3 Facts About the Big ACA Subsidy That Might Vanish Now

Democrats included a permanent appropriation for the premium tax credit subsidy program in the legislation that created the Affordable Care Act. The Obama administration said that the cost-sharing reduction subsidy program was really part of the premium tax credit subsidy program, and that the permanent premium tax credit subsidy appropriation in the Affordable Care Act also covered the CSR payments.

Republicans have objected to the idea that the premium tax credit appropriation applies to the CSR subsidy program.

Members of the U.S. House authorized a lawsuit over the CSR appropriation issue in July 2014, and they sued in November 2014. A district court judge ruled in favor of the House in May 2016.

Obama administration officials were fighting the ruling.

When the Trump administration came in, its lawyers took steps to have the courts put off action on the matter.

Since at least as far back as July, the administration has left insurers uncertain as to whether it would make each month’s scheduled CSR payments.

(Image: Thinkstock)

Health insurance company officials have talked openly about the possibility that subsidy payments could disappear in 2018, or even in the middle of this year.

Earlier this month, Dr. Rene Lerer, the president of GuideWell Mutual Holding Corp., the parent of Florida Blue, said at a conference organized by Standard & Poor’s Global Ratings that he had no answer about how the Trump administration might handle CSR payments.

“We don’t know if we’ll get paid for the CSRs for October,” Lerer said. 

3. Predicting the effects of the subsidy payment termination announcement is complicated.

There are many reasons analyzing the effects of a sudden end of the CSR stream could be difficult.

One is that whether the Trump administration can really shut off the payment stream in midyear is unclear. A court could require the administration to keep up the payments, at least during a transitional period. In theory, Congress could also act to keep the payment stream in place.

A second source of uncertainty is whether the Trump administration will be comfortable with the effects of a CSR payment termination on managed Medicaid programs, private Medicare plan programs, on the group health market, and other markets and programs other than the individual major medical program.

The annual enrollment period for Medicare Advantage and Medicare Part D plans starts Sunday, for example. Insurers need payments from Medicare to make their Medicare plan operations work, but the Trump administration needs for private insurers to be cooperative, and solvent, for the Medicare Advantage and Medicare Part D programs to work as expected. All of the major Republican proposals for changing the Affordable Care Act debated in Congress this year have included provisions for continuing CSR payments, or equivalent subsidy program payments, at least until the end of 2019.

A third source of uncertainty is how well coverage issuers anticipated a possible CSR payment suspension. Mark Farrah Associates, for example, found that individual major medical issuers had an average ratio of claims to premium revenue of just 77% in the second quarter. The statutory minimum medical loss ratio for individual major medical is 80%. The low second-quarter MLR could be a sign that typical issuers built a CSR suspension cushion into their 2017 rates.

In the long run, if the Trump administration cuts off CSR payments for 2018, and insurers find ways to adjust rates to reflect that change, the effects of the change could be minimal. In theory, the Affordable Care Act premium tax credit subsidy would eliminate the effect of the change on actual out-of-pocket premium bills for most exchange plan users, and consumers who do not qualify for premium subsidies would be able to shift to bronze-level plans, gold-level plans, or off-exchange plans not directly affected by the elimination of the subsidy, according to an analysis Congressional Budget Office analysts released in August.

— Read 3 Weird Ways an ACA Subsidy Cut Could Help You on ThinkAdvisor.

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