Trump’s Latest Attempt to Gut Obamacare Could Backfire Spectacularly

Ian Millhiser

Ian Millhiser Senior Constitutional Policy Analyst, Think Progress

As soon as this week, according to Donald Trump adviser Kellyanne Conway, Trump intends to decide whether to cut off payments intended to stabilize insurance markets and make health care affordable for many Americans with modest incomes.

Trump apparently believes that cutting off these payments will help “implode” Obamacare. Yet, if Trump should stop the payments, that could have the unintended effect of expanding access to health insurance, even potentially making some health plans free for many families of modest means.

The reason why involves a fairly complicated formula governing how most Obamacare exchange customers pay for their health plans, and Trump’s apparent unfamiliarity with how that formula operates.

A tale of two subsidies

Most health plans sold in the Affordable Care Act’s exchanges are classified as “Bronze,” “Silver,” “Gold,” or “Platinum” plans, depending on how much coverage they offer participants. Individuals who earn below a certain income level receive a tax credit to help them pay their insurance premiums. The size of this subsidy is tied to the second-cheapest silver plan available in a particular market.

Thus, as the cost of purchasing a silver plan increases, so too does the amount the government pitches in to help people pay for their insurance.

Absent an act of Congress, Trump cannot cut off these tax credits. A 2016 court decision, however, potentially gives Trump the ability to cut off a different set of Affordable Care Act subsidies (though there may be another legal path that would allow insurers to effectively turn these subsidies back on).

These subsidies, known as Cost Sharing Reductions (CSR), compensate insurers for complying with one of their obligations. Under Obamacare, insurers must reduce deductibles, co-payments, and similar expenses paid by some of their consumers in the Affordable Care Act exchanges. The federal government then reimburses the insurer for doing so through CSR payments.

So, if Trump cuts off CSR payments, he will blow a hole in many insurers’ budgets. The insurers, meanwhile, will likely compensate for this lost income by jacking up premiums — and that’s where things start to get interesting and unpredictable.

Free health plans!

As actuaries Dianna Welch and Kurt Giesa note in an analysis of what would happen if the CSR payments are cut off, “CSR are only available under silver-level exchange plans.” Thus, if Trump does cut off these payments, it is likely that premiums for bronze, gold, and platinum health plans would remain fairly constant. After all, shutting down CSR payments has no immediate impact on the cost of insuring a bronze, gold, or platinum health consumer.

Now here’s the part where things get weird. Recall that the value of the tax credits paid out to help people afford their premiums are tied to the cost of the second-least expensive silver plan — so those tax credits gain value as silver-level premiums rise.

So even as premiums in the bronze, gold, and platinum markets stay more or less the same, the amount the government will pay to help cover those premiums will spike in a world without CSR. The result, according to Welch and Giesa, is that many people will be able to obtain bronze plans for no cost at all — or, alternatively, they will be able to purchase much more generous gold plans for barely more than the cost of a silver plan.

It should be noted that the actual impact of cutting off CSR payments will vary from market to market, and it will also vary depending on the age and income levels of individual consumers. In Detroit, Welch and Giesa predicit that a 60 year-old earning up to 250% of the federal poverty rate (just over $40,000 for a married couple living alone) will be able to receive a bronze plan for free. Alternatively, they can opt for a gold plan at much the same cost as a silver plan.

 

CREDIT: Oliver Wyman Actuarial Consulting

In Phoenix, meanwhile, a 60 year-old earning as much as 300 percent of the poverty rate (or about $48,000 for the same unmarried couple) could receive a bronze plan for free. Gold plans, however, would remain significantly more expensive than bronze plans.

 

CREDIT: Oliver Wyman Actuarial Consulting

Even with the CSR payments intact, the Affordable Care act does make trade offs. It tends to leave people with relatively modest incomes better off, for example, and some people with higher incomes somewhat worse off. Cutting off CSR payments would likely exaggerate many of these trade offs, saddling relatively affluent individuals with much higher premiums and potentially giving a windfall to many people with much lower incomes.

In attempting to undercut a major segment of America’s safety net, in other words, Trump could wind up transferring wealth downward.

Ian Millhiser is a Senior Constitutional Policy Analyst at the Center for American Progress Action Fund and the Editor of ThinkProgress Justice. He received a B.A. in Philosophy from Kenyon College and a J.D., magna cum laude, from Duke University. Ian clerked for Judge Eric L. Clay of the United States Court of Appeals for the Sixth Circuit, and has worked as an attorney with the National Senior Citizens Law Center’s Federal Rights Project, as Assistant Director for Communications with the American Constitution Society, and as a Teach For America teacher in the Mississippi Delta. His writings have appeared in a diversity of legal and mainstream publications, including the New York Times, The Los Angeles Times, U.S. News and World Report, Slate, the Guardian, the American Prospect, the Yale Law and Policy Review and the Duke Law Journal; and he has been a guest on CNN, MSNBC, Al Jazeera English, Fox News and many radio shows.

Posted In: Allied Approaches

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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There is Dignity in All Work