Shideh Kerman
by Shideh Kerman, BS, MBA
AFC Urgent Care Denver
On October 13, the White House press office announced that the administration would stop Obamacare subsidies or Cost-Sharing Reductions. These subsidies were designed under Obamacare to help low or moderate income Americans with their out of pocket expenses if they buy insurance through one of the Obamacare plans. There’s a lot that’s still uncertain about how this action will change the health law.
How do cost-sharing reductions work?
The Cost-Sharing Reductions or CSRs were federal funding to insurance companies to reduce the out-of-pocket expenses of low to moderate income individuals and families that would purchase one of the Obamacare health plans. The CSRs were a pass-through from the government via insurance companies to the patients.
“These subsidies are not a bailout — they are passed from the federal government through health plans to medical providers to help lower costs for patients who see a doctor to treat their cancer or fill a prescription for a life-saving medication,” America’s Health Insurance Plans and the Blue Cross Blue Shield Association said in a joint statement.
What will this mean for people who get insurance through their employers?
Consumers that get healthcare coverage through large companies that offer insurance, will see minimal changes. But if you work for a small business, there is a high chance that you will see more changes to your healthcare coverage. The executive order asks the Labor Department to loosen rules that permit small companies to band together to form associations and buy the kind of coverage available to larger businesses. These association health plans would be subject to federal employment law and not state insurance regulations. That means that the health plans would have far fewer rules benefits.
Small businesses that decide not to join such associations might face higher premiums in the exchange market.
How would eliminating cost-sharing reductions affect people who buy their own insurance?
It’s complicated. The proposed amount of subsidies in 2018 by insurance companies was estimated around $7 billion. With the executive order cutting this funding the biggest risk to consumers is that insurance companies will drop out of the market for next year. That makes the exchange markets less attractive for consumers.
Colorado has a state-run exchange, which is called Connect for Health Colorado. Our state is among just 12 states (including DC) that are running their own exchanges and enrollment platforms coverage. Although some insurance companies exited the Colorado exchange, Connect for Health Colorado is still among the most robust exchanges in the country, with seven insurance companies offering plans.
Insurance companies that opted to stay on the exchange market would raise their premiums to make up for the lost subsidies.
Analysts say that marketplace insurers across the country would likely raise premiums for silver plans, which is anywhere from 9 to 27 percent.
These premium increases were approved based on the assumption that CSRs funding would continue to be made to insurance companies. Insurance companies agreed to later add another 6 percent to premiums if CSRs funding were to be eliminated. So now that the CSR funding has been eliminated the average rate increase will be about 32.7 percent, instead of the previously estimated 27 percent.
But this increase in premiums doesn’t mean that all the consumers that purchase health insurance in the market place will pay more. Under the Affordable Care Act (ACA), tax credits for purchasing health insurance in the marketplaces are designed to limit consumer’s premium contributions to a percentage of their income. Families and individuals making between 100 percent to 400 percent of the poverty level will receive tax credits, which will offset the premiums increases.
So for low or medium income people who are eligible for tax credits the premium increases for 2018 will be offset by tax credits.
A recent study by Kaiser Family Foundation shows that for a 40-year-old non-smoker in Denver that earns $30,000 a year, he or she will actually pay 3 percent less, after tax credits, for the second-lowest-cost silver health plan in 2018.
So Consumers who get insurance through market exchanges using government subsidies won’t notice much of a change in price, but they might see fewer options in the future.
Consumers who won’t be eligible for any subsidies that used to purchase their health insurance through exchange markets will be most affected by the CSRs funding cuts. Higher premiums and less choices will make the exchange market less attractive, thus many consumers will leave the exchange market leading to more uninsured people.