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Cutting payments to insurers could spike premiums and end up costing the government more

Washington Post

President Donald Trump has seized on a specific strategy to undercut political support for the Affordable Care Act, better known as Obamacare, tweeting:

"If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!"

"BAILOUTS for Insurance Companies" certainly sounds like the sort of thing that most Americans would oppose, and, by suggesting that Obamacare necessarily means giving handouts to insurers, Trump and his team clearly hope to shift the tide of popular opinion back in their direction.

As is often the case with Twitter-length political rhetoric, though, the issue is more complicated than that.

What Trump is referring to is what are called "cost-sharing reduction payments." As explained by the Kaiser Family Foundation's Larry Levitt:

"The ACA requires insurers to offer plans with reduced patient cost-sharing (e.g., deductibles and copays) to marketplace enrollees with incomes 100-250% of the poverty level. ... To compensate for the added cost to insurers of the reduced cost-sharing, the federal governments makes payments directly to insurance companies. The Congressional Budget Office (CBO) estimates the cost of these payments at $7 billion in fiscal year 2017, rising to $10 billion in 2018 and $16 billion by 2027."

In other words, the government makes insurers offer lower-cost policies for which it then reimburses the insurers. This isn't a bailout in the sense that insurers overstepped their bounds and need government support to survive. It's a reimbursement that has been part of the ACA from the outset.

Such policies are relatively common with people who've enrolled for insurance coverage in an Obamacare marketplace. In March 2016, 57.3 percent of enrollees had a plan that qualified for cost-sharing. In most states, more than half of enrollees did, with Southern states having an even higher percentage than other places.

So what happens if Trump decides to end these payments? In a tweet on Wednesday, Levitt noted that insurers would necessarily have to raise premiums to cover the costs of the policies. The amount of that increase would vary by state, too, but Levitt figures that it would be those same Southern states that ended up seeing premiums increase the most.

On the surface, this looks like another example of how political action taken against Obamacare would disproportionately affect Trump's base. But the foot that's being shot isn't Trump's electoral one, it's the government's budgetary one.

After all, the point of the Affordable Care Act is that care be affordable. The government would increase tax credits for those with cost-sharing reduction policies to offset the increase in premium prices. And according to Levitt's calculations, that would end up costing the government about $2.3 billion more than if they had paid the insurers at the outset.

What's more, Levitt thinks that estimate is probably low.

As Trump himself once said, "Nobody knew health care could be so complicated." Even when it seems as straightforward as ending "bailouts" to insurance companies.

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