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Following the decision to cut off key payments for Obamacare on Thursday, President Donald Trump rolled out a simple explanation for the move – that insurers were raking in cash from the payments to pad their massive bottom-line expansion.
“So the insurance companies have made a fortune with Obamacare – an absolute fortune,” Trump said Monday. “As you know, what I did with the cuts at the end, which were all going – you know, you’re talking about hundreds of millions of dollars a month going right into the pockets of the insurance companies. And I’m very happy with what I did.”
But analysts say the cost-sharing reduction (CSR) payments were not a “bail out” for insurers and that insurance companies weren’t really making a “fortune” off of Obamacare due to the payments.
One of the biggest reasons that insurers were withdrawing from the Obamacare individual insurance exchanges was due to financial losses on the exchanges because the pool of people being insured was sicker and older than expected.
While analysis shows this issue was stabilizing, it’s clear that no insurer was raking in money from the exchange business where CSR payments applied.
As for the claim that CSR payments were a “bail out,” much of that is in the eye of the beholder. If one, however, defines a bail out as the federal government providing monetary relief for an industry due to a business model failure – think federal funding for the banking industry in the financial crisis – then CSR payments don’t really.
CSR payments were provided to insurers not because their business model failed in the Obamacare market, but to defray the costs associated with providing Americans cheaper plans mandated by the law itself.
Insurance companies have to provide lower out-of-pocket costs to people making less than 250% of the federal poverty limit – about $30,150 annually for an individual. In order to make this financially feasible and incentivize insurers to maintain a presence in the market, the CSRs were included in the plan.
Ending the payments will almost certainty cause insurers to increase premiums to compensate since they will still have to abide by the low out-of-pocket cost regulations. Since most people in the Obamacare market receive subsidies to purchase insurance, the increased costs will eventually work their way back to the federal government.
In the end, the Congressional Budget Office estimated that the federal government will end up paying $194 billion more in subsidies to offset the rising premiums over the next 10 years than if CSRs were continued.