In an interview with the Economist, President Trump suggested he might cut cost-sharing payments to Obamacare insurers at any time. He’s suggested this before, but if he were to do so it would likely cause Obamacare markets to collapse in some states. First, here’s the exchange:
Obamacare is absolutely dead. The insurance companies are leaving. Yesterday Aetna just announced they’re pulling out. You have states that aren’t going to have any insurance companies. You know when people say, “Oh, Obamacare is so wonderful,” there is no Obamacare, it’s dead. Plus we’re subsidising it and we don’t have to subsidise it. You know if I ever stop wanting to pay the subsidies, which I will.
You’d pull the plug on that? If this bill doesn’t go through you’d stop those subsidies?
No, this bill only gives them one month. They don’t realize that, that’s another thing. Good point. This bill gives them one month, it gave, you know the subsidy…
The continuation of the subsidy?
The subsidy to the insurance companies, yes. Anytime I want because actually…
But my question is if the bill doesn’t pass…
In actuality Congress has to approve it. Congress…
If the bill doesn’t pass would you cut the subsidies?
If the bill doesn’t pass, I’d be in a different position. Because, if the bill didn’t pass the Republicans would have let me down. And then I’d have to decide what I want to do because I want people to have health care.
Why this matters
Trump is talking about cost-sharing payments. Those aren’t the subsidies used to offset the cost of people’s insurance premiums. Cost-sharing is a payment that Obamacare requires insurers to make to offset the cost of co-pays and deductibles for those at the bottom of the income scale. Insurers are required by law to make these payments but the federal government covers the costs by sending money back to the insurers.
The GOP brought a lawsuit against the Obama administration claiming that these cost-sharing payments, which total about $4 billion, were illegal because there was no appropriation made for them by Congress. Last May, a federal judge sided with the GOP saying the Obama administration should not be making the payments. That decision was on hold in expectation of an appeal, but with Trump’s win last November, there isn’t going to be an appeal.
Despite the fact that the GOP won this fight, the government is still making those payments to insurers. Why? Because cutting them off would be a hammer blow to Obamacare. Insurers would need to recoup that missing money through higher premiums. Some estimates have suggested premiums would need to go up 20% just to cover the cost-sharing payments. Add to that whatever rate increases the insurers were already planning to request and you could have rates nationwide jumping 30-40 percent next year. More than likely, a lot of insurers would simply decide it’s no longer worth the risk and simply abandon the exchanges.
Is this a negotiating tactic?
We’ve already been through all of this once. In April there were reports that Steve Bannon and Jared Kushner were squaring off over whether or not to continue the payments. That debate quickly became part of Trump’s negotiation strategy for a second attempt at repealing Obamacare. In mid-April, he suggested he might not have the authority to continue the payments and suggested Democrats needed to come to the table on Obamacare repeal and replace.
That didn’t work but cost-sharing payments also became a point of argument over the budget agreement to stop a government shutdown. President Trump wanted money for the border wall and Democrats refused. Democrats wanted a permanent appropriation for cost-sharing payments and Republicans refused.
So, for now, the payments are still being made on Trump’s authority alone, despite the fact that the GOP believes (and a judge agrees) the payments are not authorized by Congress.
So what is Trump going to do?
Looking back at the exchange above, Trump first says he can cut off the cost-sharing payments anytime. He’s being interrupted with questions but he still manages to point out that there’s no congressional authorization for these payments. But then, when pressed on whether he’d cut the payments if Obamacare repeal and replace doesn’t make it through the Senate, Trump wavers. If the GOP repeal effort fails, then he might feel differently.
So, if repeal fails he probably won’t cut them off. And if repeal succeeds then there’s no need to cut them off because they will be superseded by the new AHCA system. Granted that system may phase in but Trump would probably be motivated to keep the payments going in the interim so the market doesn’t collapse. So if he won’t cut them if repeal succeeds or if it fails, when would he cut them?
The exchange is admittedly hard to parse but the only reading that makes any sense is now. Cutting the subsidies would wreck Obamacare and that would provide an incentive for people to get on board the GOP plan. It would also be an extremely risky move which could be a boost to Democrats going into 2018. I guess we’ll see fairly soon if Trump is bluffing this time.