kaiser Family Foundation’s The Effects of Ending the Affordable Care Act’s Cost-Sharing Reduction Payments and HHS’s The Potential Fiscal Consequences of Not Providing CSR Reimbursement. All these studies show that costs are increased for families, insurers, and tax payers while adding to the deficit (as CSR payments provide a necessary balance in our current healthcare system).
To sum up The Effects of Terminating Payments for Cost-Sharing Reductions August 15, 2017, report from the CBO and the current situation with cost sharing reduction subsidies and the Trump administration.
Currently, the Trump administration has yet to approve cost sharing reduction subsidies which reimburse insurers for lower out-of-pocket costs for consumers on silver plans.
Failure to fund the cost sharing reduction subsidies is projected to increase premium rates for silver plans. This will mean higher costs for those on silver plans and more subsidy spending on those with non-silver cost assistance eligible plans (because all cost assistance is based on silver plans).
This may be a good deal for those on non-silver plans (bronze, gold, or platinum) that get assistance, but it comes at the cost of inflated premiums in general and the loss of cost sharing reduction assistance for those making between 100%-250% of the poverty level.
To stop the uncertainty, the Trump administration would need to signal that they will protect cost sharing reduction payments (and not block them). Further, Congress could help by passing legislation that helps insures them. Now they need to be constantly approved with the budget.
Some key facts from the report include:
- CBO and JCT expect that insurers in some states would withdraw from or not enter the nongroup market because of substantial uncertainty about the effects of the policy on average health care costs for people purchasing plans. In the agencies’ estimation, under the policy, about 5 percent of people live in areas that would have no insurers in the nongroup market in 2018.
- Because they would still be required to bear the costs of CSRs even without payments from the government, participating insurers would raise premiums of “silver” plans to cover the costs.
- When premiums for silver plans increased under the policy, tax credit amounts per person for purchasing insurance in the nongroup market would increase because the credits are directly linked to those premiums.
- Implementing the policy would increase the federal deficit, on a net, by $194 billion from 2017 through 2026, CBO and JCT estimate. Total federal subsidies for health insurance in the non-group market—in particular, the sum of the premium tax credits and the CSR payments—would increase for two reasons: The average amount of subsidy per person would be greater, and more people would receive subsidies in most years.
As a result of the increase in total subsidies under the policy, CBO and JCT project these outcomes, compared with what would occur if the CSR payments were continued:
- The fraction of people living in areas with no insurers offering nongroup plans would be greater during the next two years and about the same starting in 2020;
- Gross premiums for silver plans offered through the marketplaces would be 20 percent higher in 2018 and 25 percent higher by 2020—boosting the number of premium tax credits according to the statutory formula;
- Most people would pay net premiums (after accounting for premium tax credits) for nongroup insurance throughout the next decade that was similar to or less than what they would pay otherwise—although the share of people facing slight increases would be higher during the next two years;
- Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026; and
- The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.
TIP: For more reading see KKF’s The Effects of Ending the Affordable Care Act’s Cost-Sharing Reduction Payments.