CBO Releases Report on Impact of Ending Cost-Sharing Reductions

On Tuesday this week, the Congressional Budget Office (CBO) released a report requested by House Democrats analyzing the potential impact of terminating payments for cost-sharing reductions (CSRs) on the federal budget, health insurance coverage, market stability, and health insurance premiums. Under current law, the Affordable Care Act (ACA) requires insurers to offer plans with reduced deductibles, premiums, and other cost-sharing measures to individuals with lower incomes. Federal payments are provided to insurers to cover the costs of the ACA cost-sharing reduction requirements, which are estimated to be $7 billion this year.

As part of the ongoing discussion around reforming the ACA, President Trump and several members of Congress have suggested terminating CSRs. CSRs are currently being paid on a month-by-month basis and are scheduled to continue through December 2017 but not thereafter. The Trump Administration this week indicated it will provide CSR payments for the month of August despite repeated threats to terminate funds.

According to the CBO analysis, ending CSRs after December 2017 would:

• Increase Health Insurance Marketplace premiums by approximately 20 percent in 2018 and 25 percent by 2020;
• Increase the federal deficit by $194 billion over the next decade;
• Increase the number of uninsured Americans by 1 million in 2018; and
• Result in approximately 5 percent of Americans living in areas without any insurer willing to sell plans in the Health Insurance Marketplace for the next year.

According to the CBO, estimating the responses of states and insurers of a decision to scrap CSR payments is a difficult and uncertain process.

Contributing to the uncertainty around CSRs is pending litigation taken up by House Republicans in 2014 against the Obama Administration, claiming that CSRs were illegally funded as Congress did not appropriate the funds. A lower level court allowed the case to proceed, and the Obama Administration appealed the ruling at the time. While the Trump Administration has yet to make a decision about whether it will continue the legal fight, 18 state attorneys general, including California’s Xavier Becerra, have been granted permission to intervene in the case by arguing successfully that the Trump Administration would not adequately represent their interests.

As part of its report, the CBO notes that implementing any health care-related changes, such as CSRs, through legislation, as opposed to executive or judicial action, would lend itself to greater certainty in the short term. For example, Congress could alleviate uncertainty around CSRs and pending litigation by appropriating funds to insurers. For now, however, it remains to be seen what next steps Congress and the White House intend to take related to CSRs and the broader ACA.