CBO: Eliminating Cost-Sharing Reduction Payments Has Short-Term Pains, Long-Term Gains

Since taking office, President Donald Trump has toyed with the idea of eliminating the cost-sharing reduction (CSR) payments to insurers under the Affordable Care Act (ACA). Doing so would actually decrease the number of uninsured individuals starting in 2020, but would increase the federal deficit by $194 billion from 2017 through 2026, according to a new report released by the Congressional Budget Office (CBO).

The CBO and the Joint Committee on Taxation estimated the effects of terminating CSR payments at the request of the House Democratic Leader and House Democratic Whip. CSR payments are arranged by HHS to cover the costs insurers incur by offering plans with reduced deductibles, co-payments, and other means of cost sharing for low-income individuals.

According to the report, insurers in some states would likely withdraw or not enter the individual insurance market shortly after the payments are eliminated, but the effects would be short term. In 2018, 5% of the country would live in areas with no insurers in the individual market, but by 2020 that will have changed. CBO expects that “more insurers would participate, so people in almost all areas would be able to buy nongroup insurance.”

Insurers would have to raise premiums of silver plans. In the short term, this would mean that silver plans offered through the ACA marketplaces would increase by about 20% in 2018. However, most people purchasing silver plans are eligible for tax credits, so the amount of tax credits paid to eligible individuals (those between 100% and 200% of the federal poverty level) would increase. Individuals might not feel a difference since they would pay net premiums similar to what they would pay if the CSR payments were still in effect, but the federal government would feel the difference.

“Implementing the policy would increase the federal deficit, on net, by $194 billion from 2017 through 2026,” according to the report. “Total federal subsidies for health insurance in the nongroup market … would increase for 2 reasons: The average amount of subsidy per person would be greater, and more people would receive subsidies in most years.”

The policy would actually make insurance in the individual market more attractive than employer-based insurance because of the increased tax credits.

“As a result, more people would purchase plans in the marketplaces than would have otherwise and fewer people would purchase employment-based health insurance—reducing the number of uninsured people, on net, in most years,” the agencies reported.

Initially, the number of people uninsured would increase by 1 million in 2018, before decreasing by about 1 million each year starting in 2020.