ACA in Action

Day 13 – October 14th

On Thursday night, the Trump administration immediately stopped supporting the cost-sharing subsidies that the Obama administration started to reimburse insurance companies for reducing the deductibles and co-pays of low-income ACA (Obamacare) participants.

What this means is that by law, insurance companies are required to offer reduced deductibles and co-pays to low-income enrollees that are eligible for them. However, since the start of the ACA, these cost-sharing subsidies have reimbursed private insurance companies for this difference in what they want to charge versus what the law says they can charged (the reduced rate). On the face of the issue, it seems like having the government subsidize private insurers to keep their profits stable is not an optimal solution – and you are probably right about that. However, these subsidies were instrumental in making sure these insurance companies would go along with the new mandates by the ACA. Without them, at the dawn of the ACA, many insurance carriers would not have provide plans for the exchanges, and many Americans would not have been able to purchase affordably priced plans.

And this is exactly what is still at risk. Nearly 57% of all enrollees qualified for the cost-sharing payments in 2017, according to the most recent data from the Department of health and Human Services. With these subsidies dismantled, two things are going to happen:

  1. Insurers that assumed that these payments would be discontinued have started to implement rate hikes across their plans. Some already increased rates across-the board in anticipation of this move by the Trump administration, some are only targeting their silver-tier policies (only for those that receive these cost-sharing subsidies), and still some still will honor their locked-in rates for 2018 but will look to increase the rates for 2019 and beyond. With less than 3 weeks before the open enrollment for 2018 begins, many people may soon see their plans being more expensive.
  2. Other insurance carriers, however, that didn’t expect such a drastic measure by Trump are likely to either raise rates rapidly, or exercise a clause in their contracts that allow them to drop out if the subsidies disappears. After all, if it doesn’t make sense for their bottom line and they risk taking excessive losses, why would they be in this business? This means that many people on such plans would see themselves becoming very suddenly uninsured and face the reality of having to find more expensive plans.

As someone who is bootstrapping their own startup, I can tell you that the ACA has helped tremendously. I suffered a back-injury earlier this year and while I was transitioning out of my strategy consulting job into this startup space, knowing that I had insurance to help alleviate some of that burden was a great weight off of my shoulders. I’m not saying that the ACA is perfect, but I know I am not alone in thinking that having insurance for life’s accidents is better than being priced out of that market and not having it.

Trump’s move to end subsidizes is by no means a stake in the coffin for the ACA, but it will definitely hurt more Americans than help. So what happens now? According to Nicholas Bagley, an assistant professor of law at the University of Michigan, “Lawsuits, lawsuits, and more lawsuits.” Insurers and state officials could begin suing the Trump administration for ending these subsidizes. As for the median American, they will just have to wait to see how this decision shakes out and eat any price-increases if they can afford to do so, or risk being uninsured.

Until Tomorrow!

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