In a strange arrangement, the executive branch pays for the CSRs directly from the Department of Health and Human Services—to the tune of about $7 billion a year. In 2014, Republican legislators sued the Obama administration for those payments, since they allegedly violate separation of powers and the funds have never been appropriated by Congress. But the suit dragged on, even as judges allowed HHS to continue making the payments in order to keep markets stable and people with insurance.
That put Republicans in an awkward spot when Trump won the White House, and also inherited the lawsuit, which now pits Republicans against Republicans. The administration has won a delay in the suit, during which it has made the payments on a month-to-month basis. But even before the spectacular collapse of Republican efforts to repeal Obamacare, Trump has always considered ending the payments, threatening that “if you know if I ever stop wanting to pay the subsidies, which I will.” Those threats have increased in volume since that failure, both in statements and on Twitter.
But the CBO report finds that such a move would not actually reduce federal spending, and that although it might destabilize exchange markets in the immediate term enough to pressure lawmakers into acting—over the long term it wouldn’t have large impacts on the premiums people pay or on coverage. That’s largely because of the premium tax-credit subsidies, which are automatically adjusted by the federal government in order to limit individual exposure to premium costs beyond a certain percentage of income. Since the insurers themselves can’t raise cost-sharing limits, even if the White House stops paying its fair share, the CBO estimates that insurers would instead just raise premiums, knowing the federal government is basically on the hook for subsidizing all of those increases.
That would essentially create a boomerang, where the federal government would have to offer higher subsidies—high enough for some people to move up from silver tier plans to gold tier plans with no change in costs—in order to cover most or all of an expected 20 percent increase in premiums for silver plans. Most people on the exchanges wouldn’t be subject to any real increase in their personal spending on premiums. Because this system might entice some new people into the markets and might encourage plan switches to gold tiers, the CBO estimates it would actually cost Congress more money than HHS currently spends. The agency estimates that suspending the payments would cost $194 billion over a decade, or about $19.4 billion per year, more than double the $7 billion payment amount.
It appears that Trump’s goal is simply destabilizing the markets though, and if he carried out on the threat to suspend CSR payments, that would be a likely outcome. The CBO finds that several insurers would pull out of exchanges since they couldn’t absorb the risks, further thinning an already diminishing roster of options, and leaving as many as five percent of Americans without any insurance options over the next two years. While those effects would be small compared to the effects on deficit and tax credits, they could be large enough—with the addition of existing problems of choice and premium costs—to provide political pressure to make a new law.