The Obama Administration recently announced a policy change indicating that the Fiscal Year (FY) 2015 budget sequester will not cut cost-sharing subsidies for low-income enrollees in Affordable Care Act (ACA) health plans. According to a March 10, 2014 Office of Management and Budget (OMB) report detailing the federal government’s sequestration-based spending reductions for FY 2015, and in line with the automatic reductions required by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) (as amended), the Administration has eliminated the $286 million cut in cost-sharing subsidies included in the FY 2014 report. Over the next ten years, this removal essentially will translate into $10 billion in restored cost-sharing subsidies. Had the cost-sharing subsidies been included in the sequester cuts, as they were in FY 2014, they would have been reduced by 7.3%, or approximately $580 million over ten years.
These cost-sharing subsidies, also referred to as cost sharing reductions throughout the ACA marketplace, are discounts that lower the out-of-pocket costs that enrollees must pay for deductibles, coinsurance, and copayments. As explained in detail on the HealthCare.gov website, these subsidies are only available to low-income individuals who enroll in the ACA’s Silver-tier health plan, which covers 70% of the overall cost of essential health benefits provided to enrollees.
In addition to these subsidies, and as discussed in detail on the HealthCare.gov website, low-income ACA enrollees also are eligible for premium tax credits, or advanced payments that can be used to lower an enrollee’s monthly premium costs. Similar to the premium tax credits, it is reported that the cost-sharing subsidies will also be made as advanced payments, and will be paid out of the same account as the premium tax credit.
As is the case with all budgetary balancing, the removal of the cost-sharing subsidies from the FY 2015 sequestration chopping block means that the sequestration dollars must come from elsewhere. Two new FY 2015 additions to the Centers for Medicare and Medicaid Services (CMS) sequestration roster—ACA risk adjustment and reinsurance programs—could feel the pinch.
The risk adjustment program, for example, which redistribute funds from plans with lower-risk enrollees to plans with higher-risk enrollees and protects insurers by diffusing financial risk across the market, shall be reduced by $247 million in FY 2015. Likewise, the transitional reinsurance program, which provides payments to health plans that enroll higher-cost individuals and thus protect against premium increases, shall be reduced by $731 million in FY 2015. The approximately $1 billion in combined sequestration reductions across these two programs alone could result in a changing landscape of health care costs and premiums, as health plans seek to spread those losses and recoup those funds from elsewhere.