Austin Frakt on The Incidental Economist daydreams about an interview with a journalist regarding President Trump’s decision to stop paying Cost Sharing Reductions (CSRs):
A[ustin]: Well, like I said, those who aren’t protected by premium tax credits could pay higher premiums. But there is actually a scenario under which they aren’t worse off, and could be better off. It’s tricky, so I won’t go into it here. Go talk to Charles Gaba. But also keep in mind, since premiums go up, so do the tax credits, which the government pays.
Q: But the government saves money in the end because of not paying cost sharing reductions, right?!
A: No, the premium tax credit increases are larger than the cost sharing reductions savings. The government pays more, so taxpayers are worse off.
And then comes the use of one of my favorite words … gobsmacked. Nicholas Bagley, also on The Incidental Economist, has some interesting background, part of which was also published on Vox:
The Affordable Care Act provides two kinds of subsidies to help low- and middle-income people pay for insurance on the exchanges. Premium subsidies defray the cost of premiums for people making less than four times the poverty level. For those who make less than that, cost-sharing reductions help cover the costs of deductibles and other out-of-pocket spending.
Although they serve similar goals, the two subsidies function in different ways. The premium subsidies are refundable tax credits that go to individuals: They are administered through the tax code. For cost-sharing reductions, the ACA requires insurers to cut their lowest-income customers a break on their out-of-pocket spending. In turn, the statute says the federal government will, reimburse insurers for doing so.
Here’s the catch. The Constitution says that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Under the persnickety rules governing appropriations law, it’s not enough for a statute to order the government to make a payment. Congress must adopt a law that specifically appropriates the money to make that payment. And while the Affordable Care Act does link the premium subsidies to an existing appropriation, it’s silent about the cost-sharing reductions.
His conclusion?
If Congress doesn’t act, it’s really the worst of all worlds. To compensate for the loss of cost-sharing payments, insurers will have to raise their premiums for silver plans. Because premium subsidies are keyed to the price of silver plans, the size of the subsidies will increase along with the rise in premiums. And because many more people are eligible for premium subsidies than for cost-sharing reductions, total federal outlays will actually increase.
So taxpayers will have to pay increased premium subsidies at the front end. Then they’ll also pay the cost-sharing money through litigation at the back end. It’s a financial bath, and for no good reason other than sheer political cussedness.
Far as I can tell, the folks at The Incidental Economist have some authoritative heft to them. Perhaps Trump should listen to them rather than his pack of second-rate advisors.
