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Who Trump actually hurts by stopping payments to insurance companies, explained with a cartoon

The payments are to lower costs for low-income people, but they increase costs for everyone else.

President Trump claims that because Congress has failed to repeal Obamacare, he's going to “piece by piece” give America the health care it deserves. So he issued an executive order that would stop key Obamacare payments to insurers, in an effort to stop “bailing out [insurance companies] who have made a fortune” under Obamacare.

But rather than lowering premiums, something that Trump promised repeatedly on the campaign trail, experts say it will do the opposite.

Here's where it gets confusing: These payments to insurance companies are supposed to help reduce the cost of health care for low-income people. So it's easy to think rescinding this policy would increase costs for low-income people.

But that's not the case. Rather, it increases the premiums for middle- and higher-income people who don't receive a subsidy to buy insurance and it increases the amount of money the federal government spends on insurance, ultimately expanding the deficit.

So how is it that stopping payments to insurance companies that are supposed to help low-income people actually ends up hurting an entirely different population? In short, Obamacare is a complicated Rube Goldberg machine; if you do something you think is a good idea on one side, it could have unintended consequences — and that's exactly the case here. Let's walk through a cartoon to explore:


Let's say the people below represent everyone who buys insurance from the Obamacare exchanges:

Without any help from the government, the average health care costs would be about the same for everyone.

But Obamacare caps how much insurance costs for people below a certain income level

The less money you earn, the less of your income you're expected to pay toward your monthly premium.

So this year, if you're an individual earning less than about $48,000 a year, you don't pay more than 9.69 percent of your income for a silver plan under Obamacare. The government pays the rest of your premium above that cap.

But Obamacare also required insurance companies to cover more of the actual health care costs for lower-income people

If you earn less than 250 percent of the federal poverty level — which is about $30,000 for an individual — Obamacare puts a cap on the copays and deductibles that you pay out of pocket. These are called "cost-sharing reductions."

In other words, the less money you earn, the more of your medical care the insurance company has to cover.

But here's the catch: If the insurance company has to cover more of your health care costs, without being able to charge you more money, that means the insurer loses out.

So Obamacare offsets those costs by directly paying insurance companies.

These are the payments President Trump plans to stop making. He can shut off the money because of a House Republican lawsuit that said Congress needed to approve the payments and hadn’t. A federal judge agreed. The Obama administration continued to make them anyway, and until this month, the Trump administration did too. But that's all changed now. (For a full explainer on these cost-sharing reduction payments, read Vox’s Dylan Scott.)

If the government stops writing these checks, insurance companies lose out

So to recap: Federal law caps the amount low- and middle-income people must pay for premiums — and federal law requires that insurance companies cover more out-of-pocket costs for lower-income people.

But Trump is ordering that these payments stop.

And insurance companies aren’t going to sit back and lose money. They're going to increase premiums to make up for those losses.

So who's going to be on the hook? The federal government — and the people whose premiums aren't subsidized under Obamacare.

Insurers actually saw this coming, and some have already hiked premiums because Trump is ending the cost-sharing payments. The federal government will have to pick up the tab for those increases for the people who receive subsidies.

But people who don’t get that assistance will have to pay the full price of these rising rates.

But what about low-income people?

Obamacare required insurers to provide those discounts on copays and deductibles regardless of whether the federal payments to insurers were made.

So even though Trump stopped payments that are being made to offset the cost of covering low-income people, it doesn't actually hurt them. They will still see lower deductibles on their health insurance.

Instead, those costs from the lost payments are ultimately incurred by the US taxpayers and Americans who aren't eligible for subsidies.

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