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Covered California Insurance Plans Could Be More Affordable This Year. Here's Why:

Nov 14, 2017

For years, one of the most powerful and consistent Republican criticism of the Affordable Care Act, also known as Obamacare, is that the monthly premiums are going up so fast that they are quickly becoming unaffordable and that the whole law was on the verge of collapse.

President Donald Trump, in part, rode a wave of anti-Obamacare sentiment all the way to the White House. While Republican plans for full legislative repeal have stalled, that has not stopped the President from taking executive action to undermine it.

"Tens of thousands of people in the Central Valley? Their average premium of what they are going to spend for health coverage will drop in 2018. And that is good news," Peter Lee, Cover California

But one executive order, in particular, might have had the opposite effect and actually made Affordable Care Act health insurance plans many affordable for over a million of people in California.

Following the collapse of the ACA repeal effort, President Trump began looking around for parts of the law he could change on his own.  He settled on ending something called Cost Sharing Reduction payments.

These are payments the law mandates the federal government give to insurance companies to bring down how much low-income people pay out of pocket for medical care. The president signed an executive order declaring he would not make the payments, promising it would just be the beginning.

“For a long period of time, since I started running, and since I became president of the United States I have been hearing ‘repeal, replace, repeal, replace’. Well, we are starting that process and we starting it in a very positive manner,” Trump said.

Trump has maligned the payments calling them in turns illegal or insurance company bailouts. States, including California, quickly sued to stop the order and it is currently in court.

Ending them, Trump says, would be returning to the rule of law even though the non-partisan Congressional Budget Office says the move could make insurance more expensive for consumers and costly for the federal government.

So it came as a surprise when Peter Lee, the executive director of the California health insurance marketplace called Covered California, said this during a swing through the Central Valley promoting the annual open enrollment period:

“For people that get subsidies? 1.1 million Californians? Tens of thousands of people in the Central Valley? Their average premium of what they are going to spend for health coverage will drop in 2018. And that is good news,” Lee says.

He says they expect 85% of people who buy their insurance on Covered California will pay less on their monthly premiums.

This is rather unexpected given that premiums continue to rise and actions by the Trump administration are expected to contribute to that increase.

"Since I became president of the United States I have been hearing 'repeal, replace. repeal, replace'. Well, we are starting that process and we starting it in a very positive manner," President Donald Trump

Fresno Insurance agent Mark Svetlik says the main reason is that the amount of money that consumers are getting this year is going up.

“Even I was surprised too. I thought they might go up maybe $20 to $30 like they had in the previous years. However, this year they have increased the tax credit to offset the increase in the premium. So that has allowed them, some of them, to get $30 or $40 dollars a month premium savings,” Svetlik says.

Svetlik says his customers are shocked when they find out that the amount they pay each month will decrease since so much coverage in the media has been about relentless increases.

That increase in premium subsidy is a direct reaction by the state of California to the expectation that President Trump would sign an order ending the CSRs. To prepare for those payments going away, the state added an 18% charge to a specific subset of plans on the California exchange.

California can do this because it runs its own exchange. However, it is the federal government that actually pays the premium subsidies according to a formula.

That formula is written into the law and is beyond the administration’s control.  

Amy Adams with the California Health Care Foundation says the way the formula works is subsidies are calculated based on the cost of the second lowest priced silver plan in any market, called a benchmark plan. That is where the state of California added its 18% surcharge.

That raised the cost of the benchmark plan, which in turn increased the federal subsidy for everyone eligible for a subsidy on the state exchange.

"It is a bad thing because it introduces more complexity and confusion into our health care system which was already complex enough, thank you very much," Anthony Wright

How a consumer chooses to spend that money, Adams says, is up to them.

“Now people can take that subsidy and they can use it to buy a silver plan. Or they can use it to buy a different level of plan, a gold plan for example, on the marketplace. But it is true that the amount of that subsidy increases,” Adams says.

A brief but important note, only the subsidy the federal government gives to consumers to buy insurance is increasing. This does lower what people pay per month but it does not mean the core rate of premiums is declining. Which is why not everyone will pay less. Rates, on the whole, continue to rise, and this is especially painful for people who do not get a subsidy.

The Trump Administration did not respond to requests for comment about the actions taken by the state or whether they would act in any way to prevent the subsidy increase. However, they did not deny that the subsidy will increase, nor did they dispute the cause.

Anthony Wright is with Health Access California which supports the ACA.

He says this all might sound like a good thing. More money means people can access more affordable health insurance, but in the long run, this extraordinary work around by the state only destabilizes the market right around the time insurance companies were beginning to figure it out.

“It is a bad thing because it introduces more complexity and confusion into our health care system which was already complex enough, thank you very much,” Wright says.

Complexity aside, the bottom line is that many people in California on the exchange will likely have the option to pay less for their insurance when they do their shopping this year.

And open enrollment closes at the end of January.