The White House intends to stop providing federal subsidies to help cover the costs of insuring low-income Americans on Obamacare, it announced late Thursday night, just hours after President Donald Trump signed an executive order to dramatically undermine the health care law.
"Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare," the White House said in a statement. "In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments."
Ending the subsidies, known as cost-sharing reduction (CSR) payments, would push the Obamacare insurance markets into chaos, experts say.
Insurers will either start charging higher premiums on the individual market or just exit marketplaces altogether to make up for the loss in funding, according to experts. The Congressional Budget Office estimated in August that premiums would need to rise by 20% on standard Obamacare "silver plans" in 2018 to compensate for the loss of CSR payments. By 2020, premiums would rise by 25%.
The administration will stop the subsidies immediately and will not make its October 18 CSR payments, Justice Department lawyers wrote in a notice to the DC Circuit on Friday.
The timing of cutting off the payments, which help insurance companies to cover the costs of offering cheaper deductibles and co-pays for low-income Americans, could also be problematic, with open enrollment beginning on November 1. Some states had already raised premiums, however, expecting that the payments would be cut.
The federal government spent $7 billion on CSR payments in 2017 and the subsidies were projected to cost $10 billion in fiscal year 2018, which began this month, according to CBO. At the same, CBO estimated cutting off the payments would increase the deficit by $6 billion in 2018 and $26 billion in 2026.
Trump has long been forecasting the move and fired off a series of tweets in July saying that he would cut the payments and allow the health care law to “implode," after Senate Republicans failed to pass their initial plans to repeal and replace Obamacare. At the time, Trump argued that ending the payments and causing Obamacare costs to rise would force Democrats to the table to work on a larger deal to fix the law.
“If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!” Trump tweeted at the end of July.
Democrats, and some Republicans, have criticized Trump's threats to end CSR payments, raising concerns that the move would exacerbate already rising premiums.
House Democratic Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer decried Trump's "spiteful" move in a joint statement Thursday night, saying "it seems President Trump will singlehandedly hike Americans’ health premiums."
"Make no mistake about it, Trump will try to blame the Affordable Care Act, but this will fall on his back and he will pay the price for it," they said.
Complicating the move is that the payments are currently in a legal limbo, after House Republicans sued the Obama administration, arguing that the payments should be authorized by Congress through its power of the purse, rather than through the executive branch. The Obama administration lost the case but filed an appeal. The Trump administration and the House both requested a hold on that appeal in May, while the White House figured out how to handle the payments.
New York Attorney General Eric Schneiderman said Thursday night that a "coalition" of states "stands ready to sue" if the payments are cut off.
In a statement after the White House's announcement, House Speaker Paul Ryan backed up the House's initial decision to sue the Obama administration over the payments and said Trump decision "preserves a monumental affirmation of Congress’s authority and the separation of powers."
"Obamacare has proven itself to be a fatally flawed law, and the House will continue to work with Trump administration to provide the American people a better system,” he said.
Congress could reinstate the CSR payments on its own, and potentially bypass the question of the payments' legality, by passing legislation to fund the subsidies. Senate Republicans initially included an extension of CSR payments through 2019 in an early health care discussion draft. And leaders from both parties on the Senate Health Committee have been working on a bipartisan fix. But it is unclear whether a committee deal will get a vote, much less pass both chambers of Congress. And Trump could still veto such a move.
Several Republican senators have said that they hoped Trump would leave the CSR subsidies alone until Congress acts, including Sen. John Thune, the number-three Republican in leadership. “I guess I'm hopeful that the administration, the president will keep making them and if he doesn't then I guess we'll have to figure out from a congressional standpoint what we do,” Thune told The Hill this summer.
North Carolina Sen. Thom Tillis argued that Republicans need to offer a "soft landing" that slowly reduces the payments over "a couple of years," rather than just cutting them off immediately. "Something that just drops on a dime I think is disruptive to the insurance or to the people insured, so I think we’ve got to figure out similar to some of the proposals in the health care bill, a longer glide path, probably a couple of years," he said.
But other Republicans agreed with Trump that the payments are problematic and want to use the issue as a bargaining tool to get other Obamacare reforms through Congress, particularly as the party has failed to repeal the law wholesale.
Wisconsin Sen. Ron Johnson said that Congress should ultimately be responsible for making CSR payments, but that Republicans shouldn’t act without getting “something in return” from Democrats. “We should demand other types of reforms, and fix some of the damage of Obamacare. Some of the faulty structure, trying to repair that,” Johnson said.
South Carolina Sen. Lindsey Graham told reporters earlier this year that he would have done the same thing in Trump's position. "I think that the payments are unconstitutional. ... [I]f I were the president I would stop paying into a system no matter how much you pay it's gonna collapse. When it does collapse we're all gonna have to pick up the pieces," he told reporters Tuesday. "You can't save Obamacare, it can't be saved."
In its statement Thursday, the White House kicked a further solution to Congress.
"The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system," the statement said. "Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people."
Ema O'Connor and Lissandra Villa contributed to this story.