The U.S. President, Donald Trump announced last week that he would be putting a stop to the subsidy payments made to insurers. These payments were made to lower deductibles and out-of-pocket costs for lower-income Americans.
The decision was met with an uproar from the American health-care community.
Trump however believes that his decision would stop a costly federal outlay. In a post on popular social media site, Twitter, he stated, “Massive subsidy payments to their [Democrats’] pet insurance companies has stopped.”
The President’s move has been condemned by a number of major players in the American health-care system.
However, an actual analysis of the move shows that the move may have counterintuitive effects.
While the payments to insurance companies do benefit lower-income Americans, putting a stop to the payments is likely to cause minimum harm to the poorest of the population
Despite the loss of reimbursements, the actual subsidized health plans will not stop.
Insurers will still be required to offer the subsidized plans to people that come under the federal poverty line.
Thus, insurance companies are likely to go at a loss. To combat this, they are likely to raise premiums. Many companies have already factored this move into their rate increases for the year 2018. However, as the premium associated to the insurance will increase, so will the premium tax credit.
David Windley, a managing director at investment banking firm Jefferies, stated that the entire exercise was akin to paying from the left pocket instead of the right.
He added that Trump’s decision could be compared to “cutting off your nose to spite your face”.
Thus, lower-income Americans would not be the ones at risk for higher cuts. On the other hand, people that earn enough to keep themselves above it will be subject to higher taxes.
However, since different states have different policies, the impact is likely to vary from state to state.
That being said, the end of subsidies is likely to affect a large number of the American people.
Trump’s decision could force many insurers to reevaluate their individual plan offers. This, in turn, would adversely affect the public.
As of now, most insurers have stated that they are committed to the market for 2018. However, some have already signaled that they could be forced to reevaluate.