Obamacare 101 — What's the big debate over health insurance cost-sharing subsidies?

April 26, 2017 1:20 PM PT

Washington — As President Trump and congressional leaders scrambled to put together a spending bill to keep the government from shutting down at the end of this week, negotiations almost collapsed over an arcane, but critical part of the Affordable Care Act: cost-sharing reduction payments, or CSRs.

If you’ve never heard of this piece of the Obamacare puzzle, here’s a rundown of what they are, why they were pulled into Trump’s first budget fight and what their fate may be in the future.

Obamacare 101 is a periodic primer on the debate over repealing and replacing the Affordable Care Act »

What are the cost-sharing reduction payments?

One of the pillars of Obamacare are the insurance marketplaces that allow Americans who don’t get coverage through an employer to shop among health plans that must all cover a basic set of benefits.

Low- and moderate-income shoppers with annual incomes between 100% and 400% of the federal poverty level — between about $12,000 and $48,000 — qualify for subsidies that offset the cost of their monthly insurance premiums.

Less well-known are the so-called cost-sharing reductions. Consumers who make between 100% and 250% of the poverty line can get this additional assistance to cover co-pays and deductibles if they select certain health plans on the Obamacare marketplaces.

These cost-sharing reductions mean that someone who might otherwise face an annual deductible of $2,000 or more would potentially have no deductible at all. This additional assistance can be especially important as many low-priced health plans force consumers to pay high deductibles before their medical care is covered.

This year, the CSR payments will cost the federal government about $7 billion, according to the nonpartisan Congressional Budget Office.

Why are they an issue now?

Most spending in Obamacare is mandatory, which means that it does not require Congress to appropriate it every year in a spending bill. But there has been some debate about whether the CSR payments fall into this category.

The Obama administration initially sought congressional approval for CSR payments but later maintained this was not necessary. And since 2014, Obama administration has made CSR payments to lower deductibles for millions of low-income consumers.

Republicans have argued this usurped Congress’ authority over spending. Last year, a federal judge agreed with them, though she suspended her order while the case was being appealed.

What would happen if the CSR payments are stopped?

Health insurers and other experts have been warning for months that eliminating the payments could destabilize the Obamacare marketplaces and cause some insurers to stop offering health plans.

That is because the payments currently go to insurers, who use them to offset the losses they incur from covering medical expenses that consumers would normally have to pay until they reach their deductibles.

If the payments are stopped, insurers would still be barred from charging low-income consumers for deductibles. But insurers would no longer be able to get financial aid for the costs they are bearing.

Some insurance companies would likely decide that it was no longer worth selling health plans on the marketplaces. Others might conclude that they have to raise premiums to cover the additional losses.

That could cost some consumers more, particularly those who don’t qualify for government assistance.

It could also cost the federal government more as higher premiums would mean higher subsidies for those who qualify (because the value of subsidies is tied to the cost of insurance premiums).

The additional cost of the subsidies might even outstrip the savings that would be generated by stopping the CSR payments, according to a new analysis from the nonprofit Kaiser Family Foundation, which estimates that stopping the CSR payments would save $10 billion in 2018 but lead to $12 billion in additional subsidy payments, assuming insurers did not abandon the Obamacare markets next year.

How did the CSR payments get dragged into the current budget debate?

To prevent an insurance market meltdown, insurers industry officials and many Democrats urged congressional leaders to include funding for the CSR payments in the spending bill that Congress must pass this week to keep the government open.

That would make the fate of the payments less dependent on the ongoing lawsuit and prevent Trump from using them as a bargaining chip down the road, risking the collapse of insurance markets. At one point, Trump and GOP leaders had floated the idea of using the payments as a way to pressure Democrats to support funding for a border wall with Mexico or to increase military spending.

The White House and GOP leaders ultimately decided against including the payments in the spending bill. But the administration said Wednesday that it would agree to keep funding the CSRs administratively, at least for now.