One day after his administration announced it would stop making billions of dollars in Affordable Care Act cost-sharing payments, President Donald Trump defended the decision as a way to force a new healthcare negotiation. Trump characterized the payments as a subsidy—and nearly a “payoff”—to insurance companies. But the payments reimbursed insurers for reducing deductibles, copayments and other out-of-pocket expenses for qualifying lower-income Americans, and the Congressional Budget Office had already warned that eliminating them would drive up premiums and initially destabilize some insurance markets.**
Donald Trump had tried to repeal Obamacare through Congress.
Republicans couldn't get it done.
So by October 2017, his administration was increasingly using executive and administrative power to change the healthcare system without waiting for Congress to pass a replacement.
On October 12, the administration announced one of its most consequential moves: it would stop making federal cost-sharing reduction payments, commonly called CSR payments, to insurance companies participating in Affordable Care Act marketplaces.
The next afternoon, Trump was asked a straightforward question.
Would ending the payments throw the insurance markets into chaos?
Trump didn't back away.
He said it would force Washington back to the negotiating table.
“What it's going to do is it's going to be time to negotiate healthcare that's going to be good for everybody,” Trump said.
Then he went after the insurance companies.
Trump Called the Payments a “Payoff”
Trump portrayed the CSR program as government money enriching insurance corporations.
“That money is a subsidy for insurance companies,” he said.
He pointed reporters toward insurers' stock prices and argued that companies had made fortunes under Obamacare.
Then he went further.
The payments were “almost, you could say, a payoff for insurance companies,” Trump said.
But that description left out a crucial part of how the program worked.
Insurance companies weren't simply being handed federal money with no obligation attached.
Under the Affordable Care Act, insurers were required to reduce deductibles, copayments and other out-of-pocket expenses for qualifying lower-income customers who purchased certain marketplace plans.
The federal government then reimbursed insurers for providing those reductions.
Ending the federal payments didn't eliminate the insurers' legal obligation to provide the discounts.
It eliminated the government's reimbursement for them.
That left insurers responsible for the cost.
And they had an obvious way to recover it:
Raise premiums.
The Government Had Already Predicted What Would Happen
Trump didn't have to guess about the likely consequences.
The Congressional Budget Office had examined essentially this scenario just two months earlier.
Its conclusion was clear.
If the federal government stopped making the CSR payments, insurers would increase premiums on ACA silver plans to compensate for the missing money.
CBO estimated that gross premiums for those plans would be approximately 20 percent higher in 2018 than if the payments continued.
By 2020, they would be about 25 percent higher.
CBO also predicted that uncertainty surrounding the change could cause insurers to leave some markets temporarily.
About 5 percent of Americans, CBO estimated, could initially live in areas with no insurer participating in the individual marketplace in 2018.
The markets were expected to stabilize later as insurers adjusted.
But there was another surprising consequence.
Stopping the payments wasn't expected to save taxpayers money.
It was expected to cost them more.
Ending the Payments Was Projected to Increase the Deficit
The Affordable Care Act contains another form of assistance: premium tax credits.
Those credits generally increase when benchmark marketplace premiums increase.
So if eliminating the CSR payments caused silver-plan premiums to rise, federal premium subsidies would rise with them.
CBO estimated that the resulting increase in federal tax credits would more than offset the savings from eliminating the direct CSR payments.
The projected result:
An additional $194 billion added to federal deficits between 2017 and 2026.
In other words, the federal government could stop sending one type of payment to insurers only to spend even more through another part of the Affordable Care Act.
Who Would Actually Feel It?
The consequences were complicated.
People receiving sufficiently large ACA premium tax credits could be insulated from much of the increase because their subsidies would rise along with benchmark premiums.
Some subsidized customers could even find cheaper options because of the way insurers and states responded.
But Americans who didn't receive enough premium assistance could face the higher premiums much more directly.
And insurers still had to provide the reduced deductibles and copayments promised to qualifying lower-income customers.
Trump repeatedly framed the dispute as himself versus wealthy insurance companies.
When a reporter reminded him that the CSR program helped lower-income Americans, Trump again focused on insurers.
The money, Trump responded, was “going to insurance companies.”
Asked whether premiums would rise, Trump continued arguing that the existing system enriched insurers.
Trump Wanted Democrats to Negotiate
Trump also made clear that he expected his actions to change the political calculation in Washington.
Republicans had spent months attempting to repeal and replace Obamacare.
They controlled the House.
They controlled the Senate.
They controlled the White House.
But they still couldn't pass a replacement.
Trump now said Democrats should come negotiate with him.
“If the Democrats were smart,” he said, they would negotiate a healthcare agreement with the administration.
Asked whether his Obamacare actions were intended to pressure Democrats into negotiations, Trump said he wasn't doing it “consciously,” but again called on Democrats to come to the table.
The implication was difficult to miss.
The administration had just removed a major source of funding from the existing healthcare system.
Now Trump wanted Congress to negotiate something different.
Obamacare Didn't Collapse
The Affordable Care Act survived Trump's decision.
States and insurance companies adapted.
Insurers generally compensated for the missing CSR reimbursements by increasing premiums—particularly on silver marketplace plans.
Because premium tax credits were tied to those premiums, federal subsidies increased as well.
CBO later summarized what had happened plainly:
The cost-sharing reductions were still being provided.
They were simply being financed differently.
Instead of the federal government directly reimbursing insurers for them, the cost was effectively being covered through higher premiums and larger federal premium tax credits.
Trump had eliminated the payments.
He hadn't eliminated the expense.
Healthcare Policy With Real Consequences
The political argument surrounding Obamacare often made the CSR fight sound like an accounting dispute between Washington and insurance corporations.
For people purchasing their own health insurance, it was considerably more personal.
Premiums determine whether families can afford coverage.
Deductibles determine whether people can afford to use the insurance they already have.
And uncertainty about whether insurers will remain in a market determines whether people have meaningful choices at all.
On October 13, Trump defended eliminating the payments as a way to stop what he portrayed as a government “payoff” to insurance companies and encourage negotiations over a new healthcare system.
But the government's own nonpartisan budget analysts had already explained what was likely to happen next.
Insurers would still have to provide the discounts.
They would raise premiums to recover the money.
Federal premium subsidies would rise.
And rather than reducing the federal deficit, the change was projected to increase it by $194 billion over ten years.
The payments disappeared.
The cost didn't.