Trump Administration Strategy Could Result in Higher Health Insurance Premiums

Health Insurance

July 6, 2018

Dismantling the Affordable Care Act has been one of the hallmarks of the Trump administration, and its latest action in this regard could weaken the so-called Obamacare program with reduced funding that will likely translate into higher policy premiums.

President Donald Trump was unable to score a political victory when he tried to repeal the ACA by legislative means in 2017, but this did not stop him from trying other approaches. On the first Saturday of July, the Centers for Medicare and Medicaid Services announced that more than $10 billion destined for insurance companies participating in the Obamacare program would not be transferred. These funds are collected from insurance companies with a healthier customer base – i.e., those without expensive medical needs and fewer claims as a result. In turn, the funds are distributed among insurers that have more patients with greater medical needs. This is a risk mitigation effort built into the Affordable Care Act. It’s designed to prevent Obamacare insurance premiums from soaring.

The basis for suspending the funds transfer is a decision issued by a federal district court in New Mexico earlier this year. The court found that the funds transfer, while egalitarian, is determined by a dubious calculation that needs to be revised. A Massachusetts district court found that there is nothing wrong with the formula, but the government has chosen to suspend the funds transfer indefinitely or until the matter is resolved.

Not an Equal Impact

In the meantime, insurance executives have already said that the situation will lead to rate increases for 2019. Dozens of insurance companies have already filed requests to increase their rates in the states where they offer Obamacare policies. Not all insurers will be affected by this suspension; in fact, companies like Centene would be able to hold on to $1 billion this year. But some insurers, like Anthem, would be missing out on $500 million this year.

It should be noted that this risk adjustment program could continue as planned if the Trump administration resolves to do so. The aforementioned decision by the district court in New Mexico is more of an opinion than an order, but it seems that suspending payments contributes to the current administration’s desire to dismantle Obamacare. Coupled with the upcoming elimination of the individual mandate penalty next year, the Obamacare program seems slated to become more expensive, less effective and less popular.

According to Voice of America, the wallets of more than 10 million individuals, many of them self-employed professionals, small business owners and members of middle class families who typically vote Republican, will be impacted by the suspension of risk adjustment payments. Moreover, if insurers choose to stay away from ACA health insurance marketplaces due to the increased risk, premiums would also rise due to lower competition.

Larry Levitt, senior vice president for health reform of the Kaiser Family Foundation, explained that the current situation will throw Obamacare off balance by injecting uncertainty into the insurance markets. He has described the Trump administration as an unreliable partner of the health insurance industry.