Fate of Cost-Sharing Subsidies Uncertain

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With Republican plans to repeal and replace the Affordable Care Act (ACA) faltering, attention has turned to the question of whether the Trump Administration will support continued funding for the ACA’s cost-sharing subsidies.  Cost-sharing subsidies reduce the amount of out-of-pocket expenses an individual or family must pay.  Individuals and families who are eligible for premium tax credits and who meet certain household income requirements may receive cost-sharing subsidies if they enroll in silver level Exchange plans.

Back in 2014, Republicans in the U.S. House of Representatives filed suit against the Obama Administration claiming payments to insurers for the subsidies are illegal because Congress did not authorize or appropriate funding for the payments.  A federal district court ruled in favor of the House but the Obama administration filed an appeal.  The appeal has been on hold because it was expected the issue would be resolved once the ACA was repealed and replaced.

Insurers must decide within the next several weeks whether they will offer plans on the Exchanges for 2018 but they are understandably apprehensive.  The ACA requires insurers to reduce cost-sharing of the silver level plans for individuals and families below 250 percent of the federal poverty line.  Yet, it is not at all clear whether insurers will continue to receive funding to offset those cost-sharing reductions.

Earlier this week, the Trump Administration released a statement saying funding for the cost-sharing subsidies would continue while the case is being litigated.  The statement did not, however, say whether the Administration plans to continue defending the subsidies in the litigation.  The Administration could simply drop the appeal.  Even if the Administration continues to defend the subsidies but the House ultimately prevails, it is unclear if insurers would continue to receive the subsidy reimbursements for all of the 2018 plan year or if they could conceivably stop mid-year.

With unanswered questions on what the Administration will do about the subsidies and Republican efforts to repeal and replace the ACA moving in fits and starts, insurers find themselves unsure about the ACA’s future.  They want and need to know if steps will be taken to stabilize or destabilize the Exchange markets.  This uncertainty has already driven two insurers – Aetna and Wellmark – to pull out of the Exchange market in Iowa.  It remains to be seen if others will follow suit.