Late Thursday evening in Washington DC, the Trump administration announced it would end so-called cost sharing reduction (CSR) payments under Obamacare.
The payments helped to offset costs for insurers to provide low income Americans plans with a lesser burden of out of pocket payments. The CSR payments also were the subject of a lawsuit between the Republican-controlled House and the Obama administration.
The House argued that the executive branch was illegally appropriating the funds, and a lower court agreed in 2016. The Obama administration, however, appealed the ruling which allowed the CSR payments to be made.
The Trump administration maintained the payments for months but said Thursday it can't lawfully continue to make the payments since they are not appropriated by Congress.
The move adds another layer of uncertainty to Obamacare's individual insurance markets. It also could have major effects on the federal deficit, insurers' decisions to stay in the Obamacare market, and the political landscape of healthcare.
Insurers are still mandated buy law to provide lower out-of-pocket costs. So they will almost certainly increase premiums to offset the loss of the cost sharing payments.
According to a study from the Kaiser Family Foundation, a nonpartisan health policy think tank, premiums would likely rise 19% to compensate for the loss of funding. A report from the Congressional Budget Office projected an increase of 20% next year.
The increase would likely not be passed directly to consumers, however, since most of the more than 10 million people on the exchanges already receive subsidies from the government to offset the costs of premiums. According to the Department of Health and Human Services, around 70% of people on the exchanges pay less than $75 per month for insurance.
That means the higher premiums could force the federal government to adjust the amount of subsidies people receive, increasing the financial burden on the government. The CBO predicted that the federal deficit would increase by $194 billion over the next 10 years if the CSR payments ended.
"Because the tax credits would increase when premiums for silver plans rose, the agencies estimate that the average subsidy per person receiving premium tax credits to purchase non-group health insurance would increase," the report said.
People who do not receive subsidies, however, could see their premiums increase drastically.
Perhaps the most immediate effect of the end of CSR payments could be on the stability of the Obamacare markets for 2018.
While insurers and states have already locked down contracts on next year's exchanges, there could now be further fallout. Some insurers' contracts with states include clauses allowing them to pull out of the exchanges if certain events occur — including the end of CSR payments. So far, no states have given any indication they plan to do so.
Additionally, the CBO report found that 1 million more Americans could go without insurance in 2018 if the CSR payments ended. That would come mostly from people who would see their costs increase but do not receive subsidies.
Trump's decision on CSR payments does not bring with it the end of debate on the issue. Ongoing litigation and lawsuits that could stem from the administration's decision to end the payments could leave their future in doubt for the foreseeable future.
Earlier this year, 17 states and the District of Columbia were granted the ability to step in themselves if the payments were ended. They argued people living in their states would be harmed if the payments ceased.
Additionally, several state attorneys general have already said they plan to sue the Trump administration if they do not continue to pay the CSRs.
Some health policy and legal academics have suggested that states could have a variety of options to keeping the money flowing, including paying the CSRs themselves and charging the federal government for the bill. The degree to which these measures would be effective, however, is uncertain.