White House Ends Subsidies for Insurance Companies

On October 12, the Trump administration announced it will stop reimbursing health insurance companies for the discounts on co-payments and deductibles they are legally required to offer low-income consumers through the Affordable Care Act’s (ACA) federal marketplace. Without the government reimbursements, known as cost-sharing reduction payments, insurance companies will likely raise premiums on other plans to subsidize the discounted plans.

In response, the attorneys general of 18 states and Washington, D.C., moved to sue the White House for the next payment. The states are: California, Connecticut, Delaware, Kentucky, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.

Critics warn that the middle-class consumers who purchase their own coverage on the ACA marketplace without financial assistance from the government (i.e., consumers who earn more than 400% of the federal poverty level) will face the highest rate hikes. Coverage costs may rise by 20 percent in 2018.

According to an estimate by the Congressional Budget Office, ending the subsidies, which total $7 billion, will cost the federal government more – almost $200 billion dollars over 10 years – than the subsidies cost alone. The ACA mandates that insurance premiums cannot exceed a certain percentage of a consumer’s income, so, if premiums rise, the government likely would boost consumers’ tax credits so the cost to consumers remains the same.

President Trump also signed an executive order allowing consumers and small businesses to purchase less expensive insurance plans through trade groups and professional associations.

Sources: Reuters, October 13, 2017; NPR, October 13, 2017.