October 19, 2017


Obamacare Subsidy Cut-off May Actually Help Low-Income Americans : Healthcare subsidies will get slightly less complicated; unfortunately the market is no freer than before. (Eric  Schuler, 10/19/17, FEE)

While it's unclear in the short run whether many insurers will have the ability to successfully raise premiums, that is the most likely outcome in the long run. The rationale for doing this is straightforward. The net cost of all of their policies has gone up now that the CSR subsidies are cut off. And since they are not allowed to meaningfully tailor rates based on the risk or expense of individual policyholders, the way they make themselves whole is to raise premiums on everyone.

These premium hikes would appear to harm consumers, and they will indeed harm higher income participants in the exchanges. However, the price hikes will have a limited impact on lower income participants because the tax credits are designed to rise with the cost of the plans. Specifically, the amount of the tax credit subsidies for each consumer rise according to the premiums on the benchmark silver level plans available in their locale. So, as insurance companies raise premiums to compensate for the lack of CSR payments, the tax credit subsidies rise as well to defray the cost. This minimizes the possible harm to low-income individuals from the change, even in the long run.

In fact, it's possible that the order will actually expand access to health insurance in the long run for very low-income people. This result stems from the fact that the subsidies are pegged to grow based on the premiums of the silver level plans, the second cheapest tier of insurance policies. However, even cheaper bronze level plans also exist.

This means that the subsidy amounts will likely rise faster than the premiums of the cheapest plans - causing the net out-of-pocket cost for the bronze plans to actually fall. In this way, Trump's order may have the net effect of actually expanding access to health insurance in the long run for low-income individuals participating in the exchanges.

Posted by at October 19, 2017 6:48 PM