Donald Trump is officially trying to destroy the health-care system he inherited. On Thursday night, the president canceled Obamacare’s subsidies for insurers that provide discounted coverage to low-income people — a move that will likely swell premiums on the individual market by an average of nearly 20 percent.
In an early-morning tweet, Trump confirmed that this was an act of malice. Months ago, the president predicted that canceling the so-called “cost-sharing reductions” would break Obamacare — and thus, force Chuck Schumer to negotiate with him over a replacement. On Friday, in a missive fit for a cartoon supervillain, Trump announced that the deed was done, and the Democrats’ precious Obamacare was no more.
Liberals have long predicted that this would backfire for the president, politically. Historically, the ruling party always gets blamed for bad things that happen on its watch. And the fact that the administration’s sabotage of the Affordable Care Act has been so blatant — the federal agency legally responsible for promoting enrollment has spent taxpayer money on anti-Obamacare propaganda — should make it even more difficult for Trump to deny responsibility.
Still, few progressives have argued that Trump’s decision to ax the subsidies would backfire in policy terms. Almost no one doubted that the move would succeed at hurting people who depend on Obamacare for basic medical services.
And yet, there’s actually reason to think that the president’s gambit will fail on this level, too: According to the Congressional Budget Office, in this particular case, canceling Obamacare subsidies will only make them stronger. If CBO’s analysis is correct, Trump’s latest act of Obamacare sabotage will do the opposite of what every Republican health-care plan had intended. Rather than cutting federal aid to working people, Trump might have just made Obamacare a better deal for low-income Americans; provided 1 million more people with insurance (after 2020); and increased federal spending on health care by nearly $200 billion over the next decade.
To understand why Trump may have just accidentally made Obamacare more generous, you need to know how “cost-sharing reductions” differ from the law’s other subsidies.
Under the ACA, people who earn less than 400 percent of the poverty level receive tax credits that cap their premium payments at a certain percentage of their income. Trump can’t touch those premiums without passing legislation.
Cost-sharing reductions, by contrast, are provided to insurers — not consumers. Obamacare requires insurers to offer discounted rates on silver-level exchange plans (the second-highest-cost coverage package) to low- and moderate-income people (those who make 250 percent of the federal poverty level or less). The law then stipulates that the federal government will reimburse insurers for the cost of providing those discounts. But since it was impossible to know exactly how many nonaffluent people would sign up for silver plans — and thus, to predict how much the government would owe insurers — the ACA did not appropriate a specific amount of money for reimbursing them. It just made an open-ended guarantee.
House Republicans claimed that this fact rendered the payments illegal. The Constitution says that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” But Congress never formally appropriated the $7 billion in reimbursements to insurers that the Treasury paid out last year. The GOP sued the Obama administration. A federal judge ruled in their favor — but allowed the White House to keep making payments while it appealed the decision to a higher court.
This is what gave Trump the unilateral power to cancel the payments. The minute his administration gives up on appeal, the cost-sharing reductions stop flowing. But here’s the crucial thing: Insurers are still required to give low-income people the discounts. Trump can’t change that regulatory requirement without passing a law. All he can do is stiff the insurers. (And according to health-care economist Nicholas Bagley, he can only do that temporarily. Insurers still have a legal entitlement to reimbursement — even if the Treasury can’t legally honor that entitlement without congressional consent. So, the insurers can sue the government and collect what they’re owed through a special fund dedicated to settling Uncle Sam’s lawsuits.)
For insurers, this drastically increases the (near-term) costs of participating in Obamacare. In response, some will exit the exchanges, while others will jack up the premiums on their silver-level plans by roughly 20 percent, according to the CBO. This is the part of Trump’s sabotage that will hurt some ordinary people: It’s possible that insurers will completely abandon some counties, and that people who earn too much to qualify for subsidies — but don’t get insurance through their employer — will see their health-care costs increase. While the CBO expects the cancellation of the cost-sharing reductions to (ironically) give more Americans insurance in the long-term, the budget office expects it to result in fewer Americans having insurance next year, amid these marketplace disruptions.
That said, the vast majority of people who use Obamacare do qualify for subsidies. And those subsidies are tied to the price of silver-level plans. Which is to say: The more expensive silver plans get, the bigger most Obamacare enrollees’ subsidies become. If you are an ACA enrollee who makes 200 percent of the poverty line, the law guarantees you a tax credit big enough to lower the cost of a silver-level plan to 6.43 percent of your annual income — no matter how expensive the silver plan gets. Critically, while the size of the tax credit is tied to the silver plan, enrollees can spend that credit on gold- or bronze-level ones, if they so choose.
This is where Trump’s plan (theoretically) backfires. Insurers don’t need to give low-income people additional discounts on gold or bronze Obamacare plans. The cost-sharing reductions were only for the silver ones. Thus, the CBO, and the Oliver Wyman Health consultancy, believe that insurers will only raise premiums on silver-level plans.
The upshot of all that, according to Oliver Wyman’s analysis:
[S]ubsidies could increase to the extent that they would actually exceed the cost of a bronze plan for many lower-income enrollees. A substantial portion of the nearly 7 million marketplace enrollees eligible for CSR could receive a bronze-level plan for no cost, or upgrade to a gold-level plan at very low premiums.
So, Trump may have just given millions of low-income Americans access to premium-free health insurance — and others, the chance to buy Obamacare’s top-tier, gold plans at a bargain-basement price. This is why the CBO projected that ending the cost-sharing payments would actually cause 1 million more people to become insured, while costing the federal government an additional $194 billion over the next decade.
Now, these projections need to be taken with a mound of salt. When the CBO did its analysis, it didn’t price in the effects of the Trump administration’s myriad attempts to reduce Obamacare enrollment, including the president’s potentially game-changing executive order. We’re in uncharted, stormy waters. No one can know for sure what we’ll see when the fog clears.
But there is some reason to think that Trump will actually end up fulfilling his promise to make health care more affordable for the working class — while trying his darnedest to make it more expensive.