Effect of Trump’s Obamacare subsidy cuts is blunted in California — for now

Unable to get Congress to “repeal and replace” the Affordable Care Act, President Trump this week took matters into his own hands.

Late Thursday evening, the White House announced it would stop paying key subsidies, known as “cost-sharing reductions,” that compensate insurers for providing discounts on deductibles, co-pays and other out-of-pocket costs to low-income consumers.

These cost reductions are available to policyholders in the Obamacare exchanges with incomes under 250% of the federal poverty line, or about $30,000 in income a year for an individual. The subsidies, which are separate from the tax credits that help millions of people pay their premiums, have been the subject of a lawsuit that is ongoing.

The tax credits are not affected by Trump’s decision.

Trump’s decision to end the cost-sharing subsidies is intended to take effect immediately, but it could hit a legal roadblock after California, along with 17 other states and the District of Columbia, filed a lawsuit Friday to stop it.

The Trump administration argued that paying for the subsidies was illegal because Congress had not appropriated the money for them. But Congress could still act to maintain the payments.

Cutting off payments to insurers for the out-of-pocket discounts they provide to lower-income exchange enrollees does not mean those people will no longer get help. The law, and insurance company contracts with the federal government, require that those discounts be granted. That means insurance companies will have to figure out how to recover the money they were promised.

In many states, including California, insurers had already raised 2018 premiums by an additional amount to offset the loss of the premiums in the face of earlier threats by Trump to end them.

Covered California, the state’s Obamacare insurance exchange, implemented a plan this week to blunt the effect of what it suspected, rightly, Trump would do.

Question: What is the effect of Trump’s announcement on California consumers?

Californians who buy their own health coverage — whether from Covered California or in the open market — will not see any changes to their plans, benefits or premiums for the remainder of this year.

For 2018, Covered California, the state health insurance exchange, has already prepared for Trump’s decision. This week, it announced that to offset the possible loss of the subsidies, it would add an average 12.4% surcharge to silver-level plans next year, on top of the regular annual rate hikes. That’s because only people enrolled in silver plans, the second-least-expensive option on the exchange, can qualify for the cost-sharing subsidies.

Nearly 90% of exchange enrollees receive federal tax credits to help them with their premiums, and most of them will not pay more as a result of the surcharge since those credits will rise with their premiums. Covered California estimates that about three-quarters of subsidized consumers will pay the same as or even less than this year, despite the surcharge.

Californians who make too much money to qualify for the federal premium assistance and do not receive discounts on their out-of-pocket expenses for care would be hit the hardest by the surcharge. To address that, Covered California created a new silver plan that will be sold outside the exchange that won’t be subject to the surcharge.

The state’s open enrollment period for individuals and families who buy their own plans begins Nov. 1 and ends Jan. 31. People who want to start researching premiums can use the exchange’s “Shop and Compare” tool at www.coveredca.com.

Q: How will health insurers who participate in Covered California be affected?

For the rest of 2017, health plans selling policies via Covered California will take an immediate financial hit from the end of the cost-sharing payments.

Insurers in California will lose $188 million because of unpaid subsidies for the final three months of this year, according to Covered California. Nationally, the industry’s losses will be an estimated $1.6 billion for the remainder of the year. Health plans are obligated to keep giving consumers those discounts on co-pays and deductibles, regardless of whether the federal government reimburses them.

The California surcharge tacked on to silver plans for 2018 will help insurers avoid that shortfall next year, since health plans can use that additional premium revenue to offset the loss of cost-sharing money from the Trump administration.

For now, 11 health plans are committed to selling policies on the state exchange in 2018, said Peter Lee, executive director of Covered California. However, he said, he worries insurers may exit the individual market in 2019 if political instability persists.

Q: How is California responding to Trump’s announcement?

State Atty. Gen. Xavier Becerra, joined by 17 other states and the District of Columbia, immediately filed a lawsuit Friday challenging Trump’s decision to end the payments.

“This is sabotage plain and simple,” Becerra said. “Taking these legally required subsidies away from working families … and forcing them to choose between paying rent or their medical bills is completely reckless.”

Covered California’s Lee said it’s too soon for the state Legislature to start drafting bills in response to Trump’s decision, because the fate of the cost-sharing reduction payments ultimately rests with Congress.

“Right now, we aren’t going to ask the legislators to do anything,” he said.

But Covered California isn’t waiting to get the word out that it’s still open for business and that financial help is available to many consumers. Although the federal government has slashed funding for its Obamacare marketing, Covered California will spend about $111 million on marketing efforts this year to try to keep its insurance market stable, Lee said.

“Our 11 health plans know we will be spending $111 million to promote healthy and sick people signing up for coverage,” he said.

Patient advocates expressed concern that headlines about Trump’s actions and the state’s responses will further confuse consumers — and hamper enrollment efforts.

“We fear consumers will be scared away by double-digit premium increases in silver products and not realize they are subsidized,” said Anthony Wright, executive director of Health Access California.

Trump’s move to halt cost-sharing payments is a “deliberately destructive decision.… It’s the equivalent of President Trump wildly swinging a baseball bat in a china shop,” Wright said.

Julie Appleby, Mary Agnes Carey and Diane Webber contributed to this report, which was produced by Kaiser Health News, an editorially independent publication of the Kaiser Family Foundation.