Cutting off Obamacare reimbursement payments for insurers — as President Trump has threatened to do — would send premiums soaring by 20 percent next year, the Congressional Budget Office said Tuesday, predicting that health insurance companies would hike rates to make up for the loss of taxpayers’ money.
The report served as the latest blow to Mr. Trump’s plans to blame Democrats for the failing health care law. CBO analysts said cutting off the money, known as cost-sharing reductions, also would be counterproductive because taxpayers would end up shelling out more money in subsidies to cover the higher premiums insurers would charge.
The payments, known as CSRs, are critical to plans that lose money by picking up low-income customers’ out-of-pocket costs on the insurance exchanges set up under the 2010 Affordable Care Act.
Mr. Trump is letting the money flow to insurers for now but hasn’t committed to them long-term. At times, he has suggested that he would suspend the payments to help Obamacare implode, and at other times has signaled that he would hold the payments hostage to try to force Democrats to the table to renegotiate President Obama’s signature health care law.
Democrats said Tuesday that the strategy won’t work.
“Try to wriggle out of his responsibilities as he might, the CBO report makes clear that if President Trump refuses to make these payments, he will be responsible for American families paying more for less care,” said Senate Minority Leader Charles E. Schumer, New York Democrat. “He’s the president, and the ball is his court. American families await his action.”
The Trump administration is skeptical about the findings and noted that the CBO underestimated how many people would sign up on the exchanges. It also said Obamacare is flawed.
“Regardless of what this flawed report says, Obamacare will continue to fail with or without a federal bailout,” White House spokesman Ninio Fetalvo said. “Premiums are accelerating, enrollment is declining and millions are seeing their options dwindling. This disastrous law has devastated the middle class and must be repealed and replaced. No final decisions have been made about the CSR payments. We continue to evaluate the issues.”
The financial uncertainty, combined with Mr. Trump’s wavering commitment to Obamacare’s “individual mandate,” is prompting insurers to request rate hikes well above what they otherwise would because plans are required to pay the costs whether or not they are reimbursed by the government.
CBO analysts said taxpayers would be charged nearly $200 billion more in the coming decade if Mr. Trump axes the payments because of higher government subsidies to cover customers’ rising rates.
Analysts also predicted that some insurers would drop out of the program amid the upheaval — about 5 percent of the population would have no choices next year — though options would return to nearly all areas by 2020 as companies adjust.
A recent Kaiser Family Foundation poll said more than three-fifths of Americans oppose tactics that could disrupt the markets, such as threatening to withhold cost-sharing payments.
The poll also found that Americans want Mr. Trump and the Republican-controlled Congress to focus on making the current program work rather than reignite their repeal effort, underscoring the party’s political risk.
“Instead of enabling the president’s extortion, Republicans should work constructively with Democrats to guarantee the cost-sharing reduction payments will be made, stabilize the markets and lower costs for all Americans,” said House Minority Leader Nancy Pelosi, California Democrat.
Mr. Obama made the cost-sharing payments over the objections of Congress, which specifically cut the money out of the budget. House Republicans took Mr. Obama to court, and a federal judge has ruled the payments illegal — though she stayed her ruling while the case is on appeal.
Democrats say congressional Republicans could solve the entire issue by appropriating the money.
But many conservatives say that would amount to a bailout for insurers who have signed on with Mr. Obama’s law. They are loath to front the money unless it is part of a clear transition from Obamacare to a Republican-favored health care plan.
Without the payments, CBO said, the number of uninsured would increase by 1 million next year, mainly because of insurers dropping out of the marketplace.
But the dynamic reverses in later years. The number of Americans lacking insurance would be 1 million lower in each year starting in 2020 as the exchanges become more attractive to certain consumers, the CBO said.
“What happens is that insurers increase silver premiums, which are the benchmark for premium subsidies. It’s a wash for people eligible for cost-sharing reductions since they have to enroll in silver plans to get that assistance,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation.
Yet among people who qualify for premium subsidies but not the cost-sharing reductions, “it’s a windfall,” Mr. Levitt said.
“They could take their higher premium subsidies and enroll in bronze or gold plans,” he said. “This has the perverse effect of increasing subsidies people receive under the Affordable Care Act and increasing the federal cost of running the program.”
The CBO estimated a net increase of $247 billion in subsidy spending — $365 billion more for premium tax credits, minus $118 billion for cost-sharing subsidies — over the coming decade.
Combined with ripple effects on Medicaid enrollment and the taxable income of people dropping off employer-based coverage, the CBO estimated a $194 billion increase in deficits by 2026.