Judge questions claims that ceasing Obamacare insurance subsidies hurts consumers

Oct 24 2017

A federal judge Monday expressed skepticism that President Donald Trump's decision to halt certain health law insurance subsidies would cause consumers immediate harm, as California and many other states claim in a lawsuit.

U.S. District Judge Vince Chhabria said he would issue a ruling in the case Tuesday.

Earlier this month, Trump announced that the administration would stop payments that compensate insurers for discounts given to low-income consumers to help cover their out-of-pocket expenses under policies sold on the Affordable Care Act's insurance marketplaces. These subsidies are different from the tax credits many consumers get, depending on their income, to pay Obamacare premiums.

The lawsuit was filed by 18 states and the District of Columbia, led by California Attorney General Xavier Beccera. It seeks an emergency restraining order compelling the Trump administration to resume the Obamacare payments. Nationwide, cost-sharing payments were expected to total $7 billion this year.

Since assuming office in January, Trump has repeatedly threatened to stop the subsidies, known as cost sharing reduction (CSR) payments. But he held off while Republicans in Congress were working to replace the ACA. Republicans have argued that the subsidies are illegal because they have not been approved by Congress and that they amount to a bailout for insurers.

Responding to the uncertainty, a number of states have allowed insurers to raise their premiums. California earlier this month ordered insurers to add a surcharge to some policies next year, to offset the potential loss in federal funding and keep the individual insurance market stable. The 12.4 percent surcharge was added to silver plans only, the second-least expensive tier.

"California is doing a really good job in responding to the termination of [cost-sharing reduction] payments in a way that is avoiding harm for people and actually benefiting people," said Judge Chhabria.

He said that the vast majority of states have "seen the writing on the wall" and chosen to respond by increasing premiums for silver plans. That, in turn, will force the federal government to give higher tax credits to most consumers, so they won't feel any financial pinch.

Under intense questioning by the judge, California Deputy Attorney General Gregory Brown acknowledged that California has done a lot to mitigate the harm to consumers. But he said the administration's actions are destabilizing the exchanges and the individual insurance market, and causing chaos for states and consumers just eight days before enrollment begins Nov. 1.

Some experts and states are concerned jumpy insurers will bolt from the market and leave some regions with minimal or no choices for coverage. However, a bipartisan bill in Congress would restore the cost-sharing subsidies and aims to stabilize the insurance markets. But it's not clear the bill will muster the support it needs to pass both the Senate and House or whether Trump would sign it.

In California, 1.4 million people buy their own coverage through the state marketplace, and 90 percent receive federal subsidies that reduce what they pay.

During the hearing, Chhabria read from a Covered California press release that predicts how the changes will affect consumers in 2018. It notes that even though silver plan premiums will rise as a result of the surcharge, the federal tax credits will also increase to cover the rise in premiums. That will leave 4 out of 5 consumers with monthly premiums that stay the same or decrease.

The judge also said ruling in favor of the restraining order would mean insurance companies could essentially "double collect" — benefiting from both the premium increases from the surcharge on silver plans and the cost-sharing subsidies.

Brown said a restraining order to resume the cost-sharing payments would bring back the status quo. If insurance companies double collect, the state would compensate by reducing rates down the line, he said.

"We're not looking to give insurance companies a windfall … but the stability is important to insurance companies," he said.

This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.