The Affordable Care Act (ACA) was signed into law more than seven years ago, but the fact remains that many Americans still don't understand Barack Obama's hallmark healthcare law, or healthcare in general.
For instance, a Morning Consult poll released in February of this year found that 35% of respondents were unaware that the ACA and Obamacare, which is what the ACA is more commonly known as, are one and the same. Overall, 17% believed they were different policies, while another 18% simply didn't know.
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A November 2016 PolicyGenius survey revealed even more glaring unfamiliarity with healthcare. Among 2,000 Americans polled on their knowledge of health insurance terms, just 1 out of 25 could correctly define all four of the following terms: deductible, coinsurance, co-pay, and out-of-pocket maximum.
Thus, when President Trump announced last week that he'd be ending a vital component of Obamacare known as cost-sharing reductions, my suspicion is most Americans probably scratched their heads and had no clue what he was talking about. Today, we'll answer that question by discussing what cost-sharing reductions are, and what it means for Obamacare and enrollees now that Trump has decided to end them.
What are cost-sharing reductions?
Cost-sharing reductions are one of the two core subsidies (Advance Premium Tax Credits being the other) tied to Obamacare. Advance Premium Tax Credits (APTC) are given to individuals and families earning up to 400% of the federal poverty level, and they help lower the cost of monthly health insurance premiums.
On the other hand, cost-sharing reductions are subsidies that help lower the cost of actually receiving medical care, such as deductibles, copays, and coinsurance. CSRs, as they also known, are available to individuals and families earning up to 250% of the federal poverty level, but they're only paid out to those who purchase a silver-level plan on an Obamacare exchange. Although bronze-level plans have lower premiums relative to silver plans, enrollees in bronze plans aren't able to receive CSRs.
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How many people qualify for cost-sharing reductions annually?
According to a mid-March press release from the Centers for Medicare and Medicaid Services, approximately 12.2 million people were enrolled in an ACA plan for 2017. Of these enrollees, 7.05 million qualified for CSRs. This year, about $7 billion in CSR payments were expected to be made from the federal government to insurers on behalf of low-income individuals and families who've received qualifying medical care.
It's worth noting that just over 2.8 million people signed up for bronze plans in 2017; if these folks earned less than 250% of the federal poverty level, they would have been eligible for CSR benefits had they instead chosen to enroll in a silver-tier plan.
What are the big issues with cost-sharing reductions?
You might be wondering why a program designed to help lower out-of-pocket costs for lower-income individuals and families is causing such a stir. The answer is twofold.
To start with, Republicans on Capitol Hill have never cared for Barack Obama's hallmark healthcare legislation. During Obama's presidency, the House GOP voted on more than 60 occasions to repeal Obamacare. Think of cost-sharing reductions as one of many puzzle pieces that Republicans in Washington oppose on principle.
Image source: President Donald J. Trump's official Facebook page. Photo by Shealah Craighead.
The second reason is that CSRs provided a gateway for the GOP to potentially cripple the ACA and put an end to Obamacare. In 2014, the GOP-led House sued the then-head of the Department of Health and Human Services, Sylvia Burwell, over CSR payments. The GOP alleged that these payments were being made without being properly apportioned by Congress. If Republicans won the case, CSR payments could be stopped, possibly causing Obamacare to enter a so-called death spiral where premium prices balloon out of control and healthy folks choose to remain uninsured.
What happened with Republicans' lawsuit over CSR payments?
So, what happened with the lawsuit? Though it took two years to play out in the courts, federal Judge Rosemary Collyer of the U.S. District Court for the District of Columbia sided with Republicans in 2016. However, she immediately stayed her verdict given the likelihood that the Obama administration would appeal her decision, which did happen. That appeal continued throughout the remainder of Barack Obama's presidency, and had been extended two times during the Trump presidency.
However, this verdict gave President Trump what's often been referred to as a "nuclear option" at his disposal. Trump had the ability to end the appeal to this case and cease CSR payments to more than 7 million Americans. A little more than one week ago, the president chose to do exactly that by signing an executive order, ending CSR payments.
What does the end of cost-sharing reductions mean for Obamacare and you?
If cost-sharing reductions are going away, we can probably expect more pressure and destabilization on the ACA insurance markets. Though government-sponsored members generate lower margins for insurers than private-insurance members, they nonetheless bring guaranteed-payment potential to the table. Without 7 million guaranteed payments, there's even less incentive for insurers to offer plans through ACA exchanges.
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National insurers have been bolting from Obamacare en masse in recent years. UnitedHealth Group (UNH 2.96%), the nation's largest insurer, cut the number of states it's selling ACA-compliant plans in from 34 in 2016 to just three in 2017. Humana (HUM 0.42%) and Aetna (AET), which had been planning a merger that was denied by U.S. regulators, slashed their county-based ACA coverage by almost 90% and nearly 70%, respectively, between 2016 and 2017, and they've announced that they're leaving the ACA exchanges entirely for the upcoming year.
What this means for you is the likelihood of double-digit percentage premium increases in 2018, and perhaps even 2019, should Obamacare survive. Without federal subsidies, insurers will be even more exposed to the high costs of treating sicker patients via Obamacare's mandates. These mandates require they accept all people, regardless of whether they have pre-existing conditions.
Is there any way cost-sharing reductions can be saved?
However, there may be a way to save CSRs after all. It was announced just days ago that Senators Patty Murray (D-Wash.) and Lamar Alexander (R-Tenn.) had reached a bipartisan compromise that would extend CSR payments for two years. The deal would allow states to sell copper plans, which are stripped-down catastrophic plans, to people of any age group, not just those under the age of 30 as laid out under current law. It would also grant more leniency in allowing states to qualify for waivers, which would allow for more flexibility when offering health plans.
If this bill were to become law, CSRs would continue. But there's no guarantee that'll happen. The GOP-led Congress could be an obstacle, even for a bipartisan bill.
Put simply, there still are no guarantees that CSR payments will be made moving forward, even with this latest development.
