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The middle class will take the biggest hit from Obamacare subsidy cuts

President Donald Trump speaks to the press in the Rose Garden of the White House in Washington, DC, October 16, 2017.

By taking action to kill the cost sharing reduction (CSR) subsidies of the Affordable Care Act last week Trump claims that he has stopped what he has called an “insurance company bailout.” But is that what he has actually done? Or, has he created what’s known in Washington parlance as an unfunded mandate? And who will lose the most from the move?

The Obamacare statute requires health plans to provide cost sharing reduction subsidies to reduce the deductibles and co-pays in the Obamacare compliant individual health insurance market for those who make less than 250 percent of the federal poverty level. It is a mandate. Funding a mandate is not a bailout. In Washington, DC we call failing to fund a mandate an unfunded mandate.

The low income people eligible for these subsidies won’t be hurt by Trump’s action. The law still requires those people to get their cost sharing benefits even though Trump is refusing to pay for them. That means insurers will have to provide the subsidies out of their own pockets. Hence the hefty premium increases insurers are likely to impose in 2018 to make up for the subsidies. Again, low-income people eligible for premium subsidies won’t be hurt. The Federal government will end up covering any premium increases.

But people in the individual health insurance market who make too much to get a subsidy—$48,000 a year for a single person and $98,000 a year for a family of four—will have to pay the full premium including the bigger rate increases Trump’s action creates.

Ironically, it is the middle class stuck in the Obamacare market that Trump is hurting by killing the CSRs. The CBO has estimated that Trump’s action will on average increase the cost of a Silver Plan (which is eligible for the CSRs) by 20 percent with other plans going up “a few percent.”

“I don’t see any evidence that Trump understands who he is hurting. Particularly when he argues he’s just ending an ‘insurance company bailout.'”

How many people buy Obamacare compliant policies and don’t get a subsidy for their out-of-pocket costs and their premiums?

According to the Kaiser Family Foundation, 6.7 million people out of a total of 15.4 million in the Obamacare compliant individual health market do not get any kind of subsidy. That is 44 percent of the total market.

I don’t see any evidence that Trump understands who he is hurting. Particularly when he argues he’s just ending an “insurance company bailout.”

He isn’t hurting the low-income people—by law they will get the CSRs while the additional premium cost that occurs when he fails to pay the insurers for them just gets picked up by Obamacare’s premium subsidy system that caps people’s out of pocket maximum premium.

He isn’t even hurting the insurance companies in the long-run by sticking them with this now unfunded mandate. Yes, they will take a big hit because they aren’t getting their CSR payments in October, November, and December to cover a benefit they are mandated to provide. But almost all of them can afford to bridge themselves into 2018 where they’ll ultimately raise the rates to cover the cost of providing the CSRs.

He’s really only hurting the middle class stuck in Obamacare, many of whom came to his campaign rallies complaining of the extraordinarily high cost of their individual health insurance and wanting Trump to do something about it.

He has. He just caused their rates to go up even higher.