Under the Guise of “Health Insurance Stabilization,” Congress Should Not Axe Financial Help for Low-Wage Families
In negotiations over stabilizing the individual health insurance market, lawmakers are considering slashing federal health care assistance for low- and moderate-income consumers by more than $27 billion a year. In dollars terms, this would be a greater blow than completely eliminating, in one stroke, the Low-Income Home Energy Assistance Program, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), the Child Care and Development Block Grant, the Community Development Block Grant, and federal grant programs for community-based mental health services and substance abuse prevention and treatment.
Families USA strongly supports the goal of stabilizing the individual market and lowering premiums paid by consumers whose incomes are too high to qualify for federal premium tax credits (PTCs). However, elements of the stabilization proposals under discussion are quite troubling. If Congress funds cost-sharing reduction payments as planned in the current proposals, millions of consumers would experience significant financial harm, as their out-of-pocket premium costs would skyrocket.
No stabilization package should rob low- and moderate-income households of the help they currently receive paying for health insurance unless that same package leaves them whole by fully compensating them for the major losses they would otherwise experience.
One part of the stabilization package would cut $27 billion a year from the tax credits on which low- and moderate-income families rely in buying insurance
Members of Congress are seriously considering restoring federal payments that cover health insurers’ costs of furnishing legally required cost-sharing reductions (CSRs) to low- and moderate-income consumers. If Congress takes this step, more than 2 million consumers could see their out-of-pocket insurance costs double, triple, or even increase seven-fold.
Here’s why. When President Trump ended CSR payments to plans in October 2017, regulators in most states let insurers fund their CSR obligations to consumers by raising premiums on silver plans alone. The vast majority of silver enrollees receive premium tax credits, whose income generally falls between 100 percent and 400 percent of the federal poverty level. Because tax credit beneficiaries’ premium payments for silver plans are based on income, their higher silver premiums are paid by federal tax credits, rather than increased consumer costs. In turn, these larger tax credits have provided substantially more affordable access to plans at other metal levels, which had premiums that were not affected by this targeted response to the Trump Administration’s CSR decision.
At this juncture, restoring CSR payments to plans would slash tax credits for low- and moderate-income consumers by a surprisingly large amount. According to the nonpartisan Congressional Budget Office (CBO), paying insurers for CSRs would cut federal health coverage assistance by $247 billion from 2018-2026, averaging $27.3 billion a year*. This is far more than the $20.1 billion combined annual impact of completely eliminating all of the following programs
- The Low-Income Health Energy Assistance Program (LIHEAP), which pays heating costs for 6 million low- and moderate-income households;
- WIC, which feeds more than 7 million poor and near-poor pregnant women and infants;
- The Child Care and Development Block Grant (CCDBG), which provides child care for 1.4 million children;
- The Community Development Block Grant (CDBG), which helps 1,209 localities and all 50 states develop affordable housing and employment opportunities, mostly to benefit low- and moderate-income residents;
- The Community Mental Health Services Block Grant (MHBG), which provides mental health treatment to 7.4 million people;
- The Substance Abuse Prevention and Treatment Block Grant (SABG), which helps 1.6 million people who struggle with substance use disorders.
Claims that CSR restoration will lower premiums are misleading
Supporters of this proposal argue that restoring CSR payments would lower premiums. That claim is misleading, even though unsubsidized silver premiums would rise more slowly than projected if CSR payments were restored. The vast majority of consumers enrolled in silver plans are tax credit beneficiaries, who do not pay the full premium. Their out-of-pocket premium costs would skyrocket if Congress pays insurers for CSRs.
Moreover, if Congress leaves current arrangements in place, states can shield unsubsidized consumers from harm by limiting CSR-related premium increases to marketplace silver plans and encouraging unsubsidized consumers to move to off-marketplace silver plans. 20 states have already taken this step. In addition, premiums would shoot up for unsubsidized consumers in gold plans if insurers’ CSR payments are restored, according to CBO.
How did we reach this strange place? And where do we go from here?
Individual insurance markets have been reeling under a concerted assault from the Trump Administration and its Congressional allies. This focused attack has destabilized markets, increasing already high premiums substantially in most states.
Families USA strongly supports comprehensive Congressional efforts to stabilize insurance markets and slow premium growth. Such efforts could include funding for reinsurance, enrollment outreach and consumer assistance, enhanced subsidies that make coverage and care more affordable, and measures to prevent disruptive Trump Administrative regulations from bifurcating the insurance market and driving up costs substantially for older adults and people with pre-existing conditions.
When President Trump eliminated CSR payments to plans in October 2017, his explicit purpose was to undermine the ACA’s health insurance marketplaces. State insurance regulators, consumer advocates, and the insurance industry have responded to this sabotage more rapidly and effectively than observers expected. As a result, unwinding President Trump’s decision would now be far more disruptive than continuing current arrangements.
In the current NCAA basketball playoffs, some victorious coaches will doubtless chuckle about how they won even though “that wasn’t the way we drew up the play.” No one designing a health coverage system from scratch would include the support that low- and moderate-income families currently receive due to “silver-loading” and CSR non-payment. Even though few anticipated this result, an extra $27 billion a year is now helping low-wage workers and middle-class families pay for health insurance. Policymakers should not eliminate that assistance based on nothing more than theoretical hopes of future arrangements that observers find more elegant and rational.
Before policymakers yank away $27 billion a year from low- and moderate-income families in America, it is imperative that they provide alternative forms of assistance that shield affected families from harm, building on the ACA’s solid foundation to make coverage even more affordable.
*CBO estimated that offsetting increases in federal tax payments would create a net federal budget impact of $192 billion. While the time frame for the estimate covered the 10-year period of 2017-2026, the projected effects were for the 9-year period, 2018-2026.