The federal deficit would swell and premiums for some health plans would rise sharply if the Trump administration makes good on a threat to cut off subsidies for low- and medium-income buyers of health insurance, the Congressional Budget Office said Tuesday.

The report from the nonpartisan budget office, which analyzes the cost of legislation for Congress, provided the latest ammunition in a fight that has taken place largely behind the scenes on whether Trump will try to keep the market for individual health insurance stable over the next year or actively disrupt the marketplaces in hopes of forcing Congress to repeal or significantly change the Affordable Care Act.

At issue is a provision of the law that greatly lowers the cost of insurance for millions of low- and middle-income consumers who do not get insurance from their jobs. Currently the law requires insurers to hold down deductibles and co-payments for people who receive coverage through the Obamacare marketplaces and whose incomes fall below a threshold of roughly two-and-a-half times the federal poverty level.

That requirement can save thousands of dollars for families with big medical bills, especially those with low incomes, but it imposes a significant cost on insurance companies. To make insurers whole, the government reimburses them with what are known as cost-sharing reduction payments, totaling about $600 million a month.


But as the new report explained, cutting off the payments would not save the government money overall, and instead would worsen the federal deficit.

The fact that cutting that aid would increase federal spending may seem paradoxical, but it stems from the way Obamacare works.

If the government stopped making the cost-sharing payments, insurers would still be required to hold down deductibles and co-payments for low- and moderate-income consumers. To avoid losing money, some insurers would pull out of the marketplaces. Most, however, would raise premiums, the budget office projected.

The premiums for the medium-cost silver plans on the exchanges would go up by about 20% to 25% over the next couple of years, the budget office said.


The cost of those higher premiums would land primarily on taxpayers, not on individual consumers. That’s because nearly 80% of people receiving coverage on the marketplaces also receive a second kind of government assistance to help pay monthly premiums. As overall premiums rise, so will the cost of those other government subsidies.

The net result would be to increase the federal deficit by almost $200 billion over the next 10 years, the budget office said.

For months, President Trump and his top aides have threatened to end those payments, which they have characterized as insurer bailouts.

But the administration has also missed self-declared deadlines for a decision. Health and Human Services Secretary Tom Price has repeatedly left open the question of whether the payments will be made. The government makes the payments each month, with the next one due next week.


Many congressional Republicans have counseled the administration to keep the payments intact, fearing a cutoff would destabilize insurance markets. Uncertainty over the future of the payments already has prompted insurers to raise premiums for next year, industry executives have said.

The disruption would also greatly increase the number of people, particularly in rural areas, who live in areas with no insurers selling policies on the marketplaces, the budget office said.

The budget office based its forecast on an assumption that payments would be phased out in an orderly way, starting in January. If the administration were to order a more abrupt end, insurance markets would be more severely disrupted, according to budget office staff members who briefed reporters on the condition that they not be quoted directly.

Democrats quickly seized on the new report to amplify demands that Trump commit to continuing the payments.


“Let’s be clear: this is not ‘Obamacare imploding.’ We’re talking about POTUS deliberately sabotaging the insurance market,” Sen. Mark R. Warner (D-Va.) said in a message on Twitter.

If Trump cuts off the payments, “he’ll be responsible for Americans paying more for less care,” said Senate Democratic leader Charles S. Schumer of New York.

White House officials responded by calling the budget office projection a “flawed report,” although they did not identify any flaws in it.

“This disastrous law has devastated the middle class, and must be repealed and replaced. No final decisions have been made about the [cost-sharing reduction] payments. We continue to evaluate the issues,” Ninio Fetalvo, a White House spokesman, said in a statement.


Ironically, the renewed dispute comes as the markets under the Affordable Care Act have started to stabilize after a summer of disruption. Some insurers have pulled out of the individual market, notably Anthem Blue Cross. But the number of counties nationwide with no insurer serving the marketplace is now down to only two, from 38 earlier this summer, according to the Kaiser Family Foundation, which tracks the issue.

If the subsidy payments are ended, insurers pulling out of the market would leave about 5% of the population in counties with no marketplace insurer, the budget office said.

The cost-sharing reductions have long been a flash point. Republicans went to court in 2014 to challenge them, saying Congress had never appropriated money for them. A federal district judge agreed last year. The Obama administration appealed, and the ruling has been on hold ever since. At one point, Trump administration officials talked of dropping the appeal as a way to kill the payments, but Democratic state attorneys general recently won the right to intervene in the case, which would allow them to keep it alive if Trump pulled out.


david.lauter@latimes.com

For more on Politics and Policy, follow me @DavidLauter on Twitter.

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