President Donald Trump’s administration took its most drastic step yet to roll back the Affordable Care Act, cutting off a subsidy to insurers hours after issuing an executive order designed to draw people away from the health law’s markets.
The moves -- which critics call deliberate attempts to sabotage the law -- come just weeks before Americans will be able to start signing up for coverage for 2018. They follow other steps the Trump administration has taken, such as slashing advertising and outreach budgets to bolster enrollment in Obamacare plans, as well as planning outages of the website where people can sign up.
Shares of publicly traded hospital chains dropped in early U.S. trading, as did insurers such as Centene Corp. that are still present on Obamacare markets. The largest insurance companies in the country have mostly or entirely exited the exchanges, and are unlikely to see much impact.
Late Thursday, the administration said it would immediately stop paying what are known as cost-sharing reduction subsidies. The payments -- which are the subject of a legal dispute -- go to health insurers in the Affordable Care Act to help lower-income people with co-pays and other cost sharing. Without them, insurers have said they’ll dramatically raise premiums or pull out of the law’s state-based markets.
The decision led to immediate pushback from Democratic leaders in Congress. In a tweet on Friday, Trump said, “The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!”
Senators Lamar Alexander, a Tennessee Republican, and Patty Murray, a Washington Democrat, have been working on bipartisan legislation to fix problems with the subsidies.
“ObamaCare is a broken mess. Piece by piece we will now begin the process of giving America the great HealthCare it deserves!” Trump said in another tweet on Friday.
The White House said the Department of Justice and the Department of Health and Human Services concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.
“The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system,” the White House said in the statement.
The payments will stop immediately, with no transition period, Acting HHS Secretary Eric Hargan and Centers for Medicare and Medicaid Services Administrator Seema Verma said in a statement. The next payments were due next week.
“Congress has not appropriated money for CSRs, and we will discontinue these payments immediately,” the department said.
The effect is “likely to be profoundly destabilizing, disruptive and potentially materially damaging to hospitals and those exchanges plans who are still required to offer benefits,” Mizuho analyst Sheryl Skolnick wrote in a note to investors.
Hospital chains Tenet Healthcare Corp. and HCA Healthcare Inc. were down 7.3 percent and 3.3 percent in New York trading before the markets opened, while Community Health Systems Inc. tanked 9.3 percent. Insurer Centene slumped 7.3 percent.
Early Friday, the administration told a federal appeals court in Washington, which is hearing a dispute over the subsidies, that it will not make the Oct. 18 subsidy payments.
The administrative actions come after Republicans in Congress tried and failed to repeal the law. Trump has repeatedly threatened to let Obamacare wither, but the most recent actions go beyond that, said Representative Nancy Pelosi and Senator Chuck Schumer, the top ranking Democrats in Congress.
“Instead of working to lower health costs for Americans, it seems President Trump will singlehandedly hike Americans’ health premiums. It is a spiteful act of vast, pointless sabotage,” the Democrats said in a statement.
House Speaker Paul Ryan backed the move. “Obamacare has proven itself to be a fatally flawed law, and the House will continue to work with the Trump administration to provide the American people a better system,” Ryan said in a statement.
Premiums to Rise
Given the disagreements over the payments, and an ongoing lawsuit questioning their legality, many health insurers had dramatically raised the premiums they planned to charge for next year in anticipation of not getting the funds. The payments are made monthly, and have been estimated at $7 billion in total this year.
“Many, but not all, insurers assumed these payments would end and set 2018 premiums accordingly,” Larry Levitt, a senior vice president at the Kaiser Family Foundation, said by email. “Those that didn’t build this into their premiums may petition to adjust their rates or threaten to pull out of the marketplace. It seems like we’re in for a chaotic run up to the beginning of open enrollment.”
Dylan Roby, an associate professor at the University of Maryland School of Public Health, said he doesn’t expect a mass exodus by insurers. He said that intermediaries who assist customers in signing up for Obamacare plans will need to explain to unsubsidized people how their options have changed. But the Trump administration has also scaled back funding for the so-called navigators, cutting tens of millions of dollars in grants.
The moves present a political risk for Trump and Republicans. An August poll by the Kaiser Family Foundation found that 78 percent of those surveyed thought the administration should try and make the law work, while only 17 percent wanted to see it pushed toward failure.
Health insurers have pushed Congress to appropriate the funds. Congressional action -- potentially as part of a package of fixes a bipartisan group of senators have considered -- would effectively end the risk of the president ending them unilaterally.
Kristine Grow, a spokeswoman for America’s Health Insurance Plans, declined to comment.
What happens next isn’t clear. Any action to end the payments may face legal obstacles of its own, after seventeen states and the District of Columbia won the right in August to defend the payments in a court case. New York Attorney General Eric Schneiderman on Thursday night promised to do just that. California Attorney General Xavier Becerra also said his state was ready to sue.
"This summer, the courts granted our intervention to defend these vital subsidies and the quality, affordable health care they ensure for millions of families across the country,” Schneiderman said in a statement. “Our coalition of states stands ready to sue if President Trump cuts them off.”
The subsidy decision follows Trump’s signing Thursday of an executive order that tells federal agencies to consider a number of steps that could erode many of the core tenets of Obamacare.
In the order, the president asked regulators to craft rules that would allow small businesses to band together to buy insurance across state lines, let insurers sell short-term plans curtailed under Obamacare, and permit workers to use funds from tax-advantaged accounts to pay for their own coverage.
The result of that action and others is likely to be higher premiums and fewer people covered. The executive order, in particular, will give people in the law’s markets several alternative forms of coverage. They will likely be cheaper, though not as comprehensive.
“It would essentially create a parallel regulatory structure within the individual and small group markets that is freed from the various consumer protections established,” Spencer Perlman, a policy analyst with Veda Partners, a Bethesda, Maryland-based advisory firm, said earlier Thursday. “The end result could be a death spiral for ACA-compliant plans.
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