Who says President Trump isn’t a policy genius? He’s figured out a clever way to spend more government money just to stick it to poor people.
His innovation has to do with the intricate interplay of Affordable Care Act subsidies.
Obamacare has two major kinds of subsidies designed to make health care cheaper for low- and middle-income Americans buying insurance on the exchanges. The first is a tax credit that helps enrollees pay their premiums. The second, which is a bit less well-known, is called “cost-sharing reductions.” These subsidies shrink poor people’s out-of-pocket health spending — for example, the co-pays and deductibles that apply when they fill a prescription or see their doctor.
Here’s how that second subsidy works.
Obamacare plans are offered in different “metal” levels, which refer to the share of total health costs plans are expected to cover (“bronze” plans cover 60 percent on average, “silver” 70 percent, “gold” 80 percent, “platinum” 90 percent). The law says that to participate in the marketplaces, insurers have to offer lower-income people a special deal: They can buy silver-level plans but still get closer to gold- or platinum-level coverage.
About half of enrollees in the exchanges benefit from these subsidies, and their savings can be huge. For those making below 150 percent of the poverty line, combined medical and prescription drug deductibles are reduced by $3,354 on average, according to a Kaiser Family Foundation study.
Every month, the government reimburses insurers for the costs required to offer this more generous coverage for poor people. But the Trump administration has lately been cagey about how long this will continue.
In 2014, House Republicans sued the Obama administration over this spending; they argued it was illegal because Congress never explicitly appropriated the money for it. A federal judge sided with Republicans last year, but that ruling is on hold while the case is on appeal, and the Trump administration has not indicated whether it will continue defending it.
If in fact the subsidies disappear — or even if their funding just remains in doubt for long enough to cause insurers to panic — both bleeding-heart liberals and fiscal conservatives should worry. That’s because (a) poor people would lose access to health care; and (b) perhaps counterintuitively, the government would have to spend even more money on health insurance.
Let’s start with (b).
Even if the government reimbursements ended, insurers would still be required by law to continue guaranteeing poor people reduced out-of-pocket spending on silver plans. Where would they get the money for that? Mostly likely by raising premiums on these same silver plans — by about 20 percent, according to the Kaiser Family Foundation.
And that’s where things really go awry — and where the structure of Obamacare creates a domino effect that costs the government billions more.
Recall that the other kind of subsidy offered to poor and middle-income people on the Obamacare exchanges is a tax credit on premiums.
The amount of this credit happens to be pegged to silver-plan premiums. If premium prices increase for the benchmark silver plan, then the size of tax credits for everyone eligible for tax credits also increases. This is true even for those choosing something other than a silver plan, and even if the underlying premiums on their chosen plans don’t rise at all.
As a result, the government would be on the hook for about $12.3 billion in additional premium tax credits, outweighing the $10 billion it would save by killing out-of-pocket-spending subsidies.
A possible wave of departures, as well as the general chaos likely to result from sharp premium hikes, would result in more hardship and less insurance coverage for poor and middle-class Americans. A broad, bipartisan alliance of insurers, health providers, anti-poverty advocates, the Chamber of Commerce, the National Governors Association and state insurance commissioners have all argued as much.
Insurers have a few more weeks to decide whether to stick around for the 2018 exchanges, and at what price. If Trump doesn’t commit to these subsidies by then, expect a full individual-market meltdown — for which Trump will take the blame.
Hey, nobody knew messing up American health care could be so complicated.