All year, President Trump had threatened to release a metaphorical bomb into the Obamacare markets — canceling a certain type of payment to health insurers. Everyone was convinced it would destroy the marketplace.
Late last Thursday, he carried out his threat, later saying that “the gravy train ended the day I knocked out the insurance companies’ money.”
Congress is responding. Senators Lamar Alexander and Patty Murray, the chairman and ranking member of the Health, Education, Labor and Pensions committee, announced on Tuesday that they had reached a deal on legislation that would undo the president’s order and bring back the subsidies.
But now it looks as if Obamacare markets won’t face wholesale devastation, regardless of whether that legislation passes. In 2018, at least, insurers may be made whole and consumers protected — even without the subsidies.
How could that be? The details are complicated, but the crux is that insurers and state regulators worked together to find a way to funnel more federal money into the Obamacare insurance markets.
The insurer-regulator hack will mean that navigating the Obamacare marketplace will be more complicated for consumers (more on that later). And the change will cost taxpayers more money — perhaps $21 billion more in 2018 alone. But, in the end, most customers will be unharmed by the president’s decision, and a substantial fraction will be better off, able to buy plans for about the same price they pay now, yet with lower deductibles.
The president’s move was to cut off a form of Obamacare funding known as the cost-sharing reduction subsidies. Those were payments the government made to health insurers to compensate them for lowering the deductibles and co-payments for low-income customers.
But he didn’t cut off another, more important form of subsidy. The Affordable Care Act also includes tax credits that help low- and middle-income Americans pay their insurance premiums. Those tax credits increase in value along with the price of a certain midlevel insurance plan, known as silver. If you qualify for a subsidy, you can never be asked to pay more for that plan than a set fraction of your income.
Insurers in more than 40 states have decided to compensate for the missing cost-sharing subsidies by making hefty increases to the prices of this silver plan — but small or no increases to their other plans. Consumers who qualify for subsidies are still asked to pay the same fraction of their income toward a health plan, and the federal government pays the insurers the rest of the higher silver-plan premium. So consumers are no worse off, and insurers make up for the loss of the cost-sharing subsidies canceled by Mr. Trump.
And for many Obamacare consumers, there’s also a silver lining in these pricier silver plans. There are other kinds of plans being sold on the marketplace: high-deductible plans called bronze and low-deductible plans called gold and platinum. Consumers can use their subsidy to buy any color plan they like. And, with the price of silver plans rising faster than the other categories, most consumers with subsidies will now be able to buy a lower-deductible health plan for the same price as the silver plans that are currently most popular on the exchanges. (They can also choose to buy high-deductible bronze plans for very low prices, or in some cases get them free.)
“This was a backdoor, unintended way of increasing premium subsidies for some people,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, a health research group.
The new pricing structure is the worst for people who earn too much to qualify for a subsidy — those earning more than four times the federal poverty level, or about $100,000 a year for a family of four. But most of them will also be protected from the cost increases. If they avoid silver plans sold on the Obamacare marketplaces in most states, they can find plans that don’t have the special, Trump-prompted increases. That means that unsubsidized customers who want to buy silver plans will probably need to shop outside of HealthCare.gov, through a human or online broker. Or they can buy a bronze, gold or platinum plan.
“It’s a convoluted kludge of a workaround,” said David Anderson, a research associate at the Duke University Margolis Center for Health Policy, who has looked closely at how carriers are pricing their plans. But Mr. Anderson said he thought the upside was strong enough that Congress should abandon its efforts to restore the canceled subsidies. “A lot of people are going to see during open enrollment that they are going to be able to afford a better plan with lower deductibles and lower premiums than they could this year,” he said.
There are still downsides. It is possible that insurers, worried about the lost payments and thin on trust for the federal government, will flee the markets before the enrollment period starts at the beginning of next month. But no major insurer departures have been announced since the president announced his decision on Thursday.
There are a few states where insurance regulators didn’t allow insurers to increase only their silver plan prices. In those states, subsidized customers will be held harmless — but no one will get a cheaper gold plan, and unsubsidized customers will face price increases. There are some states where there is no individual market outside the Obamacare marketplace, and in those places, unsubsidized customers won’t be able to get a good deal on a silver plan (though they can still buy another color plan).
Perhaps the biggest problem: Shopping for a plan is going to be harder. Many Obamacare customers who just renew this year’s plan will be passing up a better deal, and many scared of initial sticker shock may not realize there are cheaper options. In addition to eliminating the cost-sharing reduction subsidies, President Trump’s administration has also cut back on funds for advertising about the marketplaces and on professionals who help customers sign up. (The Alexander-Murray deal would restore much of that funding, but probably not soon enough to make a big difference.)
“It’s hard,” said Lori Lodes, a former Obama administration official and co-founder of a new nonprofit group, Get America Covered, focused on helping spread the word about Obamacare enrollment. She says she worries about growing consumer confusion: “My biggest concern is really I do not believe that the administration will educate people about this, and so there is going to be an information gap.”
But the Congressional Budget Office, when considering the effects of ending the cost-sharing subsidies a few months ago, concluded that, over time, the strategy of raising the price of only silver plans would become widespread, and that consumers would figure it out. It estimated that, by 2020, a world with no cost-sharing reductions would be a world with fewer uninsured Americans. The increased subsidies “would make purchasing nongroup insurance more attractive for some people,” increasing sign-ups, the report said.
Mr. Alexander and Ms. Murray’s newly announced proposal would fund the payments for two years, increase advertising for the marketplaces and make it easier for states to experiment on how they run their insurance markets. Mr. Trump has indicated that he might sign such a bill. But the deal, even if it does pass Congress, comes too late to affect insurance prices for next year. In 2018, at least, we will be living in a world of high-priced silver plans. Luckily for those who need insurance, that may not turn out as badly as many people had feared.