Even though the GOP controls both chambers of Congress and has vowed for years to repeal Obamacare, the party hasn’t done it. Frustrated, President Trump announced last week that he is moving ahead on his own with an executive order cutting Obamacare subsidies to insurance companies.

These subsidies reimburse them for offering health insurance plans with reduced deductibles, copayments, and other means of cost sharing to some of the people who purchase plans through the Obamacare marketplaces. They received $7 billion in subsidies this year. They were slated to receive $10 billion in 2018.

“As far as the subsidies are concerned, I don’t want to make the insurance companies rich,” Trump said. “They’re making a fortune by getting that kind of money.” He considers the subsidies “almost a payoff.” He also said the subsidies are unlawful. HHS concluded there is no congressional appropriation for the cost-sharing subsidies.

The Financial Effects

Those purchasing insurance through the exchanges won’t see much of a difference financially. Leading Democrats in the House asked the Congressional Budget Office for an estimate of the effects.

The CBO analyzed ending the subsidies (known as cost savings reduction or CSR payments). It found that insurers will raise the cost of silver plans in response. That plan covers those with income between 100 percent and 250 percent of the federal poverty level. The EO affects those plans since they are the only plans that provide cost-sharing subsidies. However, this increase will be offset by an increase in tax credits.

Those with bronze or gold plans would see very little change in premiums. For those with incomes between 200 and 400 percent of the federal poverty level, they would see no change in the cost of their plans. Yet they would receive an increase in tax credits. This will enable more people to purchase plans in the marketplace than could otherwise. The Obamacare exchange Covered California admits that three-quarters of enrollees will pay the same or less this year.

The EO does not affect the poor, who receive insurance through Medicaid.

The CBO also estimated that the new policy will result in fewer uninsured. There will be 1 million more uninsured in 2018 than under the baseline. CBO estimates 1 million more will be insured in 2020 and each year thereafter. 

The size of the tax credits depends on household income and where the enrollee lives. However, the tax credits go up where the premiums increase, insulating enrollees from geographic differences.

CBO estimates that 5 percent of the population lives in areas where insurers would not participate in the nongroup market in 2018. However, CBO projects that insurers will enter those markets by 2020.

The Effect on the Deficit

The change will increase the federal deficit by about 20 billion each year. Money will no longer go to big insurance companies as subsidies. Instead, it will go back into the pockets of Americans as tax credits.

Eighteen U.S. states sued the Trump administration on Friday over the order. Congress could pass legislation authorizing the payments. But while the GOP-controlled Congress may be paralyzed at repealing Obamacare, it is highly unlikely it will take steps to bring it back.

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