CSR Payments: Good or Bad for America?

We’ve been watching the drama of the Cost Sharing Reimbursement (CSR) payments play out in the media almost from the day President Trump took office. To remind you, the CSR payments are credits in the ACA plan designs on the public exchange that subsidize the deductibles for low-income plan members. The issue is that while these subsidies were included as a plan design requirement in the ACA, the lawmakers did not appropriate funds to pay for them. Contracts with the insurance companies require the payment but the Trump administration has been making funding decisions on a month-by-month basis; it was just recently announced that payments would be made for August.

Employer advocacy groups have been vocal about the need to continue the subsidies to stabilize the market. Employers want a stable individual market to work in tandem with the employer market and to provide alternatives for pre-65 retirees and those needing COBRA to bridge a gap between jobs. In addition, problems in the individual market could result in more uninsured people, which means more uncompensated care and cost-shifting to private payers.

When Republicans failed to get a repeal and replace bill across the finish line, it appeared withholding this funding might be another way to sink the ACA. On the contrary. At the request of House Democrats, the CBO evaluated what might happen to health coverage, insurance premiums, and taxpayer cost if the federal government stopped paying insurers for cost-sharing reductions (CSRs). Under CBO’s scenario, the federal government would stop making payments to insurers totaling $118 billion between 2018 and 2026. As a result, the federal deficit would rise (not fall) by $194 billion, low-income individuals would pay about the same (not more) for coverage, and more people (not fewer) would be insured.

You might wonder how that could possibly be true, and on the surface it seems counter-intuitive. Remember that about 90% of the people who buy coverage on the public exchange are eligible for subsidized coverage. Their subsidy is based on their income and the cost of the second-lowest cost plan in the silver category. So if the insurance companies load up the cost of the silver plans in the absence of CSR payments, that price will drive bigger premium subsidies. Those who qualify actually get a better benefit and the government and taxpayers get a bigger bill.

Joe Antos at AEI put it best: “What many observers, including policymakers, forget is that there is always a private sector reaction to any new government policy. It’s something like Newton’s third law of motion applied to politically-driven markets. For every action by the government, there is an opposite reaction that could overwhelm the policy intention. A corollary: the more money at stake, the more vigorous the private sector’s reaction.”

Just about everyone agrees that a stable individual insurance market is good thing. It’s not clear whether defunding the CSRs would actually harm the market, but it does seem that it would result in higher prices for health plans offered on the exchange – requiring bigger federal subsidies. Given the goal of the current administration to greatly manage the financing of healthcare on a long-term basis, it’s hard to see how ending CSRs would help.

To learn more about stabilizing the individual insurance market, read this post by our sibling company Oliver Wyman.

Tracy Watts
by Tracy Watts

Senior Partner, National Leader for U.S. Health Policy

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