The White House Will Make Sure That Sequester Cuts Don’t End Up Hiking Obamacare Premiums

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The Obama administration has decided not to apply cuts included in the federal budget sequester that would likely have raised Americans’ insurance premiums under the Affordable Care Act. The move will ensure that Obamacare’s tax credits go into effect as originally intended.

On top of cuts to Head Start, food assistance, and other essential government programs, budget sequestration imposed an overall $4 billion appropriations reduction (including a $286 million reduction in 2014) to a special type of Obamacare tax credit known as “cost-sharing subsidies.” These subsidies aren’t talked about as much as Obamacare’s premium tax credits for consumers who make up to 400 percent of the Federal Poverty Level (FPL), but are nonetheless essential to helping lower-income Americans afford their medical care.

Here’s how they work: a mid-level “Silver” plan purchased through an Obamacare marketplace covers an average of 70 percent of an American’s medical costs, thus limiting an individual’s out-of-pocket expenditures to about 30 percent of total costs incurred. The cost-sharing subsidies, which are available to individuals and families that make less than two-and-a-half times the poverty level, further limit those out-of-pocket costs. Someone making between 201 and 250 percent FPL would actually have an average of 73 percent of their total costs covered by a Silver plan with the help of the subsidies; someone who makes between 151 and 200 percent FPL would get about 87 percent of their costs covered by a Silver plan and very poor Americans who make between the poverty level and 1.5 times the poverty level would have about 94 percent of their costs covered.

These tax credits are given directly to the insurance companies rather than the consumers themselves. But the sequester cuts to the program had some worrying that insurers would try to make up for the loss in revenue by hiking premiums for everybody later on.

“A lot of the insurers priced their premiums based upon this cost-sharing supplement. And I think if this money doesn’t come through and they expect that patients won’t be able to pay that cost-sharing that they, as the insurers, are probably going to have to eat some of it at least, so I think they’re probably going to raise premiums,” Dr. Ezekiel Emanuel, chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and a senior fellow at the Center for American Progress, told ThinkProgress in an interview last fall. “Anything that creates uncertainty in the health insurance market in general raises premiums, and that’s the problem [with the sequester cuts].”

But the administration has now decided to circumvent that possibility by combining the cost-sharing subsidies and premium tax credits into a single fund, rather than keep them as separate programs. “To improve the efficiency in the administration of these payments for both insurers and the federal government, it was determined that the cost-sharing subsidy payments would be made as advance payments and thus would be paid out of the same account used for the premium tax credit portion of the advance payments,” an administration official told the National Journal.

That should come as a big relief to consumers. The administration, however, will have to make up for the lost sequester savings by finding money from other programs, according to the Committee for a Responsible Federal Budget.