Trump will scrap critical Obamacare subsidies

The decision to end the payments, worth an estimated $7 billion this year, marks President Donald Trump's most aggressive move yet to dismantle Obamacare. | Brendan Smialowski/AFP/Getty Images Trump will scrap critical Obamacare subsidies Cutting off the payments to insurers, which could happen almost immediately, is likely to provide another jolt to Obamacare markets.

President Donald Trump plans to cut off subsidy payments to insurers selling Obamacare coverage in his most aggressive move yet to undermine his predecessor's health care law.

The subsidies, which are worth an estimated $7 billion this year and are paid out in monthly installments, may stop almost immediately since Congress hasn’t appropriated funding for the program.

The decision — which leaked out only hours after Trump signed an executive order calling for new regulations to encourage cheap, loosely regulated health plans — delivered a double whammy to Obamacare after months of failed GOP efforts to repeal the law. With open enrollment for the 2018 plan year set to launch in two weeks, the moves seem aimed at dismantling the law through executive actions.

Press Secretary Sarah Huckabee Sanders confirmed the decision in a statement emailed to reporters Thursday night.

“Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare,” she said. “In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments. …The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system.”

Trump's move to scrap the subsidy payments is likely to jolt already fragile Obamacare markets — although the impact may be less severe than it would have been a few months back.

“Certainly problematic markets are going to become more unstable," said Greg Scott, who oversees Deloitte’s health plans consulting practice.

Adding to the uncertainty, Trump on Friday morning appeared to express hope that his decision to cut off the subsidies would help him cut a legislative deal, possibly with Democrats. "The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!" Trump tweeted.

The president has made overtures in the past to Democrats on health care, tweeting last Saturday that he had talked with Senate Minority Leader Chuck Schumer about potential negotiations. But Schumer separately said Trump had suggested another Obamacare repeal-and-replace effort, which the New York Democrat said was a non-starter.

On Thursday night, Schumer (D-N.Y.) and House Minority Leader Nancy Pelosi (D-Calif.) issued a joint statement calling Trump's latest move "sabotage."

“It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America," they said in a joint statement. "Make no mistake about it, Trump will try to blame the Affordable Care Act, but this will fall on his back and he will pay the price for it."

But many insurers had priced next year's plans higher than they otherwise would have, fearing this outcome after months of threats from the White House. Others have already fled the Obamacare markets, which are set to begin open enrollment in Nov. 1 for the 2018 plan year.

“What it adds up to me is a gross dereliction of duty,” John Baackes, CEO of L.A. Care Health plan, said of the decision. “The Affordable Care Act is still the law of the land and the cost-reduction subsidies are part of that. … Even if there’s a lawsuit about it, it should still be honored until the last appeal is exhausted. I thought they took oaths to uphold the law of the land. They’re just flaunting it now.”

Trump has threatened for months to cut off the payments, deriding them as a “bailout” for insurers. California, the country’s most successful Obamacare marketplace, added a 12.5 percent surcharge this week on silver plans as a hedge against the possibility the subsidies would be pulled. By loading them on silver plans, taxpayers will pick up the cost.

While Republican lawmakers complained the subsidies were never properly appropriated by Congress, many were wary of ending them suddenly.

Failed Obamacare repeal packages considered by the House and Senate included near-term funding for the program, which had been paid out through the executive branch each month.

Attorney General Jeff Sessions said on Fox News on Friday morning that the subsidies were not on solid legal ground to begin with because Congress did not appropriate them. He said it's up to Congress to now step in.

"It's time for Congress to fix this bill. That's what needs to happen. Congress has got to get together," Sessions said. "Republicans and the Democrats, they've got to come on board and they've got to develop a plan that will actually work. It can not continue in this fashion. It's in a death spiral it seems to me."

In the near term, the announcement is expected to put more pressure on a bipartisan effort in the Senate's health committee to preserve the subsidies to shore up Obamacare marketplaces.

“While I’m sure initial reactions will be negative, this might be the spark Congress needs to act on this issue," said an insurance lobbyist who declined to be named. "There was no pressure before … That might actually be the silver lining.”

As the White House reached out to lawmakers to inform them of its decision Thursday night, even some Republican lawmakers expressed consternation.

"Cutting health care subsidies will mean more uninsured in my district," tweeted Rep. Ileana Ros-Lehtinen, a Florida Republican late Thursday. "@potus promised more access, affordable coverage. This does opposite."

New York Attorney General Eric Schneiderman, who led a group of Democratic attorneys general to defend the subsidies in court this spring, said they would sue to stop the administration from acting.

"I will not allow President Trump to once again use New York families as political pawns in his dangerous, partisan campaign to eviscerate the Affordable Care Act at any cost," he said in a prepared statement.

Some insurers are also likely to sue the Trump administration over the failure to make payments that they believe they’re entitled to under the Affordable Care Act.

Insurers will have the option to try to adjust their rates or pull out of the markets immediately when the subsidy payments end. That's because the contracts insurance companies signed to offer Obamacare plans have an "out" if the payments stop.

But it’s far from certain whether insurers would try to leave markets. They would have to go through an extensive back-and-forth with state regulators on changes, a process that could be lengthy and could vary by state.

Trump has argued that Democrats will take the blame if the markets implode, but polling strongly suggests the public will point the finger at Republicans for Obamacare problems under Trump's watch.

Dan Diamond, Jennifer Haberkorn, Renuka Rayasam and Victoria Colliver contributed to this report.