There was legal uncertainty surrounding cost-sharing subsidies starting in 2014, but it took on new importance under the Trump administration. In 2014, House Republicans (including Tom Price, who was then a U.S. Representative from Georgia, but left his seat to briefly lead HHS under the Trump Administration, before resigning in September 2017) brought a lawsuit against the Obama administration, alleging that billions of dollars in funding for the cost-sharing subsidies had never been allocated by Congress, and was thus being distributed illegally by HHS (Nicholas Bagley, University of Michigan Law School professor, explained that the lawsuit was not without merit).
In 2016, a district court judge sided with House Republicans, ruling that the cost-sharing subsidies were illegal and could not continue. The ruling was stayed, however, to allow the Obama administration to appeal, which they did. Throughout that process, cost-sharing reduction money continued to flow from HHS to health insurers across the country.
Once Trump won the presidency, the issue took on a new urgency, given the GOP’s efforts to eliminate the ACA. For the first several months of Trump’s presidency, the lawsuit over cost-sharing subsidies was pended. But in October 2017, the Trump administration announced that CSR funding would end immediately. That meant that insurers would not receive reimbursement from the federal government for CSR benefits provided in the final quarter of 2017 and beyond.
Trump’s announcement came after insurers had finalized their rates for 2018. But most insurers had already anticipated the elimination of CSR funding, and had priced their plans for 2018 accordingly, adding the cost of CSR to premiums. In most states where the assumption had been that CSR funding would continue, insurers scrambled to revise their 2018 premiums in October 2017 (just days before the start of open enrollment), adding the cost of CSR to the rates.
Insurers in most states ultimately ended up adding the cost of CSR to their silver plan premiums for 2018. The Kaiser Family Foundation had previously estimated that without cost-sharing reduction funding, rates on silver plans would increase by an additional 19% in 2018, on top of the rate increases that would have applied if CSR funding had continued.
With few exceptions, insurers generally opted to remain in the exchanges, despite the elimination of CSR funding. Some insurers had opted earlier in 2017 to exit the exchanges for 2018, and the uncertainty over CSR funding was generally cited as a reason for the exits. But the official elimination of CSR funding did not result in an additional exodus of insurers from the exchanges.
And because the cost of CSR has mostly been added to silver plan rates since 2018, premium subsidies are much larger than they were prior to 2018, and are disproportionately large compared with the cost of non-silver plans. For enrollees who received premium subsidies in 2021, the average subsidy amount (before the ARP boosted subsidies significantly) was $486/month; in 2017, it was $373/month. Not all of that increase is due to the handling of CSR costs, but a significant portion of it is. (Subsidies got even larger in 2022, due to the American Rescue Plan, which took effect mid-way through 2021; the average subsidy amount as of early 2022 was $508/month.)
The larger premium subsidies are beneficial to all enrollees who get premium subsidies—not just those who get CSR benefits. So in a roundabout way, the federal government is still funding CSR. They’re just doing so via larger premium subsidies, instead of directly reimbursing insurers.