Federal subsidies, known as cost-sharing reductions (CSRs), have been critical to ensuring that over 2 million lower-income adults ages 50 to 64 who purchase coverage through health insurance Marketplaces can afford health care. Despite the subsidies’ crucial role, the Administration announced yesterday that it will terminate payments for CSRs. The announcement—which comes less than 3 weeks before millions of Americans who buy insurance on the individual market start shopping for 2018 health coverage— is bad news for older adults and people of all ages.
That’s because the move could leave people facing significantly higher premiums and fewer plan choices—regardless of their income or whether they get CSRs.
What are cost-sharing reductions?
The Affordable Care Act’s (ACA) better known premium tax credits help reduce the cost of monthly health insurance premiums for lower- and moderate-income individuals. CSRs address the other major expenses that can prevent people from being able to afford health care: out-of-pocket costs for health care services, such as deductibles, coinsurances and copayments. CSRs are available to lower-income people, with individuals of more modest incomes receiving greater subsidies.
CSRs are critical to making individual health insurance affordable for people with lower incomes. This is especially true for lower-income older adults because over a third of the people enrolled in CSR plans are ages 50 to 64. What’s more, older adults typically face higher out-of-pocket medical expenses and cost-sharing because they are more likely to have chronic conditions and health care needs. You can learn more about CSRs here.
Eliminating CSR payments will lead to significant increases in premiums.
Without the federal CSR payments, insurers will have to absorb an estimated $10 billion in costs. A recent analysis by the Congressional Budget Office (CBO) estimates that silver plan premiums would jump 20% next year and 25% by 2020 without the federal CSR subsidies.
Due to uncertainty in recent months over the continuation of CSR payments, insurers in some states have already factored premiums increases into their 2018 rates. Other insurers will likely increase premiums in order to account for this loss in federal payments.
Premium increase will hit middle-income people the most – especially those who do not receive premium tax credit subsidies, or who are only eligible for limited tax credits.
The CBO also expects that controversy around CSR payments will encourage some insurance companies to stop offering coverage altogether or deter them from entering the Marketplaces—leaving consumers with fewer, or potentially, no plan choices.
Terminating CSR payments would increase the federal deficit.
If you think stopping CSR payments would save federal dollars, think again. Doing so would actually increase the federal deficit by $200 billion, CBO estimates. This is because the government is required to fund premium tax credits for lower-income enrollees, and the premium increases resulting from ending CSR payments would mean the government must spend billions of dollars more in premium tax credits to lower those premium costs for lower-income enrollees.
Eliminating CSRs altogether would make health care unaffordable for lower-income older adults.
Recent proposals to replace the ACA would have eliminated cost-sharing reductions altogether. Without CSRs, lower-income older adults would face steep increases in their medical bills—putting needed health care services out of reach for millions. We estimate that eliminating CSRs would mean lower-income persons could face as much as $5,600 more in out-of-pocket costs for copays, co-insurances and deductibles. For someone earning $18,000 annually (about 150% of FPL), that’s nearly one-third of their income!
Here’s the bottom-line: Cost-sharing reductions are a critical financial protection for lower-income Americans, including many older adults. Terminating CSR payments will disrupt efforts to ensure a stable individual health insurance market and actually end up costing the government more.
Jane Sung is a senior strategic policy adviser with AARP’s Public Policy Institute, where she focuses on health insurance coverage among adults age 50 and older, private health insurance market reforms, retiree coverage, Medicare supplemental insurance and Medicare Advantage.
Olivia Dean is a policy analyst with the AARP Public Policy Institute. Her work focuses on a wide variety of health-related issues, with an emphasis on public health, health disparities, and healthy behavior.
Claire Noel-Miller is a senior strategic policy adviser for the AARP Public Policy Institute, where she provides expertise in quantitative research methods applied to a variety of health policy issues related to older adults.
 Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.
 Cost-sharing reductions are available for people who earn between 100% and 250% of the federal poverty level (FPL). In 2017, this corresponds to incomes between $12,060 and $30,150 for an individual and to incomes between $24,600 and $61,500 for a family of four. Only people enrolled in Silver plans (which pay for 70% of total health care costs on average) are eligible for cost-sharing reductions.
 Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.
 Total CSR payments in 2017 are estimated at $7 billion.
 For people with incomes between 100-150% of the federal poverty level, or between $12,060 and $18,090 for an individual. Estimates are based on 2017 federal poverty levels and out-of-pocket limits.
A late-breaking attempt to repeal and replace the Affordable Care Act (ACA) threatens to weaken critical federal consumer protections and raise costs for older Americans ages 50-64 who purchase health insurance coverage in the individual market. Tucked into the sweeping legislation known as the Graham-Cassidy bill are provisions allowing states to receive waivers from crucial consumer protections. Such waivers could allow insurance companies to increase costs for older consumers based on their health, preexisting conditions, and age–potentially putting health coverage out of financial reach for millions.
