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How cutting off subsidy payments to insurance companies would affect Obamacare

April 24, 2017 at 6:35 PM EDT
In the debate over health care reform, President Trump must now decide whether he will continue to make payments to insurance companies in order to cover out-of-pocket costs and deductibles for low-income consumers. Judy Woodruff speaks with Robert Laszewski, president of Healthcare Policy and Marketplace Review, about the ramifications of cutting off those subsidy payments.
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JUDY WOODRUFF: As we have been hearing, the debate over health care coverage is tied to the larger political battle. Specifically, the president must decide whether he will continue to make payments to insurance companies to cover out-of-pocket costs and deductibles for low-income consumers.

The Obama administration lost a crucial court ruling that concluded those payments were not constitutional unless authorized by Congress. Seven million people, more than half of those covered through the insurance exchanges, qualify for these subsidies.

Robert Laszewski is a consultant who works with health insurers and other industry leaders. He watches this issue closely.

Robert Laszewski, thank you for being back with us.

ROBERT LASZEWSKI, President, Health Care Policy and Marketplace Review: You’re welcome.

JUDY WOODRUFF: So, remind us, 325 million Americans, only seven million of them receive these subsidies.

ROBERT LASZEWSKI: Yes.

JUDY WOODRUFF: Why does this matter so much?

ROBERT LASZEWSKI: Well, first of all, there are 20 million people in the individual health insurance market, so it does affect 20 million people.

And the subsidies, the Trump administration can cut them off tomorrow morning. To the typical insurance company, that could be worth about $8 million a month they’d lose, because they still have to provide the benefits.

So what the insurance company does, if this gets cut off overnight, is that they will have to increase the rates not just for the seven million in the exchange, but the 20 million in the individual health insurance market. And that could easily lead to 15 percent rate increases on top of significant rate increases that are likely to come in 2018 for Obamacare.

JUDY WOODRUFF: Let’s try to humanize this. Who exactly are the people who benefit from this?

ROBERT LASZEWSKI: The poorest people who get health insurance through the Affordable Care Act, or Obamacare’s insurance exchanges, these are people that as an individual can make $12,000 a year to $24,000 a year.

They are people who are such low-income that they need help with the deductibles and the co-pays.

JUDY WOODRUFF: And how much money are we talking about is involved? I have seen $130-some-billion.

ROBERT LASZEWSKI: Yes, it’s about $1,000 per person.

JUDY WOODRUFF: A year?

ROBERT LASZEWSKI: Yes.

JUDY WOODRUFF: Right.

ROBERT LASZEWSKI: So, it’s a huge amount of money for that individual. It’s a huge amount of money to the insurance company that is providing it, because the insurance company, by law, has to provide the money even if the federal government doesn’t pay for it.

So they get hit to the tune of maybe $8 million a month for every 100,000 people they cover.

JUDY WOODRUFF: So, right now, President Trump appears to be dangling this as …

ROBERT LASZEWSKI: Yes.

JUDY WOODRUFF: You could call it a bargaining chip in his negotiations over the budget with the Congress.

ROBERT LASZEWSKI: Right.

JUDY WOODRUFF: What would happen if this money just stops flowing? What happens?

ROBERT LASZEWSKI: The first thing that happens is people’s benefits continue to flow to them. The cost-sharing would continue to at least the end of the year, because the insurance company has to provide the support. So, the money would come out of the insurance company’s pocket.

The insurance company would then turn around and increase rates for 2018, probably about 15 percent just for this, in addition to probably 15 percent rate increases typically that Obamacare would get in 2018 anyway.

JUDY WOODRUFF: And what happens to these exchanges at the national — the federal exchange and the state exchanges?

ROBERT LASZEWSKI: Well, health insurance companies have generally been losing a lot of money in the health insurance exchanges. This would make things far worse.

So, you have already got a teetering, relatively unstable situation going on now. The fundamental problem with Obamacare is, we haven’t gotten enough healthy people to sign up to pay the claims for the sick. It’s an imbalanced pool.

So the Trump administration would throw a grenade into the middle of that and make it even more unbalanced.

JUDY WOODRUFF: So, the exchanges, some of them could collapse? That’s what …

(CROSSTALK)

ROBERT LASZEWSKI: I doubt you would see the exchanges collapse. We get the into the weeds of how all this works, but the bottom line is, the insurance companies would dramatically increase the rates for all 20 million in the pool.

It would make things even more expensive. We would have even fewer healthy people, and which would, in turn, make things even more expensive next year. It continues to make things unstable.

Right now, Judy, typically, a family of four, mom and dad age 40, right now, would have to pay about $10,000 in premium for a plan with a $7,000 deductible. That’s the cheapest plan for people who don’t get subsidies. And half the people don’t get subsidies.

So, what this would is, it would just tend — it would make this far worse. Obamacare is not stable, in the sense that it’s not delivering efficient health insurance costs, and it would make that even worse. That’s what it would do.

JUDY WOODRUFF: Who is arguing to the White House to keep these payments going, and who’s arguing — trying to stop them?

ROBERT LASZEWSKI: I don’t know of anybody who is arguing that the administration should stop them.

My sense is, not only do Democrats — are they dead set against stopping them, but the Republican leadership, members of the Republican Congress privately are saying: We can’t do this. Why would we make an unstable situation even much worse?

JUDY WOODRUFF: How do you see this playing out? When do you see this — we know the president is saying it could happen now, but what are you seeing in the terms of the timeline?

ROBERT LASZEWSKI: Well, the president has dangled this twice now. Once, he has said to the Democrats, you need to come to the table and negotiate repeal and replace bill with me, if you don’t, I will stop the subsidies. That was last week.

This week, he said, in order to get the budget done, I need the wall — I need the Mexican wall money, and I will give you the subsidies if you give me the Mexican wall money.

He’s now spent the subsidies twice, from a political perspective. So this is all about resolving the budget impasse and all about resolving the repeal and replace challenge that the Republicans are dealing with. And until that’s — those two things are resolved, this is going to be an issue that people are going to be worrying about.

JUDY WOODRUFF: It’s a tough one.

ROBERT LASZEWSKI: Yes, it is.

JUDY WOODRUFF: Robert Laszewski, we thank you very much.

ROBERT LASZEWSKI: Thank you.

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