Alert / Employee Benefits
Defunding of ACA Subsidy By Trump Administration Might Energize Broader Health Reform Efforts

Late yesterday, the White House released a statement indicating it will cease funding for an Affordable Care Act (ACA) subsidy that helps reduce cost-sharing requirements for some lower income Americans. The move may further destabilize the individual health insurance market, though it might also inject additional urgency in Congress to develop and pass legislation that creates long term stability.

Lockton comment: The administration’s announcement is in addition to the Executive Order signed by President Trump yesterday, which directs federal agencies to further explore association health plans and expanded health reimbursement arrangements. See our Alert for more details on the Executive Order.

The announcement by the White House suggests the federal government will stop paying cost-sharing reduction subsidies under the ACA as soon as November. These “CSRs,” as they’re commonly called, are payments directly from the federal government to insurers, which reimburse insurers for reducing deductibles and other out-of-pocket expenses for lower income individuals buying insurance through the ACA marketplace.

Lockton comment: Under the ACA’s employer mandate, full-time employees who receive subsidized coverage through a marketplace may trigger penalties for the employer. Yesterday’s announcement on CSRs does not eliminate all ACA subsidies, so employers are still at risk for penalties under the ACA’s employer mandate. In particular, premium reduction subsidies are still available for many individuals buying policies through an ACA marketplace.

Insurers have reported that eliminating CSRs will cause a spike in premiums, because they are required by the ACA to apply the cost sharing reductions even if the federal government doesn’t reimburse them for their expenses. Continually rising premiums could further destabilize the individual insurance markets, and may result in fewer carriers willing to offer coverage in that market.

Lockton comment: Although the individual health insurance market is only about one-tenth the size of the group market, its struggles could have adverse downstream consequences for employers. An ill-functioning individual market could lead states to experiment with a variety of solutions for propping up or replacing that market, most of which would have to involve additional tax levies on individuals, businesses or both, and might involve anything from a state-imposed employer mandate more onerous than the ACA’s, to an attempt to install a single payer system.

The announcement explains that the administration believes continuing CSRs without an express authorization from Congress is unconstitutional. In other words, the Trump Administration is telling Congress ‘the ball is in your court.’

What Congress will do with the ball remains unclear. Prior to yesterday’s announcement, Lamar Alexander (R-TN) and Patty Murray (D-WA), had been working on a measure to fund CSRs for at least two years in exchange for a provision making it easier for states to manage their health insurance markets, including allowing states to opt out of  some ACA market reforms. Not all Republicans were willing to fund the CSRs, and Democrats were unified in their opposition to any measure weakening the ACA’s benefit coverage requirements. As a result, the bipartisan talks stalled. The White House’s announcement has reignited these discussions, which may very well be what the administration intended.

Lockton comment: Early indications from those we’ve spoken with believe the announcement may actually give Democrats more leverage. Public polling shows Americans are more likely to blame Republicans for any health insurance market problems, which creates some urgency among Republicans to find a solution – even if that solution is not as ideologically conservative as many Republicans prefer.

The additional pressure on Republicans could also work to spur a partisan health reform package. This week Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA), sponsors of the last ditch Republican effort to substantially modify the ACA that collapsed at the end of September, announced a multi-state tour to rally support in hopes of reviving their proposal in early 2018. If a bipartisan solution to stabilize the individual market cannot be reached, pressure may build for Republicans to support the Graham-Cassidy proposal – a proposal once lauded by President Trump.

Scott Behrens, JD
Lockton Compliance Services

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