Update on the defunding of insurance subsidy payments

The president’s action appears to have backfired from a political perspective. Now up to 3.5 million middle-income Americans must deal with the severe financial consequences. On the other hand, the resulting premium increases from this government action make more low-income people eligible for free or reduced cost coverage in 2018.

Two weeks ago on October 13 President Trump followed through on his threat to remove cost subsidies to health insurance companies that offered coverage to low-income policyholders. The payments were intended to lower policy deductibles and out-of -pocket expenses for individual who cannot afford to pay these out-of-pocket costs.

Some members of Congress and public health policy experts denounced the move that was intended to hurt lower income policyholders.  Liberal-leaning news sharply criticized the move in this broadcast while some people, including Speaker of the House Paul Ryan publicly supported the cancellation of payments. I was outspoken in earlier interviews and blog posts against the change both from a public policy perspective and as a Republican political strategy. Announcements by the White House said that the move was designed to hasten the collapse the health insurance markets. Apparently President Trump or some federal strategists mistakenly thought that without the subsidies, insurance markets could quickly unravel. President Trump was taped said “this will cost the federal government nothing”. He was wrong. Those supporters failed to consider the ability of insurers and states to nullify the effect of this subsidy cancellation action by raising their premium rates for all policyholders. Most of those increases are mostly paid by the federal government through premium tax credits that Congress has already refused to cancel.

Health insurance companies said they will need much higher premiums to make up for the loss of subsidies. Most companies are now raising their rates for 2018 by an average rate of 20%. State insurance departments that regulate insurance premiums are likely to permit the rate increases. In my state of New Jersey the two largest individual health insurance providers (Amerihealth and Horizon Blue Cross Blue Shield of New Jersey)  will raise rates by  16 percent to 28 percent.  In Pennsylvania some premium rates will  rise by more that 30 percent. For discussion purposes, this might mean a $200 to $500 increase in monthly family premium.

Responses to the defunding

We have seen three primary effects of the president’s decision to defund the subsidy payments for low income policyholders:

1)  The states of California, Connecticut, Delaware, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington state and the District of Columbia sued the federal government to restore the health benefit payments. Yesterday a federal court judge blocked the lawsuit from moving forward so this action appears to be dead. See this link to the court ruling. Even though the lawsuit was unsuccessful, it’s filing by so many states shows the opposition of state governments to the federal government’s ‘slash and burn’ approach to health care reform.

2)  Insurance companies throughout the nation have raised premium rates on all individual health insurance in response to the executive order. Most states will grant the last minute rate increases for 2018 as requested to avoid risking companies from withdrawing and collapsing the insurance market.

3) More people are dropping coverage. The number of people without health insurance is rising again. In this recent coverage Fox News speculates that the increase is due to confusion created by the president. Last year the federal government spent $110 Billion covering people and reducing the number of uninsured Americans to a record low, Now the number of Americans without insurance may soon return to the previous high levels.

Effect of the defunding

We see three results so far in response to the defunding of subsidies:

1)  No insurers have pulled out of the market and no individual insurance exchanges have closed as the president intended.

2) The 20% of policyholders who pay the full cost of their policy, about  3,500,000 people in total, will be adversely affects. Many of those hurt are self-employed or early retirees living in suburban areas. News coverage this past week made a big deal of the observation that the strong majority of those financially punished by the President’s executive order are among the relatively small group of Americans who support the president.

3) More Americans will qualify for reduced cost and free coverage. The Wall Street Journal covered this topic today. Apparently insurers are now gearing up to market the “free insurance” and that might further deter the President’s efforts to undermine Obamacare. Even people with incomes up to $98,400 (assuming 4 people in the household located in the lower 48 states) receive some insurance premium tax credit.

Individual response to the executive order

Some middle-income people are concerned about the 15% to 20% increase in their health insurance rates as a result of this presidential action.

Lower income people will not likely be able to pay the deductibles on their policy. This does not affect the ability to access medical care but may affect the individual’s credit score. It seems unlikely that medical providers will take legal action against these low-income individuals.

What to do?

For those 3,500,000 Americans hurt by this presidential action, I advise addressing those options on a one-on-one basis with a health care expert as soon as possible. Health care planning should be the core of financial planning. In this circumstance where life and health are at stake, all options should be considered.

One Reply to “Update on the defunding of insurance subsidy payments”

  1. In a sane society, health care would be provided free of charge.
    I mean what do we need the government for (something supported by our taxes) if not to provide humanely for the people is supposedly serves?

    We are the only industrialized nation who forces people needing health care to pay up or die.
    The number one cause of bankruptcy in the US is high medical bills and two-thirds of those people had health insurance.

    Health insurance is in the way.
    We do not need this middle man.

    We already have TWO successful health care systems – collectively for 300 years:
    (1) The VA which is socialized medicine and has been around for over 240 years. It takes care of the most vulnerable, literally putting back together soldiers blown apart in our many wars. They charge nothing. They care for veterans who are diseased, dismembered, disabled, PTSD, and more. And it keeps up with research and development. The VA has come out with a penis transplant program (because the number one injury from serving in Afghanistan – with all the land mines, literally millions – is dismemberment of genitalia (but even 15 years in that war with these horrific injuries, it is not enough for people to say ENOUGH!)
    All we have to do is expand and fund it. Done.

    (2) Medicare – which is a public-private partnership with health providers – has a 52 year success story. 99.9% of my senior tax clients have Medicare and love it. Is it perfect? No, but that’s because the profiteers have been picking away at it for decades (i.e. Medicare C). Again, Medicare has cared for the MOST vulnerable, sick, diseased, oldest, dying patients in the US.
    Expand it, fund it, and we’re done.

    NJ has a $65 Billion totally unfunded post-retirement health care liability for its local, school, county, and state employees. This is currently being paid on a pay-as-you-go-basis. Just my little old school district paid $3 million last year for this.

    If we expand (1) The VA or (2) Medicare – and improve and fund it, this totally unfunded $65 billion liability (the third in the nation, behind NY at $68 Billion and California at $90 Billion), it will go away with the stroke of a pen. Wow! Sounds like a plan, huh?

    This is NOT rocket science.
    A sane society would have already done this!
    Our health care system is profiteering at the expense of people’s lives – literally.

    America is proud to have an immoral, wasteful, redundant, bloated (nonprofit hospitals pull in BILLIONS of profit each year – tax free), crass (doesn’t care about the patients), and makes me physically sick to my stomach.

    Jonathan Safrin Foer, in his amazing book “Eating Animals” talked about the profiteering corporate meat industry – which incarcerates, tortures, maims, genetically alters, drugs, and slaughters 90% of our meat. He said the industry figured out the key to making more profit: Sick animals are more profitable (than keeping them healthy).

    So the next time you hear someone say they made a killing on that health care stock, please understand they are absolutely correct.

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