Obamacare’s biggest challenge right now has nothing to do with the stalled Republican bid to repeal and replace it. Instead, it’s President Donald Trump’s threats to undermine obscure but important payments that help millions of Americans afford their health care.
Even with Congress stuck on a replacement bill, Trump could still deal a devastating blow — a push toward repeal by other means — by getting rid of the law’s cost-sharing reduction subsidies.
Trump is threatening to do it. In the days after Senate Republicans failed to pass a bill to repeal or replace the health care law, the president tweeted that he was prepared to cut off the cost-sharing subsidies and let Obamacare implode.
Now senior Republicans are trying to talk him down. They know what the consequences would be if those payments were ended. They are scrambling to pass legislation that would take the explosive issue out of the president’s hands, and, in the meantime, they are pleading with Trump not to sabotage Obamacare.
“Without payment of those cost-sharing reductions, Americans will be hurt,” Sen. Lamar Alexander (R-TN), who chairs the Senate health committee, said Tuesday.
So, in a way, the standoff is now between Republicans themselves over whether to undercut a law they’ve all spent years campaigning against.
In opposition, Republicans were prepared to send Obamacare into free fall, suing the Obama administration to stop the CSR payments in 2014 and thereby handing Trump the tools to undercut the law. But now that they are responsible for it, they are trying to walk back from the ledge.
CSRs reduce health care costs for Americans with lower incomes
Legislation to repeal Obamacare is stymied in Congress. But cutting off the subsidies would be the most dramatic action taken by a Republican against the health law since the party took control of Washington.
The subsidies, which make health care even more affordable for lower-income people who get insurance through Obamacare’s marketplaces by lowering copays and deductibles, aren’t as well-known as other types of spending in the law, such as its tax credits (which help people afford premiums) or its Medicaid expansion. The benefit goes to people who earn too much for Medicaid but are still low-income — up to 250 percent of the federal poverty line, about $30,000 for one person.
More than half of people who buy individual insurance through Obamacare got this help. About 12 million people bought health insurance through Obamacare’s insurance markets this year, and 7 million of them qualified for CSRs, according to the Kaiser Family Foundation.
Health plans are required to offer this help even if the federal government doesn’t give them any money at all. That’s where the federal payments come in. Without the CSR payments, though, that might not be workable for insurers — it would dramatically increase their costs. They would have to offer very generous coverage to those people without receiving any additional financial help from the government, and their likely recourse would be to hike premiums.
So cutting off payments would disrupt Obamacare’s insurance markets and maybe cause them to collapse entirely. Insurers would have to decide whether to increase premiums for everyone in order to lower copays for people who get the subsidies. They might end up pulling out of the market altogether over the uncertainty, leaving some places with few or no insurers.
But the subsidies are only at risk at all because in 2014, Republicans desperate to undermine the law found a legislative flaw to challenge the payments in court — and put the entire program at risk. That lawsuit is what gives Trump his leverage over the payments.
A Republican-led lawsuit challenged the CSR payments
Not long after Obamacare’s marketplaces opened for business in 2014, House Republicans filed a lawsuit that argued the cost-sharing reduction payments being made by the Obama administration were illegal.
The brains behind it, constitutional lawyers David Rivkin and Elizabeth Price Foley, portrayed the stakes this way:
The lawsuit is necessary to protect the Constitution's separation of powers, a core means of protecting individual liberty. Without a judicial check on unbounded executive power to suspend the law, this president and all who follow him will have a powerful new weapon to destroy political accountability and democracy itself.
The Constitution says Congress is responsible for deciding how the federal government’s money will be spent. House Republicans alleged that although Obamacare created the CSR payments, Congress still needed to approve them in a separate spending bill or as part of the bigger spending bills that lawmakers pass periodically to fund the entire government. Because Congress had not done so, the House alleged that the payments being made by the Obama administration starting in 2014 were unconstitutional.
The Obama administration argued that Obamacare had permanently funded the CSR payments and so it did not need any additional authority from Congress to make the payments. (It also argued that regardless of the facts of the case, the House didn’t actually have the ability to bring a case because it wasn’t harmed by the cost-sharing reduction payments.)
Some liberal legal experts said the House’s argument does have some merit. The text of the law did not unambiguously appropriate the CSR payments — and the Obama administration at one point, perhaps in recognition of that, had asked Congress to approve the spending. But others, including the architects of the law, dismissed it as a politically motivated attempt to undercut Obamacare.
Rosemary Collyer, the judge hearing the case and a Republican appointee, first ruled in September 2015 that the House did in fact have standing to sue the administration over the payments. She sided with the House in May 2016, deciding that the CSR payments could not be made without further congressional approval.
However, she suspended the decision so that the Obama administration could appeal, allowing the payments to continue until the case is fully resolved. The Obama administration appealed the ruling in July 2016 to the US District Court of Appeals in Washington. But litigation moves slowly, and the case didn’t advance much.
Then in November, Donald Trump was elected president. The House asked the appeals court in December to postpone the lawsuit so that they and the newly elected administration could figure out what to do.
