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CBO: Trump Threat to Cut Obamacare Payments Would Spike Premiums

Health care premiums will spike and deficits will rise if President Donald Trump cuts off Obamacare payments to insurers, according to a new CBO report.
Image: Donald Trump in Bedminster, NJ
President Donald Trump speaks to the press at Trump National Golf Club on August 11, 2017 in Bedminster, New Jersey.Jim Watson / AFP - Getty Images

WASHINGTON — Health care premiums will spike, insurers will exit the market, and deficits will increase if President Donald Trump follows through on his threats to cut off government payments to insurance companies, according to a new Congressional Budget Office report.

The cost of a “silver” insurance plan under Obamacare would be 20 percent higher in 2018 and 25 percent higher by 2020 compared to current law, according to the report. About five percent of the population would not be able to buy insurance through Obamacare at all next year, the CBO predicted, because companies would withdraw plans in response to the “substantial uncertainty” created by the move. The markets would stabilize in future years, however, as insurers adjusted to the new policy.

Trump has said for months he is considering cutting off the cost-sharing reduction payments, which reimburse insurers for lowering out-of-pocket costs for customers, in order to increase pressure on lawmakers to repeal and replace Obamacare. The CBO analysis was requested by House Democratic leaders.

While the president has decried the payments as a “bailout” for insurers, the CBO projected that ending them would cost the government $194 billion more over the next decade. This is because Obamacare’s subsidies are pegged to the cost of a silver plan in an area, meaning people who are eligible for federal help would be insulated from the premium hike. In fact, the CBO predicted the change would slightly increase the number of people with insurance, since some customers buying cheaper bronze plans would benefit from the higher subsidies.

The payments are the subject of an ongoing lawsuit by House Republican, who argue the law did not explicitly authorize the Obama administration to make the payments. Trump could decide to drop the White House’s defense of the law, although he’d face a challenge from a coalition of Democratic state attorneys general who have sought to uphold the payments.

Insurers have warned for months that cutting off the cost-sharing reduction payments would prompt them to raise premiums or stop offering plans entirely on Obamacare’s state exchanges. In some states, companies have submitted two preliminary rates for their 2018 plans — one in which the CSR payments continue, and a higher one if they’re cut off. Insurers must make a final decision on whether to participate in the 2018 markets next month.

Obamacare’s exchanges are still fragile: Many insurers raised premiums and pulled out of some markets last year after finding the customers who signed up tended to be sicker and more expensive than they hoped. That left large numbers of people with fewer choices than they would like, including about one-fifth of customers who have only one insurer on the individual market in their area, according to the Kaiser Family Foundation.

But reports this year suggest insurance profits are up and markets are stabilizing. The biggest threat at the moment appears to be uncertainty over the law’s future -- not just over the cost-sharing payments, but whether Congress will pass a broader replacement, and whether the White House will try to make the law’s various elements work or “let Obamacare fail,” as Trump has threatened.

Republicans in Washington are wary of Trump’s threats to cut off CSR payments. Some Senate and House Republicans have even proposed joining with Democrats to fund them if they can’t reach a deal on repealing and replacing Obamacare.