Budget-cutters eye healthcare law’s insurance subsidies

Budget-cutters eye healthcare law’s insurance subsidies

Supporters of President Obama’s healthcare law breathed a sigh of relief Tuesday, but they’re already back at work trying to protect one of its key provisions from budget cuts.

As the election fades into the rearview mirror and attention turns more seriously toward the looming “fiscal cliff,” lobbyists and advocates are once again wondering whether Congress might look to the healthcare law for spending cuts.

Specifically, lawmakers might be tempted to tap the health law’s insurance subsidies, by far its most expensive provision, and probably the most tangible benefit it will provide.

Cutting into the subsidies has been discussed before, but it’s gaining new urgency as the fiscal cliff, a combination of spending cuts and tax increases set to take effect at the end of the year, draws closer.

The Affordable Care Act sets up new marketplaces where people who don’t get insurance through an employer can buy coverage. And it provides subsidies to families with incomes between 100 percent and 400 percent of the federal poverty level.

Critics say the subsidies are too generous; 400 percent of the poverty level is more than $90,000 per year. And because the subsidies don’t begin to flow until 2014, they represent a giant pot of money that’s in the budget but wouldn’t have to come out of anyone’s pocket.

But healthcare advocates say it’s a terrible idea that could make the health law substantially less effective once it takes effect.

“I think it would be a disaster to even suggest that we reduce the level of premium subsidies,” said Sabrina Corlette, a health policy expert at Georgetown University.

The law’s supporters say there’s already a fear that the subsidies won’t be enough to make healthcare coverage affordable, and any cut in subsidies will only make the problem worse.

“To roll them back would be a huge mistake, because it would mean a lot of people who are uninsured won’t be able to get coverage because the subsidies will not make it affordable for them,” said Ron Pollack, executive director of the advocacy group Families USA.

Pollack said he doesn’t expect Democrats to seriously entertain the idea in budget-cutting negotiations — especially after Obama’s reelection guaranteed that the law won’t be repealed.

“Why would the president take perhaps his most impressive achievement and undermine it by, in effect, preventing millions of people from gaining coverage?” Pollack asked. “I just don’t see how a legacy achievement for the president is going to be on the table.”

Republicans would love to chip away at anything related to “ObamaCare,” but lobbyists question whether Democrats might be willing to consider subsidy cuts because the money would come entirely from future spending.

Two options have been floated. First, Congress could roll back the amount of subsidies it’s providing — either by making fewer families eligible, or by leaving eligibility standards in place but providing less money to each family.

“Once you start rolling back the subsidies, you really are starting to affect affordability for the population we need to have in the marketplace to make this work,” said Washington & Lee University law professor Tim Jost, a prominent ACA supporter.

Some of the law’s popular provisions — namely, requiring insurers to cover people with pre-existing conditions — will raise costs by bringing sick people into the system. The law tries to offset that effect with the individual mandate, which should bring more healthy people into the system. But the mandate, while politically controversial, carries an especially small penalty for remaining uninsured.

That means health subsidies will be a necessary way of getting people to buy coverage, Jost said.

The other option would be to delay the subsidies. They’re tied to the health law’s new insurance exchanges, which are supposed to be up and running in every state by Jan. 1, 2014. But because some governors have held off on implementation for so long, hoping the law would be overturned, many states won’t make that deadline.

A delay wouldn’t push the implementation outside of Obama’s second term, and it would generate billions of dollars for a spending deal that wouldn’t have to come from other programs.

The most recent estimates from the Congressional Budget Office say insurance subsidies will cost the federal government $25 billion in 2014, and will total $547 billion over the next eight years.

But a huge number of other provisions would have to be delayed alongside the subsidies, including new requirements that industry needs to prepare for.

“The statute’s an integrated whole; you can’t just take a piece of it,” Jost said.

And any delay would push full implementation closer to the 2016 election — which should be a non-starter for Obama and congressional Democrats, Pollack said.