Trump’s Twitter threat to end Obamacare “bailouts,” explained

President Donald Trump appears to be mulling two new ways to sabotage the Affordable Care Act — one rather small, and one rather large.

Trump is considering ending an $8 billion health law fund that pays for low-income Obamacare enrollees’ copayments and deductibles. Insurance plans estimate that not making these payments would raise premiums 15 to 20 percent in the individual market.

Trump also appears to be thinking about ending a subsidy that members of Congress receive when they purchase health coverage through the law’s marketplaces. The Affordable Care Act requires members of Congress and their staff to purchase coverage through the law, although the Obama administration allowed this group to continue receiving a subsidy from their employer (in this case, Congress) to make that purchase.

Trump tweeted about these two ideas — although a bit obtusely, describing both funds as “bailouts” — in two tweets over the weekend and this morning:

Ending subsidies for members of Congress would not do much to hurt the Affordable Care Act overall, although it would be unlikely to do much to shore up the working relationship with the White House.

But ending the fund for low-income patients could have significant effects, creating double-digit premium increases. It comes at a key moment, when insurance plans are finalizing the prices they plan to charge next year — and are trying to figure out whether this particular pot of money, known as cost-sharing reduction (CSR) payments, will be around. These tweets send the message that insurers can’t count on this money — and should adjust premiums upwards accordingly.

The Obama administration allowed a subsidy for members of Congress. Trump appears to threaten to end that.

The Affordable Care Act requires all members of Congress and their staff to purchase coverage on the health insurance marketplace. The political aim of this move was clear; Congress wanted to signal that if this health care was good enough for the American people, it was good enough for them.

Congress, for health insurance purposes, functioned like other large employers. It would split the monthly premium with its workers, each party kicking in some of the payment.

This put Congress in a bit of a jam. The health insurance marketplaces aren’t usually set up to accept an employer contribution; they were built for people who don’t have an offer of insurance at work, who are buying completely on their own. But if members of Congress and their staff couldn’t still get their employer contribution, their premiums would skyrocket.

So the Obama administration made a ruling that members of Congress be able to purchase coverage through the health law’s small business marketplace and bring their employer contribution with them. This sets Congress apart from other businesses, which do not have such an option.

There have been small fights among health experts about whether this is legal — I’d suggest reading Michael Cannon for the argument against its legality, and Nicholas Bagley defending the move.

In any case, the threat here from Trump seems to be one to end the employer subsidies that members of Congress receive, making them pay full price for their coverage. This would spike their premiums, as the employer contribution currently covers about 72 percent of the plans legislators are offered.

Trump appears to be threatening Congress: Pass a health bill, or I’ll end this subsidy (which he does have the power to do, through administrative action). A move like this could be equally likely to engender hostility from the hill as it could to create forward motion on health care.

The big threat Trump is making: ending cost-sharing reduction payments

The much larger, more persistent threat Trump made in these tweets (and has made for months now) is to stop paying CSR subsidies. This is an $8 billion fund that reduces co-payments and deductibles for low-income Obamacare enrollees. It is also the subject of ongoing litigation in federal court.

The Trump administration currently sends these payments to insurers each month but has been aggressively ambiguous about whether it will continue. Insurance plans got this money in July but don’t know whether they’ll receive it in August. Each month is a bit of a guessing game.

And the biggest question of all, in insurers’ mind, is whether the Trump administration will make these payments next year. Health plans are required to turn in their 2018 Obamacare premiums by August 16. And whether or not they’re going to get this money — or need to raise premiums to account for that money not coming in — is a huge question actuaries are grappling with right now.

Insurers generally estimate that they would need to raise premiums 15 to 20 percent to offset their losses should these payments not come in.

Trump describes these payments as a “bailout” to insurers, who will be “hurt” should the money not come through. But that’s a big misunderstanding of how these payments work.

For starters, the CSR payments are funding that is significantly targeted to helping low-income Obamacare enrollees with out-of-pocket costs. It has nothing to do with “bailing out” insurance plans that are losing money, for example. It is targeted funding to help a specific population.

And if the Trump administration does not make these payments, it will not hurt health insurers. They all plan to raise their premiums to offset the loss. The insurance plans employ actuaries who will tell them how much to raise premiums. The health plans will be fine.

The people who will get hurt are Obamacare enrollees themselves, who will face higher premiums in the individual market. Those that stand to suffer the most are actually enrollees with slightly higher incomes, who do not qualify for subsidies and would be stuck paying the full price of that rate hike. Insurance plans have been clear they plan to pass these costs to consumers, and do the best they can to not get hurt at all.

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