Without subsidies, insurers would need 19% premium hike for ACA plans

The average monthly premium for a benchmark silver-level plan on the Affordable Care Act (ACA) insurance marketplace would need to be increased by 19 percent to compensate for lost cost-sharing subsides if the program isn’t funded by the Republican-controlled Congress for 2018.

The Kaiser Family Foundation analysis said 7.1 million of the 12.2 million ACA exchange customers in 2017 received cost-sharing reductions, lowering their combined medical and prescription drug deductibles by as much as $3,354 and reducing annual out-of-pocket limits by up to $5,587.

Those subsidies could be pulled, however, thanks to a lawsuit filed by the House of Representatives against HHS during the Obama administration. The suit argued the payments to insurers were illegal because Congress never appropriated the money. A district court judge ruled in favor of the House, but the case has been put on pause while the Trump administration decides whether to defend the Obama-era subsidies.

“The leadership in the House has suggested that they will make an appropriation as part of the upcoming continuing resolution, but we don’t know any details of that,” Kaiser Family Foundation Vice President Gary Claxton said in a briefing with reporters.

If the Trump administration decided to no longer fight the lawsuit, the cost-sharing reductions would disappear almost immediately, leading to “certain financial losses” for insurers, according to Kaiser Senior Vice President Larry Levitt.

“Ending cost-sharing subsidies would send a signal to insurers that the Trump administration and Congress are not looking to make the ACA marketplaces work,” Levitt said. “The likely result would be that insurers would not stay in the marketplaces and raise premiums, but would instead create a stampede for the exits.”

If insurers did offer coverage for 2018 on the exchange, their premiums for benchmark silver-level plans on the exchanges would go up by an average of 19 percent nationwide. The increase would be higher (21 percent) in states which didn’t expand Medicaid compared to a 15 percent hike in expansion states. There would be variation state-by-state, with Mississippi seeing the biggest hike (27 percent) and North Dakota the lowest (9 percent).

This scenario wouldn’t offer much in savings to the federal government, said because under current law, the premium increases would lead to increased tax credits for buying insurance. It would also have the unintended consequence of making gold and bronze level plans more attractive, because they wouldn’t be affected by the loss of cost-sharing subsidies.

Claxton said the uncertainty with subsidies and enforcement of the individual mandate are likely factors in recent insurer exits, like Wellmark and Aetna deciding not to participate on Iowa marketplace.

Those exits come amidst “mixed signals” from the Trump administration on how it will support the ACA including a report from POLITICO that some advisers want the subsidies to be cut off immediately. Levitt joked insurers needed a clear policy direction from HHS and the White House “yesterday.”

“Insurers have to make initial decisions about whether to participate and what premiums to charge by June 21 for the federal marketplace and actuaries are working away on their spreadsheets right now,” he said.