Cutting off CSR payments could throw the markets into chaos
The CSR litigation might not have mattered as much if Republicans had coalesced around a health care plan in the first six months of Trump’s presidency, as they have attempted and so far failed to do.
But Congress has failed to pass a repeal-and-replace bill or any kind of Obamacare repeal. The Senate put three different health care bills on the floor in late July and failed to approve every one of them.
This lawsuit gave Republicans another chance to undercut the health care law, even without passing their own bill. Because if Obamacare is here to stay, then the fate of the CSR payments is now an essential question.
So Trump could either choose to continue defending the CSR subsidies, making payments in the interim and keeping the markets stable — or he could decide to drop the suit, stop the payments, and precipitate a market implosion that could leave many vulnerable Americans without health coverage.
If the House prevailed, and the CSR payments were not paid, insurers would still be required to reduce cost sharing, but they would now have to do it without the government’s help. They would have to raise premiums dramatically to make up the lost revenue.
The irony is that if plans do raise premiums, the federal government would be on the hook for much of those costs. The government absorbs premium increases through the tax credits that help people afford coverage. The law is designed to keep premiums manageable for people, so it falls on the government to cover any excess increases.
“It’s on the feds anyway,” as MIT’s Jonathan Gruber told me.
Or, perhaps more likely, plans could drop out of the market altogether. “If I were an insurer, I’d just take my marbles with me and focus on other more profitable lines of business,” Larry Levitt at the Kaiser Family Foundation said.
Trump has repeatedly threatened the CSR payments over the past six months, particularly when his party’s hopes of repealing Obamacare looked bleakest. His administration has continued to make the payments on a month-to-month basis, but with no assurances to insurance companies that they will continue.
If the payments stop, yes, lower-income Americans would technically still be eligible for lower-cost plans — but many experts expect insurers would just pull out of the markets. That could lead to more areas with one or no plan available to people, a situation for which there is no remedy and which leaves people in those areas without any coverage.
After the embarrassing failure by Senate Republicans to pass any kind of Obamacare repeal bill last week, Trump reupped his threats to cut off the payments. Politico reported he was meeting with top administration officials to make a decision about the payments going forward.
Trump’s threats are now pushing up against some all-important deadlines for Obamacare. Health plans have until mid-August to readjust their premiums for next year. Many have priced their plans higher than they otherwise would, out of fear that the Trump administration will pull the CSR payments; they could lower their premiums if they were assured the payments would continue.
Then in September, insurers have to make a final call about whether to sell Obamacare plans in 2018. There is a real risk that if the Trump administration refuses to guarantee that the CSR payments will be made, some insurers will pull out of the market — which could leave even more of the country without insurance options.
Trump is taking Obamacare hostage, but at his own risk
Trump clearly sees the CSR payments as major leverage in the ongoing health care fight.
He told the Wall Street Journal that Democrats should be calling him, begging to work together on a health care plan, lest he drop the CSR lawsuit and let the payments lapse. He even worked behind the scenes to walk back the HHS statement that had suggested the payments would be made.
But based on the available polling and comments from his own party, Trump has seriously misjudged his position.
First and foremost: Americans would overwhelmingly blame Trump and Republicans if something went wrong with Obamacare, according to the best available surveys.
One possible resolution would be for congressional Republicans to take the metaphorical hostage out of Trump’s hands.
Republicans in Congress have all along seemed much more reluctant than Trump to allow Obamacare’s markets to implode by pulling the cost-sharing subsidies. The lawsuit was filed at a time when the consequences would have fallen on the Obama White House. But Republicans are now in full control of the government and their own health care plan has failed.
Obamacare is the law of the land and Republicans are its stewards. An increasing number of them are turning toward a bipartisan health care solution — one that is likely to include funding for CSRs.
Politico reported that a group of 40 House Republicans and Democrats were coalescing behind an alternative health care plan to stabilize Obamacare. CSR payments would be funded as part of that plan.
A number of other upcoming must-pass bills — a government spending bill, a reauthorization of the Children’s Health Insurance Program — could give Congress an opportunity to fund the subsidies. But the underlying point is that if Congress were to act, Trump would no longer have the option to cut off the CSR payments as an attack on the health care law.
Republicans sound ready to take that step, as unsavory as it will be after their scorched-earth campaign against Obamacare, and they are urging Trump not to cut the payments off in the meantime.
"I hope the president will continue to make those payments,” Sen. John Thune (R-SD), a member of Senate leadership, said Tuesday.
In the meantime, the one thing Trump’s threat does do, though, is make insurers nervous. As Sarah Kliff reported recently, health plans are struggling to decide whether to stay in the law’s marketplaces, because they don’t yet know what’s going to happen to the CSR payments. Trump’s rhetoric could help destabilize the markets on its own — though, again, he may end up taking the blame.
So Trump has made his threat to Obamacare, the result of this long history that gave him that opportunity. But he appears to be holding the metaphorical gun to his own head.