Directive ending key subsidy threatens Obamacare's viability

After failing in several attempts to pass legislation overturning the Affordable Care Act, the Trump administration took a big step toward undercutting the law Oct. 12 when it said it would no longer continue funding a class of widely used subsidies without congressional appropriations.

The payments in question are known as "cost-sharing reductions." They were intended to ease copayments and deductible costs for millions of low-income Americans who have purchased insurance coverage on the Affordable Care Act online marketplaces. The estimated cost of the payments was $9 billion next year and nearly $100 billion over the next decade.

The payments have been subject to a legal dispute since House Republicans sued in 2014, arguing that the Obama administration was improperly paying the subsidies when no money had been appropriated for that purpose by Congress. The House Republicans' lawsuit was initially upheld in federal district court, but the case has continued to work its way through the courts.

In its announcement, the White House specifically cited the legal case as the reason for ending the payments. Insurers had been expecting a new round of payments on Oct. 18.

"Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare," said a statement from the White House press secretary's office. "In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments. … Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people."

Health policy specialists agreed that the impact could be serious.

What the president is doing "is a haphazard chipping away" of the parts of the law he can reach, said Linda Blumberg, a senior fellow at the Urban Institute. "It's a very reckless way to make policy because its effects vary considerably across the country and in some cases will destabilize insurance markets with no strategy or policy for fixing them."

Experts said that lower-income Americans would be hurt the most by the change.

"The people in the exchanges are disproportionately low income, most below 225 percent of poverty level, and therefore get support from the cost-sharing reductions," said Gail Wilensky, who headed Medicare and Medicaid under President George H.W. Bush. Stopping those payments is "a big deal," she said.

But ending the subsidies could have other indirect impacts, experts said.

Some states anticipated the possibility that the Trump administration would stop paying cost-sharing reductions and had the insurers they regulate factor this into their proposed premiums for 2018. But other states did not.

In those states that didn't plan for this scenario, the non-group market -- that is, the market for insurance purchased individually by consumers rather than collectively by employers for their workers -- could face the most significant impacts.

"This would mean insurance costs for nongroup coverage becoming substantially higher," Blumberg said. "This scenario still leaves the nongroup market regulations in place, but it hurts everyone because those eligible for subsidies who can't afford coverage on their own would have to drop out and become uninsured. Since many of these people are healthy, the premiums for all that remain in the insurance system would go up."

Ending the subsidies will not necessarily be tantamount to repealing the law, as Trump promised to do.

For starters, the cost-sharing reductions are one part of the law; eliminating them would not directly affect other parts.

"Obamacare is many things -- Medicaid expansion, insurance regulations, consumer protections, the health insurance exchanges, Medicare benefit improvements, the individual and employer mandates, cost control and delivery system reforms, and much more," said Jonathan Oberlander, a professor in the Department of Health Policy & Management at the University of North Carolina-Chapel Hill. Trump's move "is a big deal, and could further destabilize the ACA's insurance marketplaces. But … it doesn't impact the other components of Obamacare."

Trump's decision to end cost-sharing reduction payments puts the Affordable Care Act in some degree of peril. We rate this promise In the Works.