President Donald Trump said “bailouts for insurance companies” would “end very soon” if Congress didn’t pass a new health care bill. Sen. Susan Collins said the payments aren’t a bailout, “but rather help people who are very low-income afford their out-of-pocket costs.”
Trump distorts the facts. It’s true that the money involved goes directly to insurance companies, but, as Collins said, the payments lower out-of-pocket health care costs for low-income individuals. We’ll explain how these payments work.
The president gave his description in a July 29 tweet:
If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!
— Donald J. Trump (@realDonaldTrump) July 29, 2017
A “bailout,” as we have written before, is financial assistance to save a failing company or industry. The 2008 Troubled Asset Relief Program, for instance, provided billions to stabilize financial institutions and the auto industry. Under that bailout, the Treasury Department was able to recoup the disbursements. It recovered about 90 percent of its investments in the auto industry and earned a profit on its bank investments. (Trump also misuses the word “bailout” to describe the federal government’s contribution toward health insurance premiums for members of Congress, but we will get to that later.)
Collins, a senator from Maine who cast one of three Republican votes against the “skinny repeal” bill, sending the repeal effort back to committee, was asked about the president’s reference to “bailouts” on CNN’s “State of the Union.” Host Jake Tapper asked: “If President Trump were to officially withdraw that funding, would that affect your vote on health care?”
Collins, July 30, CNN’s “State of the Union”: It would not affect my vote on health care, but it’s an example of why we need to act to make sure that those payments, which are not an insurance company bailout, but rather help people who are very low-income afford their out-of-pocket costs towards their deductibles and their co-pays.
And that’s what we need to remember. So, it really would be detrimental to some of the most vulnerable citizens if those payments were cut off. They’re paid to the insurance companies, but the people that they benefit are people who make between 100 percent and 250 percent of the poverty rate.
So, we’re talking about low-income Americans who would be devastated if those payments were cut off, though the threat to cut off those payments has contributed to the instability in the insurance market.
Collins’ description is accurate. These payments, which go directly to insurance companies, are made to reduce out-of-pocket costs for those who earn between 100 percent and 250 percent of the federal poverty level and buy their own insurance on the Affordable Care Act’s state and federal marketplaces.
These payments are called cost-sharing subsidies, or cost-sharing reductions, and they are different from the premium tax credits that reduce monthly premiums for those earning between 100 percent and 400 percent of the poverty level. The federal poverty level for 2017 is $12,060 for a single person and $24,600 for a family of four, with slightly higher amounts for Alaska and Hawaii.
Eligibility for both forms of financial assistance — the premium tax credits and the cost-sharing subsidies — is determined when a person signs up for health insurance through HealthCare.gov, which covers 35 states, or marketplaces run by individual states. The HealthCare.gov website includes a tool to check your eligibility for financial assistance.
Those eligible for premium tax credits can choose to receive the credit in advance — to immediately lower the monthly premium — or claim the credit the following year on a tax return, or a combination. The Kaiser Family Foundation explains in a brief on the ACA’s financial assistance that with the advance credit, “the IRS will pay insurers directly such that the cost of the premium is reduced upfront. With this option, the enrollee would need to reconcile their premium tax credit at tax time the following year.”
The cost-sharing subsidies, meanwhile, are only available in advance. The payment goes directly to the insurers to lower the out-of-pocket costs for low-income policyholders. “Cost-sharing subsidies work by reducing a person or family’s out-of-pocket cost when they use health care services, such as deductibles, copayments, and coinsurance,” the KFF brief explains.
Those who are eligible — again, those with income between 100 percent and 250 percent of the poverty level — must choose a silver plan, as opposed to a bronze, gold or platinum level plan, to get the subsidies.
The Affordable Care Act caps the amount policyholders have to spend out of pocket on deductibles, copays and coinsurance under their insurance plans. The cost-sharing subsidy lowers that cap.
“Without the cost-sharing subsidy, the out-of-pocket maximum may be no more than $7,150 for an individual and $14,300 for two or more people in 2017,” the KFF brief says. “With the cost-sharing reduction, the out-of-pocket maximum can be no higher than $2,350 to $5,700 for an individual, or $4,700 to $11,400 for a family in 2017, depending on income.”
The KFF brief includes a chart showing the maximum out-of-pocket limits for 2016 and 2017 for those qualifying for the cost-sharing subsidies.
Those who qualify will automatically have a choice of silver plans that include those reduced out-of-pocket caps. The federal government sends the subsidy money to the insurance companies that enroll those policyholders to compensate insurers for the cost.
The president, as he indicated, could stop these cost-sharing subsidy payments because they are mired in a legal dispute.
In November 2014, House Republicans filed a lawsuit, arguing that the money for the subsidies was never appropriated by Congress and, therefore, payment violated the U.S. Constitution. In May 2016, U.S. District Judge Rosemary M. Collyer sided with the House Republicans but put the decision on hold to allow the federal government to appeal, as the SCOTUSblog explains.
In late May, the Trump administration asked for a three-month delay in the appeal case. So far, the payments have continued, but insurers have expressed concern over the uncertainty. The industry lobbying group America’s Health Insurance Plans, along with the American Medical Association, U.S. Chamber of Commerce and others, wrote to congressional leaders, asking them “to take action now to guarantee a steady stream of CSR [cost-sharing reduction] funding through 2018.”
The letter said that there is “clear evidence that this uncertainty is undermining the individual insurance market for 2018 and stands to negatively impact millions of people.” It cited the withdrawal of some insurers from the marketplaces and higher premium requests due to “the market uncertainty.” Blue Cross and Blue Shield of North Carolina said it was requesting higher premium increases for 2018 — 14 percentage points higher — because the cost-sharing payments for that year weren’t guaranteed.
The Congressional Budget Office estimated in January that the cost-sharing subsidies would total $7 billion in fiscal 2017, which ends Sept. 30, and $10 billion next year. The Centers for Medicare & Medicaid Services said in June that 57 percent of the 10.3 million people who had signed up and paid for marketplace plans early this year had received cost-sharing subsidies.
Bailouts, by definition, are intended to save failing companies. Insurance companies, unlike the automakers, aren’t on the verge of going out of business. And if the subsidies stop, insurers will either withdraw from ACA marketplaces or charge higher premiums to make up for the lost payments. An analysis from the Kaiser Family Foundation estimated that the average benchmark silver plan would have to go up by 19 percent.
In his tweet, the president also misuses the word “bailout” to describe the contribution the federal government — just like other employers that provide health insurance — makes toward the insurance premiums of members of Congress.
Under the ACA, Congress must get coverage through the ACA marketplaces, instead of getting insurance through the Federal Employees Health Benefits Program, the group of private insurance plans that cover federal employees and retirees.
That provision of the ACA — added to the legislation after some Republicans pushed the idea that if the exchanges were good enough for other Americans, they should be good enough for Congress — has prompted several variations of false claims about Congress being “exempt” from the law.
The exchanges, or marketplaces, were set up for those buying their own coverage and small businesses — not large employers like the federal government. In 2013, the Office of Personnel Management, which administers the FEHB program, issued a rule clarifying that while Congress couldn’t get any premium tax credits available through the exchanges, members and their staffs would continue to get the employer contribution toward premiums, as they did before. “The amount of the employer contribution toward their Exchange premiums is no more than would otherwise be made toward coverage under the FEHB Program,” OPM said.