Trump cutting off subsidy payments poses tough decisions for insurers

President Donald Trump's decision Thursday to end federal cost-sharing reduction payments to insurers puts the spotlight on Republican and Democratic senators who are trying to craft a bill to fund those payments and stabilize the individual insurance market.

But it's not at all clear Sen. Lamar Alexander, the Republican chairman of the Senate Health, Education, Labor and Pensions Committee, and Sen. Patty Murray, the senior Democrat on the panel, will be able to reach a deal or that they will be able to get it through the full Senate, let alone the more conservative House. That's because many Republicans still yearn to repeal and replace the Affordable Care Act and balk at doing anything to shore it up.

The federal payments to insurers for cost-sharing reductions make coverage more affordable for low-income people by reducing deductibles and copayments.

Some conservatives celebrated Trump's CSR funding cutoff, which grew out of a lawsuit filed by House Republicans in 2014 alleging the Obama administration was unconstitutionally making payments that were never appropriated by Congress. "The Constitution finally takes precedence over Obamacare," wrote conservative analyst Chris Jacobs.

Murray called Trump's move "sabotage" and expressed hope for a bipartisan deal to restore the CSR funding, which insurers and many experts say is the key to steadying the individual insurance market. "I continue to be optimistic about our negotiations and believe we can reach a deal quickly," she said.

Nineteen state attorneys general, including those from California, Connecticut, Kentucky, New York and Massachusetts, announced Friday that they suing the Trump administration to block the CSR funding cutoff.

In August, the Congressional Budget Office projected that not making the CSR payments would boost premiums for silver plans by 20% in 2018. Ironically, it also would increase the federal budget deficit by $194 billion over 10 years because ACA premium subsidies would rise to cover the cost of the higher premiums, the CBO noted.

Insurers and other healthcare industry groups, along with state insurance regulators, urged that the payments be restored.

"We hope Congress can step in to solve the CSR problem and stabilize the marketplace, and that cooler heads will prevail than are currently in charge in the administration," said Margaret Murray, CEO of the Association for Community Affiliated Plans, which represents safety net insurers.

Other major insurance groups, including America's Health Insurance Plans and the Blue Cross and Blue Shield Association, issued similar pleas for bipartisan congressional action to continue funding for the cost-sharing subsidies. Those payments to insurers reduce deductibles and copayments for nearly 6 million low-income exchange plan members enrolled in silver plans.

Meanwhile, insurers are anticipating a big financial hit for the final three months of 2017 from the loss of the CSR payments. The Association of Community Affiliated Plans said the loss of the CSR funding will cost its member plans about 15% of premium revenue.

It's widely anticipated that insurers will sue the government to recover the CSR funds promised by the ACA, as some insurers have successfully sued to recover ACA risk-corridor funding. "Plans are definitely exploring that," Murray said.

Beyond that, insurers will face the tough decision of whether to stay in the ACA marketplaces in 2018, given the turmoil created by the Trump administration's healthcare actions widely seen as undermining the law.

"We have not heard of any plans pulling out in 2018," Murray said. "But they have to take a hard look at the actuarial risk as well as the political risk of what else the administration might do to sabotage the market."

Some predict the true reckoning will come in 2019, when insurers must decide whether they can compete with the new deregulated plans Trump is pushing to establish through an executive order he issued Thursday. In that order, he directed federal agencies to issue new rules giving individuals and businesses access to cheaper health plans with fewer benefits and consumer protections.

"I think 2019 is a real tossup depending on how the industry responds to that executive order," said John Baackes, CEO of LA Care Health Plan in Los Angeles.

For 2018, insurers in most states will be protected financially from the CSR funding cutoff because they were instructed by regulators to set their 2018 premiums assuming the Trump administration would end the payments, which are projected to total $10 billion next year.

In Wisconsin, whose insurance department Thursday announced a 36% average premium increase in the individual market for 2018, the CSR funding cutoff was baked into the new rates, said J.P. Wieske, the deputy insurance commissioner. "The court determined these payments aren't legal, so what else is President Trump going to do," he said.

But there are concerns about insurers in at least 10 states, including Alaska, Arkansas, Maryland, Oregon and Washington, where carriers were told to set rates assuming they would receive the CSR payments, according to the National Association of Insurance Commissioners. In those states, there will be a scramble to redo the rates.

"Relatively small insurers may say, 'If you don't let me load the CSRs into the rates or allow me to withdraw, I may be insolvent by the middle of next year,' " said Joel Ario, managing partner at Manatt Health and a former Obama administration official. "That could be compelling to regulators."

Baackes said his plan and others in California won't be directly affected in 2018 by the CSR cutoff because the state required insurers to increase rates for silver plans by about 12% to offset the funding loss. That upped LA Care's total increase on average to 23%.

He's more worried that Trump's CSR decision will be misunderstood by consumers as ending the ACA's premium tax credits, thus discouraging uninsured people from signing up. "People will be confused, and this will dampen enrollment among people who would otherwise consider buying on the exchange," he said.

Ario called the CSR funding cutoff "the biggest wound yet to the stability of the ACA marketplaces."

One source of continuing strength for those marketplaces is they are supported by the ACA premium tax credits, which enable millions of people to continue buying coverage.

But if the Trump administration keeps taking actions to unravel the ACA markets, such as ending enforcement of the law's requirement that everyone buy insurance, "at some point the patient starts going into cardiac arrest," he said.

"I don't think we're there yet, but the CSR cutoff and Trump's executive order are pretty major hits. It definitely makes it harder to move forward effectively unless we come up with a bipartisan solution."