Killing the Affordable Care Act cost-sharing reduction subsidy program in an orderly way might actually cut the net cost of individual major medical coverage for typical consumers who shop carefully, according to Congressional Budget Office analysts.

Because simply eliminating the subsidy program, without making other changes in the ACA, could cut monthly coverage payments for many consumers, the move could actually increase the total number of people with individual major medical coverage, the analysts write in a new report.

(Related: Trump Hints at Killing ACA Cost-Sharing Reduction Subsidy)

Insurer confusion about the subsidy change could cut individual enrollment by about 1 million in 2018, to about 17 million, but a drop in out-of-pocket costs for good shoppers could increase the number of people with individual coverage by about 3 million over the “baseline level” in 2025, to about 28 million, according to CBO figures.

CBO analysts emphasize that the accuracy of their predictions will depend on many factors beyond their control, including whether the administration of President Donald Trump simply decides to stop making the subsidy payments or gets Congress to pass a law eliminating the subsidy program.

“Implementation of the policy through legislation, as opposed to executive or judicial action, would provide greater certainty,” the analysts write.

Even effects of an orderly end to the subsidy program would be complicated.

Consumers would probably need more help from agents and brokers to find the cheapest coverage, or the highest-value coverage. The complexity could even give agents who want to cross-sell life insurance or annuities some incentive to dip a toe back into the individual major medical market.

Here’s a look at what the cost-sharing reduction subsidy program is, how the proposed subsidy elimination might work, and strange ways an orderly elimination could, possibly help the hardy people who still sell individual major medical coverage.

ACA Individual Major Medical Subsidies

The drafters of the Affordable Care Act created the ACA public health insurance exchange program, or web-based health insurance supermarket, to give consumers an easy way to shop for health plans from private insurers.

The ACA drafters also created two major subsidies designed to help low-income and moderate-income consumers pay for exchange coverage.

One, the premium tax credit subsidy program, helps exchange plan users with incomes from 133% of the federal poverty level to 400% of the federal poverty level pay their exchange plan premiums. About 84% of exchange plan users use the premium tax credit subsidies to pay their premiums, according to the Centers for Medicare and Medicaid Services (CMS).

The second program, the cost-sharing reduction subsidy program, helps exchange plan users with incomes under 250% of the federal poverty level who buy silver level plans, or plans with mid-level benefits, pay health plan deductibles, co-payments and coinsurance amounts. About 60% of

The House has argued for years that the U.S. Department of Health and Human Services, the parent of CMS, has no valid authorization from Congress it can use to make the cost-sharing reduction subsidy payments. Under former President Barack Obama, HHS officials held that the same congressional appropriation that covers the premium tax credit subsidy program covers the cost-sharing reduction subsidy program, because the two subsidies are part of the same subsidy framework.

President Donald Trump has questioned whether HHS has the authority to continue making the payments, but, so far his administration has continued to make the payments.

Crystal ball (Image: Thinkstock)

(Image: Thinkstock)

America’s Health Insurance Plans, a large trade group for health insurers, has argued that a continuation of the cost-sharing reduction subsidy program is critical to stabilizing the individual major medical market.

How Would the Subsidies Be Cut?

The CBO analysts argue in the new report that, in the real world, the effects of simply ending the cost-sharing reduction subsidy payments would be different than many might expect.

One factor is whether the Trump administration gives insurers enough time to adjust to the changes, and whether it would implement subsidy elimination in a stable way, the analysts write.

The analysts assume in their new projections that the administration would make a definite decision about the subsidy payments by the end of August, and that it would continue to make the payments insurers now expect until the end of this year.

If the administration stops making payments this year, without giving insurers time to adjust their products and premiums, or if it implements subsidy elimination in 2018 on its own, in a way that makes insurers uncertain about the future, that could cause many insurers to leave the market and lead to more market problems, the analysts write.

Orderly Elimination Scenario

If the administration waits until 2018 to eliminate program payments, and it does so in a way that creates a stable regulatory environment for insurers, some insurers may still decide to leave the market in 2018 and 2019 because of concern about that move, the analysts write.

In that orderly elimination scenario, insurers would probably increase total, gross premiums for silver plans by about 20% over the baseline levels in 2018, and by about 25% over baseline levels in 2020 and later years, the analysts estimate.

The ACA premium tax credit is designed in such a way, however, that higher premium tax credit subsidy increases would wipe away the effect of those gross premium increases on what typical subsidized exchange plan users pays out of pocket for coverage each month, the analysts write.

The premium tax credit increase effect would affect different types of consumers in different ways.

Compared with what consumers might pay in 2026 if the current rules and programs stay in effect, the premium tax credit increase would:

  • Hold the ”net annual premium” cost for silver coverage, or what a consumer would really pay out pocket, to zero for a consumer with income at 125% of the federal poverty level.

  • Cut the net annual cost of rich, gold coverage for a 64-year-old with income at 125% of the federal poverty level to zero, from $4,800 under the baseline projections.

  • Cut the net annual cost of bronze coverage for a 40-year-old with income at 225% of the federal poverty level to $1,150, from $2,050 today, and cut the cost of bronze coverage for a 64-year-old at that income level to zero, from $650 per day.

  • Cut the net annual cost of rich, gold coverage for a 64-year-old with income at 225% of the federal poverty level to $2,750, from $7,400 today. Gold coverage for people of all ages at 225% of federal poverty level would be cheaper than silver-level coverage, and cheaper than it is today.

  • Increase annual costs for some high-income exchange users, who get no subsidies, and cut costs for others.

The CBO analysts predict that some categories of consumers would stop using some types of on-exchange silver-level coverage, because the effects of eliminating the cost-sharing reduction subsidy on premiums would make gold-level coverage cheaper for those consumers than silver-level coverage.

The changes suggest that a simple, orderly cost-sharing reduction subsidy program eliminating could help agents in the following ways:

  1. By making the process of shopping for coverage based on either a need for the lowest premiums or a need for richer benefits more complicated. Even interpreting the CBO table illustrating the possible effects of the subsidy elimination is difficult.

  2. By encouraging insurers to make up for the death of silver plan coverage for some types of customers by introducing richer bronze plans. Access to richer bronze plans, and rules that make it easier to mesh exchange plans with health savings accounts, could make individual major medical coverage more appealing to higher-income HSA users. That could help agents offer exchange plan coverage to consumers who could also afford to buy life insurance, disability insurance and annuities.

  3. By eventually encourage insurers to cut gold plan prices. If eliminating the cost-sharing reduction subsidy kills silver-level coverage for some types of consumers, that could push some healthy, cost-conscious consumers who have little current interest in plan design into gold plans. That could increase the overall level of health of the people with individual gold plan coverage, according to the CBO analysts.

—-Read Anthem: Subsidy Cash Key to Saving Individual Health on ThinkAdvisor.