People with Preexisting Conditions Could Face Significantly Higher Premiums
Current law prohibits health insurance companies from denying people coverage or charging higher rates based on a person’s health. Under the Graham-Cassidy bill, however, states could obtain a waiver to allow insurers to vary premiums based on people’s health or preexisting condition. This means that consumers with a health condition such as diabetes, cancer, or heart disease could face significantly higher premiums.
This would hit older adults hard: 40 percent of 50- to 64-year olds have a preexisting condition. Prior to the ACA, most states allowed insurers to charge higher premiums based on preexisting conditions. That meant consumers with preexisting conditions were often unable to purchase affordable coverage. The Graham-Cassidy bill would force consumers to, once again, worry about whether their health status will keep them from being able to afford coverage or the care they need.
Less Coverage and Higher Costs for Older Adults and People with Preexisting Conditions
The Graham-Cassidy bill would also allow states to waive current law requirements that health insurance plans cover 10 categories of services (known as Essential Health Benefits). Similar to earlier proposals, states could eliminate some or all of the required benefits. Without these requirements, insurers could choose to exclude or limit important health benefits such as hospital care, prescription drugs, and mental health or substance abuse treatment. For people with health concerns and preexisting conditions, finding adequate, affordable coverage with the benefits they need would very likely become challenging and expensive.
These waivers may also allow states to weaken or eliminate the ACA’s prohibition against dollar limits on benefits people may get in a year or over their lifetime. Such annual and lifetime caps were unfortunately common practice prior to the ACA—forcing some consumers into medical bankruptcy when they got sick. Weakening these key protections is a step backwards for consumers.
Insurance Companies May be Allowed to Discriminate Against Older Americans
Under the ACA, insurers cannot charge older adults more than three times what they charge others for the same coverage (known as 3:1 age rating). Under Graham-Cassidy, however, states may be able to waive this critical protection for older adults. Older adults living in states that have waived that protection would face significantly higher rates simply on the basis of age– potentially as high as five, six or more times what they charge others for the same coverage, depending on the state.
In short, the Graham-Cassidy bill is harmful for older adults and people with preexisting conditions. It would undermine critical consumer protections, making health insurance coverage unaffordable and denying people with health conditions the care they need.
Did you know that over 3 million older adults ages 50-64 rely on Affordable Care Act (ACA) tax credits to purchase health coverage? In fact, pre-ACA, almost half of them were uninsured.
These credits help older adults with low- to moderate-incomes offset some or all of the cost of their health insurance premiums. They are a critical form of financial assistance for those without access to health insurance through an employer or public program.
The American Health Care Act (AHCA), as introduced on March 6, 2017, repeals current-law tax credits and replaces them with a new “flat” tax credit adjusted by age. We find that compared to current law, the proposed tax credit amounts would be substantially less for low- to moderate- income older adults, hitting the oldest particularly hard. Such changes could lead to older adults becoming uninsured or underinsured.
Lower- and Moderate-Income Persons Get Less
As figure 1 shows, under the AHCA, tax credits for those making $15,000 a year would be significantly less than what they receive today: between $2,200 and $5,900 less. Our paper also shows that for those earning $25,000 and $45,000 a year, tax credits would be between $850 and $4,500 less.
Older Persons Face Larger Reductions
Protections in current law provide larger tax credits when premiums are higher to ensure insurance remains affordable. Even though tax credits under AHCA increase by age, the increase isn’t sufficient to offset the much higher premiums that older adults pay relative to younger adults in the individual market. As a consequence, older adults face greater reductions in tax credits under AHCA than younger adults. A 64-year-old earning $25,000, for example, would face a reduction 5 times greater than that of a 50-year-old.
Combined Effect of Tax Credit Changes and Increasing Age-Rating
Potentially exacerbating the financial hit even further, the “flat” tax credits proposed under AHCA come alongside other changes that could further reduce health insurance affordability for older adults, including weakening limits on age-rating for health insurance premiums. In combination, the tax credits and age-rating changes could increase premiums for 50- to 64-year-olds by as much as $8,400 a year (figure 2).
Thirty-five percent of all nonelderly adults eligible for tax credits are between the ages of 50 and 64. They simply cannot afford to pay more for their health insurance. The lower tax credits proposed in AHCA will force millions of older Americans to forgo insurance or buy less expensive insurance that covers less, leaving them without the care that they need.
Jane Sung is a senior strategic policy adviser with AARP’s Public Policy Institute (PPI), where she focuseson health insurance coverage among adults age 50 and older, private health insurance market reforms, retiree coverage, Medicare supplemental insurance and Medicare Advantage.
Lina Walker is vice president at the AARP Public Policy Institute, working on health care issues.
Olivia Dean is a policy analyst with the AARP Public Policy Institute. Her work focuses on public health, mental health, health disparities and healthy behavior.