This note considers the potential long-term fiscal consequences of a counterfactual scenario in which the federal government did not reimburse insurers for cost-sharing reductions (CSRs). Under the Affordable Care Act (ACA), insurers are required to provide CSRs to low- and moderate-income enrollees. The federal government is then required to reimburse insurers for the cost of these subsidies. If the federal government did not reimburse insurers for CSRs, insurers would increase plan premiums to cover these costs. As a result of the ACA’s structure, these higher premiums would translate into higher federal costs for Premium Tax Credits (PTCs). Moreover, because many more people are eligible for PTCs than for CSRs, the result would be a substantial increase in total federal costs, compared to the current arrangement in which the federal government directly reimburses insurers for the CSRs they provide to eligible individuals. In effect, the federal government would pay CSRs indirectly, through increased PTCs, at much greater total expense.
Publication DateNov 30, 2015
DocumentASPE_IB_CSRs.pdf (pdf, 132.67 KB)