Cutting off ACA insurer subsidies would raise—not lower—federal healthcare spending

If the Trump administration’s goal is to lower federal healthcare spending, discontinuing cost-sharing reduction subsidies, or CSRs, to insurers under the Affordable Care Act (ACA) could backfire, according to an analysis from the Kaiser Family Foundation.

The CSRs aren’t the same as the tax credits consumers receive for buying insurance, but are payments made directly to insurers to compensate for the added cost of reducing copays and deductibles for lower-income enrollees on the ACA exchanges. The CSRs are threatened because of a lawsuit filed by House Republicans during the Obama administration, and the Trump administration has not guaranteed those subsidies will be funded for 2018.

Without those subsidies, insurers would have to hike premiums an additional 19 percent to compensate, according to an earlier Kaiser analysis, and more may simply elect not to participate on the exchanges.

This new analysis adds to the earlier one. If insurers remain on the marketplace and hike their premiums, the federal government would be required to pay out $12.3 billion more in consumer subsidies—enough to erase the $10 billion in savings from eliminating the CSRs and adding an additional $2.3 billion in federal spending.

“Extrapolating to the 10-year budget window ... the federal government would end up spending $31 billion more if the payments end,” the Kaiser analysis said.

Ending the CSRs has been widely opposed within the healthcare industry. In a letter signed by groups like the American Medical Association, America’s Health Insurance Plans and the U.S. Chamber of Commerce, they warned not funding the subsidies could leave customers without any available insurers on the exchanges in their area and lead to a rise in uncompensated care costs.

The American Academy of Actuaries issued a similar warning on April 24, emphasizing the uncertainty this has created for insurance companies.

"With the deadlines for insurer rate filings fast approaching, policymakers need to act soon to address individual market issues for next year," said the academy’s senior health fellow, Cori Uccello.