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How Ending Obamacare Subsidies to Insurers Will Affect You

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How Ending Obamacare Subsidies to Insurers Will Affect You

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Updated: November 21, 2017    Published: October 13, 2017

How Ending Obamacare Subsidies to Insurers Will Affect You | HealthCare.com
Image: Gage Skidmore / Flickr

The Trump administration’s announcement to end cost-sharing reduction subsidies can have an impact on the healthcare of certain people.

Last night, the White House announced that President Trump plans to end Obamacare subsidies to insurers, in a move that could drastically impact the healthcare of low-income Americans that depend on Marketplace health insurance. The effort is a last-ditch attempt by the Trump administration to undermine Obamacare markets, a mere 18 days before the health insurance Open Enrollment Period restarts on November 1st. By eliminating these so-called “cost-sharing reduction (CSR) subsidies”, a sizable portion of the American population could be at risk of higher healthcare costs.

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CSR Subsidies VS Obamacare Subsidies to Consumers

Under the Affordable Care Act (ACA), consumers are granted two different forms of financial aid. While they’re both often thought of as “Obamacare subsidies”, there are some important clarifications that must be made between the two.

Obamacare Subsidies to Consumers or Obamacare Tax Credits

When people talk about Obamacare subsidies, they’re often referring to the tax credits offered to health insurance consumers shopping on the insurance Marketplace. Under the ACA, individuals and households earning up to 400 percent of the Federal Poverty Limit (FPL) could qualify for some kind of tax credit to help them pay for their health insurance premiums. For many people covered under a Marketplace health insurance plan, these tax credits give them access to affordable healthcare. Because of the 400 percent FPL cap, more people tend to qualify for Obamacare tax credits.

Obamacare Subsidies to Insurers or Cost-Sharing Reduction Subsidies

Now, these headlines in the news are confusing because they’re also being referred to as “Obamacare subsidies”. The difference, though, is that these subsidies are aimed at helping insurance companies provide health insurance plans that offer cost-saving benefits and deductions for lower income people – or loosely termed “CSR plans”. Under the ACA, individuals and households earning up to 250 percent of the Federal Poverty Limit can qualify for reductions in their cost-sharing towards their health insurance policies. This means that they get access to costs for their deductibles, coinsurance, copayments, and lower out-of-pocket limits. Because of the 250 percent FPL cap, only the poorest of Americans qualify for cost-sharing reductions.

In order to offer these reductions, though, insurers must take a financial hit. Cost-sharing reduction subsidies (or these so called “Obamacare subsidies” to insurers) are payments from the government to insurance companies to help them continue providing this kind of financial aid to consumers.

So, Who’s Affected by Ending Cost-Sharing Reduction Subsidies?

Insurance Companies

Many insurance companies already assumed that CSR payments would end and were allowed by some states to raise health insurance premiums for 2018 to help offset costs, but insurers that weren’t granted these raises are likely rattled by the news. Because insurers have already set prices for insurance this year, those that weren’t able to raise rates can’t do anything; however, this action from the White House further pushes insurance companies to pull out of the Obamacare Marketplace after this year’s open enrollment. In effect, it could mean seeing even less Marketplace insurers for the 2019 health insurance Open Enrollment Period.

Those Covered Under an Obamacare Plan

For most people covered under a Marketplace plan and getting tax credits to help pay for their premiums: it’s likely that you won’t be affected by any of this. The Obamacare tax credits will stay intact, so if you still qualify for the tax credits in this upcoming Open Enrollment Period, you shouldn’t really have to worry about being able to get affordable coverage.

If you don’t qualify for the tax credits, then there’s a chance that your costs will increase.

Lowest-Income Americans

According to HealthCare.com co-founder Jeff Smedsrud, President Trump’s decision to end the funds for cost-sharing reduction subsidies will likely result in higher insurance premiums for individuals and more out-of-pocket expenses for those making less than 250 percent of the Federal Poverty Level. Meaning: populations with the lowest income (hence, those with no money to spend on out-of-pocket expenses) will be impacted the most. Or, at least, if the CSRs get taken off the table permanently. Insurers are still required to fund CSRs throughout the year, even if they don’t get back federal subsidies for getting them. So, while those in the lowest-income groups will still the reductions for 2018, the future remains unclear.

According to the Kaiser Family Foundation, ACA cost-sharing reductions significantly reduce deductibles and out-of-pocket limits for the lowest-income Americans. For example, the difference between a silver plan and a CSR plan for those with an income below 150 percent is in thousands of dollars: with the out-of-pocket maximum reduced from $6,528 to $941 for those qualified for that CSR plan.

A silver-tier plan’s out-of-pocket limits compared to various CSR limits. (via Kaiser Family Foundation)

Middle-Class Americans


Smedsrud points out, though, that many more Americans could feel some impact from this over the long-term. While health insurance rates have already been set this year, this could lead to even further premium increases in the future:

“The full impact of the higher costs will not be felt by a significant portion of those insured under the Affordable Care Act because subsidies cover most of their premium costs. For those not eligible for subsidies, costs will be higher, resulting in even fewer middle class Americans being able to buy coverage.  

Washington Scrambles to Reach a Decision on Obamacare Subsidies to Insurers

As established under the ACA, insurance companies are required to provide lower deductibles and copayments to low-income enrollees. In order to keep this system stabilized, CSR subsidies are a mechanism created under the ACA to compensate insurers for these discounts and cost-sharing benefits that they provide to lower-income consumers. In exchange for insurance companies offerings these cost-sharing reductions, the federal government would provide these Obamacare subsidies directly to insurers – one incentive to keep insurance companies participating in the Obamacare exchanges.

But, while the ACA made it law for insurers to get these subsidies from the government, they didn’t lay out a clear funding source for these payments. In April of this this year, there was some panic in Congress on whether these CSR subsidies would continue getting paid through the Trump administration. Then, in August, news around Washington was circulating that the White House would stop all payments towards CSR subsidies. And, now, it’s back in Congress’s hands – where Democrats are now scrambling to get Obamacare insurer subsidy payments included in a December funding deal.

How Will This Impact You During Open Enrollment?

The health insurance Open Enrollment Period starts on November 1st – with the deadline shortened to December 15th. While some states have extended open enrollment, it’s still important for you to shop for a plan as soon as possible.

Overall, the stopping of funds to CSR subsidies generally won’t affect you in this upcoming enrollment period. Because insurance rates have been set and insurance companies have already committed, there should be little to no issues when it comes to actually finding a plan – whether that’s Marketplace or non-Marketplace health insurance.

There are, though, several Marketplace health insurance alternatives that you might want to consider – and depending on your budget and health needs, could be a better fit for you.

Taking the Next Steps

Approximately 20 million people will shop for health insurance during this Open Enrollment Period. If you’re shopping for healthcare coverage on your own, check out HealthCare.com to see what Marketplace and off-Marketplace plans are available to you.

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