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(Bloomberg) — Negotiations over a $1.1 trillion spending bill needed to avert a U.S. government shutdown faltered Wednesday over Democrats’ demand that President Donald Trump and Republicans protect a key piece of the Affordable Care Act.

With government funding set to run out Friday, Republicans and Democrats in Congress have reached agreement on most elements of the sweeping spending bill, which remains under wraps.

(Related: Stalled Health Bill Wins New Support From Conservative Holdouts)

But with Republicans still smarting from their failed efforts to repeal the ACA, a roadblock has emerged over billions in cost-sharing reduction subsidy program payments. The CSR subsidies help low-income ACA public exchange plan users cope with plan deductibles, co-payments and coinsurance bills. Insurers say they will raise premiums if they don’t get the subsidies and could reduce their level of participation in the ACA public exchange system.

Trump’s budget director, Mick Mulvaney, said in a statement that Democrats’ demands for a CSR fix amount to a “bailout” and were holding up a deal to fund the government past Friday.

“Let me be clear: The only thing standing in the way of a landmark defense and border security bill is a handful of Democrats who are insisting on an 11th hour bailout of Obamacare,” he said. “We can get this deal done today. There is no excuse not to.”

Holding Government ‘Hostage’

“This administration has made CSR payments in the past, and the only reason some are raising this now is to hold the government hostage and find an excuse to oppose a bipartisan agreement,” he said, referring to the cost-sharing funds.

But Democrats have feared the cost-sharing payments could be used repeatedly as leverage against them in the future or get nixed in the courts and blow up the insurance market. The payments are currently being challenged by House Republicans in a lawsuit questioning their legality.

Anthem Inc. said it will raise rates for its ACA exchange plans next year if the government stops funding subsidies for lower-income customers, raising the ante on the outcome of this debate.

(Related: 5 Quick Anthem Earnings Highlights for Agents)

Anthem Chief Executive Officer Joseph Swedish said on a conference call Wednesday that the insurer could raise its rates by 20% if the subsidies aren’t paid to insurers.

Pelosi, Mulvaney Call

House Minority Leader Nancy Pelosi clashed with Mulvaney Tuesday night over the issue during a telephone call.

She reiterated to Mulvaney what has been the House Democratic negotiating position in the talks that CSR payments must be included in the omnibus, said a Democratic aide familiar with the conversation.

The aide said Mulvaney indicated that, while the Trump administration had continued the payments, officials hadn’t yet decided whether they would make the May payment.

The Democratic aide said Mulvaney made clear that, absent congressional action, the judge’s order ruling the payments illegal would stand and the administration would cease making payments.

But a White House official said on background that Mulvaney didn’t say the administration would end payments.

“Instead of working with Democrats to avert another disastrous Republican government shutdown, the Trump administration is cruelly threatening to raise health premiums on millions of families,” Pelosi said in a statement Wednesday, noting that Mulvaney helped push the GOP toward a government shutdown in 2013.

There is no certainty how this standoff might be resolved, with a partial government shutdown set to begin Saturday unless Congress acts.

Stopgap Bill

Congress could pass a short-term stopgap bill to prevent a shutdown, but Democrats have said they would only support such a measure if negotiations are nearly complete.

House Speaker Paul Ryan said Wednesday that “obviously” funds for the cost-sharing subsidies won’t be included in the spending bill, because those payments are shouldered by the executive branch.

And Majority Leader Kevin McCarthy predicted Pelosi would ultimately back down.

“It’s just Pelosi’s holding it up over one last issue, so that will get done,” he said, adding that Democrats are divided on the point.

Sen. Lindsey Graham warned Democrats not to risk a shutdown over the issue.

‘Heavy Price’

“If Democrats want to shut the government down to prop up a bill that is flawed to its core they will pay a heavy price,” he said.

Ryan said last month he won’t drop the House’s lawsuit, but he expects the administration to continue those payments to ward off a collapse of insurance markets.

Mulvaney last week floated providing billions in cost-sharing funds in return for Democrats providing money for Trump’s wall at the border with Mexico. But this week, Trump withdrew his demand for immediate wall funding.

The outlines of the broader spending package have been largely to Democrats’ liking, including the GOP decision to omit $18 billion in domestic spending cuts proposed by Trump and Mulvaney.

Democrats had offered to increase defense spending if the deal included the CSR funding along with money for Puerto Rico’s Medicaid program and coal miners’ health benefits.

—With assistance from Billy House, Arit John, Terrence Dopp and Anna Edney

— Read Trump Threatens Health Subsidies to Poor to Force Talks on ThinkAdvisor.

 

 

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