Trump on ObamaCare insurer subsidies: Guess what? We checked the budget and the Constitution, and ...

Surprise! It turns out that Congress didn’t fund direct subsidy payments to health insurers. Actually, it’s not much of a surprise, not even to the Trump administration, which has chosen to make those payments anyway … until now. The White House announced last night, and Donald Trump confirmed this morning, that those payments will stop immediately, which will almost immediately create even more instability in the ObamaCare exchanges:


A White House statement said based on guidance from the Justice Department, “the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.”

“In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments,” the statement said.

Trump, as is his wont, put it more bluntly:

NBC News’s Kristen Welker reports that this is part of Trump’s new efforts to dismantle ObamaCare and force Congress into action. The market may have already anticipated this move for 2018, though, and the pressure on Congress may therefore be somewhat muted:

The Congressional Budget Office, or CBO, has said that in the short term, health care premiums would spike, insurers would exit the market and deficits would increase if Trump followed through with his threat.

Insurers have already submitted their premiums for 2018 and in many cases raised rates on the assumption that CSRs would be cut off. That could somewhat blunt the impact of the White House’s move.

Democrats and Republicans in the House and Senate have discussed appropriating the CSR payments themselves, which would negate the impact of Trump’s order. But it’s not yet clear GOP leaders would support a bill, which is likely to draw fierce conservative opposition.

There is almost zero chance that Republicans would agree to long-term funding of the cost-sharing reduction payments, which operated as a back-door bailout to insurers. They might be enticed to extending the funding in the short term, but only in exchange for a significant overhaul of ObamaCare that devolved authority back to the states and ended the premium federal support in Medicaid for the expansion population. Democrats have steadfastly refused to negotiate on either point, however, which means that the CSRs are likely dead for good.


Democrats have no one but themselves to blame for this move. The CSR payments outside of appropriations were unconstitutional on their face, and courts likely would have forced an end to them eventually. As House Speaker Paul Ryan said in his statement, “the power of the purse belongs to Congress, not the executive branch.” Most of the funding for ObamaCare comes from statute, but Democrats left the CSRs to annual appropriations, presumably to avoid the deficit implications that statutory funding would have created. They assumed that they would control Congress for the long haul. They chose … poorly.

That doesn’t mean there won’t be some backfire for the GOP, though. As I wrote in August at The Fiscal Times, killing off the CSRs may have unintended consequences for Republicans and the Trump administration, and may only result in subsidizing insurers through other means:

Trump could moot this dispute at any time by refusing to make the CSR payments to the insurers. However, the CBO report predicts a number of unintended consequences if he does. It could save $118 billion in CSR payments over the next decade, but insurers – still stuck with the statutory requirement to lower out-of-pocket costs in Silver plans – would have to raise their premiums by as much as 25 percent, the CBO predicts. Enrollees only pay a set fee for insurance at all levels based on their income, benchmarked on the Silver plan, so taxpayers would end up footing the bill not just for the increased subsidies on these specific Silver plans but all plans. That would increase subsidies by $365 billion in the same time period, resulting in a net increase of deficit spending of nearly $200 billion.

Oddly enough, while taxpayers would lose the most in this exchange, lower-income Americans would gain the most benefit. E21’s Charles Blahous walks through the CBO’s examples that show dramatic reductions in premium payouts for older consumers opting to buy Gold level plans, in some cases paying nothing at all. “It is interesting, precisely because it is so counterintuitive,” Blahous concludes, “that CBO has projected that terminating CSR subsidies would actually lead to the federal government spending more money, providing low-income people with more affordable insurance coverage options, and even increasing insurance enrollment.”

Rather than hasten Obamacare’s collapse, the CBO also notes, the changes that come from eliminating funding for CSRs might actually make the system more stable. “[T]he nongroup insurance market would also continue to be stable in most areas of the country,” CBO concludes, in part because state insurance commissioners would have significant incentive to approve premium increases. “Many insurance commissioners would favor that increase,” the report notes, “because it would result in larger increases in premium tax credits for people in their states and, thus, lower net premiums paid by enrollees than alternatives that insurers might propose.”


The CBO report had an impact on the Trump administration at the time; they stopped threatening to cut off the CSR payments for a while. Trump expected Congress to eventually pass a repeal, or at least a replacement, which would deal with those issues or make them moot altogether. Failing that, Trump needs to disrupt the status quo, and has the bonus of defending the Constitution with this option. But it’s the disruption that really suits his interest, and the resulting consequences — intended or otherwise — that will remind both parties of their interests in finding a way out of the death spiral of ObamaCare.

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