Suppose you wanted to sabotage Obamacare and could not get Congress to help. Short of repeal legislation, the next best strategy would be to cut off funds to health insurers—in other words, starve the beast. That should work, right?
Surprisingly not, according to a new report from the Congressional Budget Office (CBO). Responding to a request from House Democrats, CBO considered what could happen to health coverage, insurance premiums, and taxpayer cost if the federal government stopped paying insurers for cost-sharing reductions (CSRs). Under CBO’s scenario, the federal government would stop making payments to insurers totaling $118 billion between 2018 and 2026. As a result, the federal deficit would rise (not fall) by $194 billion, low-income individuals would pay about the same (not more) for coverage, and more people (not fewer) would be insured.
What many observers, including policymakers, forget is that there is always a private sector reaction to any new government policy. It’s something like Newton’s third law of motion applied to politically-driven markets. For every action by the government, there is an opposite reaction that could overwhelm the policy intention. A corollary: the more money at stake, the more vigorous the private sector’s reaction.
If Republicans were able to pass legislation permanently halting CSR payments by the end of August—obviously impossible, but that’s what the Democrats and CBO chose to assume—the Affordable Care Act (ACA) requirement that insurers must reduce the deductibles and other cost-sharing would remain. That means insurers in the insurance exchanges would lose $8 billion in CSR payments next year. If they failed to respond, every insurance CEO would be fired for incompetence.
Instead, insurers would take advantage of what Democrats consider to be a feature of the ACA. They will raise premiums to fully compensate for the $8 billion loss. The 8 million people now receiving premium credits would not pay more because their subsidy rises dollar-for-dollar with premium increases.
It doesn’t end there. The higher subsidies will let people buy better plans with lower cost-sharing requirements. The average deductible for silver plans is $7,474 for families this year—clearly out of the reach of many with low incomes. Gold plans’ average deductible is $2,745, but premiums run about 20 percent higher.
With higher premium subsidies, more people will shift to gold plans to get lower premiums and lower deductibles. Instead of being locked into plans that have deductibles so high the coverage is essentially useless, killing CSR payments will allow families to obtain coverage that comes closer to being affordable.
Ironically, halting one of the ACA’s subsidies and not making any other changes would shift more costs to taxpayers and inadvertently shore up the program. Such an action is likely to further limit competition among insurers, since some will drop out rather than take the risk of rate increases that are politically unacceptable even though low-income families would actually benefit. With no competitors and a government program that rewards what otherwise would be considered predatory business behavior, it is not difficult to make money.
Instead of dismissing the CBO analysis as politically-motivated fake news, Republicans should take a lesson from the new report. One does not have to accept CBO’s specific estimates to understand how cleverly complicated the ACA is. Focusing on one provision that has gained the greatest public attention—perhaps because it seems obvious that bad things would happen if the payments stop—is not a sensible way to kill Obamacare, much less establish sensible policy for the health sector.
It is time to stop the grand-standing. The ACA is seriously flawed, resulting in a less competitive, less effective, and more expensive approach to expanding health coverage than was promised eight years ago. The way to a solution is not one-off “fixes” to the ACA or one-off assaults on its perceived weaknesses. When Congress returns in September, both parties should remember their charge is to enact policies that support the American people and not to embellish the legacy of past, present, or future Presidents.
