Insurers Threaten Higher Premiums, Exchange Exits if Obamacare Payments Are Not Made

Covered California says premiums could rise by as much as 49 percent

A specialist helps people select Obamacare plans / Getty Images
May 2, 2017

Health insurers in California are threatening higher premiums and exchange exits if Obamacare's cost-sharing reduction payments are not made.

The Affordable Care Act created cost-sharing subsidies to rein in the cost of out-of-pocket expenses for lower-income individuals by reimbursing insurers. These payments are now in limbo after two House committees called the payments unconstitutional and filed a lawsuit against them.

The House Ways and Means and Energy and Commerce committees said that the Obama administration was funding the program without a permanent appropriation from Congress, which made them unconstitutional.

Now insurers in California are saying that if the federal government fails to make these payments, they will be forced to increase premiums or exit the Obamacare exchanges completely.

Covered California, the state's official health care marketplace, said that premiums could rise by as much as 49 percent next year if these payments were not made or the Affordable Care Act's individual shared responsibility payment is not enforced. The increase in premiums would also lead to an increase in federal government spending, raising costs by $4 billion in 2018.

"Failure to support cost-sharing reduction subsidies results in significant increases in premiums, in particular for unsubsidized Silver plans," said Sandra Hunt, principal at PricewaterhouseCoopers, who commissioned the analysis. "If federal policy were to change and the individual mandate were not enforced, not only would premiums rise significantly, but up to 340,000 could lose health coverage."

Molina Healthcare, a managed-care company headquartered in California, wrote to lawmakers threatening to exit the exchanges if the cost-sharing reduction payments are not made.

The company, which currently serves 1,035,000 members on the Obamacare exchanges, said that removing these payments would make the coverage unaffordable.

"If the CSR is not funded, we will have no choice but to send a notice of default informing the government that we are dropping our contracts for their failure to pay premiums and seek to withdraw from the Marketplace immediately," J. Mario Molina, the CEO of Molina wrote. "That would result in about 650,000 to 700,000 people losing insurance coverage in 2017, and we would not participate in Marketplace in 2018 resulting in over 1 million Americans losing health coverage."

Because of the increasing uncertainty regarding the future of the Affordable Care Act, California's insurance commissioner is allowing health insurers to file two sets of premium rates.

Insurers can submit two rates—"Trump rates" and "ACA rates"—in for scenarios in which Obamacare is either kept or amended.