Tuesday, March 25, 2014

Administration Changes Course and Exempts PPACA Cost-Sharing Subsidies from Sequestration, Insurers Rejoice

Remember the sequester? That budgetary meat cleaver that indiscriminately slashes the federal budget, sparing few federal programs?

Well, the sequester also affects parts of the ACA—including its cost-sharing subsidies. These subsidies are available to people with incomes below 250% of the poverty line who buy a silver plan on an exchange. For anyone up to 400% of the poverty line, the subsidies will also cap total out-of-pocket costs at a reduced level.

Until recently, the Office of Management and Budget’s considered view was that cost-sharing subsidies were subject to the sequester and would have to be cut by 7.2% in 2014. As Loren Adler of the Committee for a Responsible Federal Budget first noticed, however, OMB released a report on Monday indicating that cost-sharing subsidies will now be exempt from the sequester.

What explains the administration’s about-face? The policy justification is obvious. Trimming the subsidies would have cost roughly $286 million in 2014 alone. Exchange plans would probably have had to eat those costs. As the Congressional Research Service has explained:

[The] ACA entitles certain low-income exchange enrollees to coverage with reduced cost-sharing and requires the participating insurers to provide that coverage. Sequestration does not change that requirement. Insurers presumably will still have to provide required coverage to qualifying enrollees but they will not receive the full subsidy to cover their increased costs.

Insurers couldn’t have been pleased at that prospect. ...