Death Spiral for Obamacare Does Not Take Into Account Medicaid Expansion

By ROGER STARK  | 
BLOG
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Apr 13, 2017

The Trump Administration finds itself in an interesting position regarding Obamacare. Several years ago, the Obama Administration realized the Obamacare health benefit exchanges were in financial trouble. Not enough young and healthy people were signing up for health insurance on the exchanges, yet many older and sicker people were taking advantage of the taxpayer-provided subsidies on the exchanges. This has led to a financial crisis for insurance companies that sell policies on the exchanges.

To keep insurance companies in the exchanges, the solution for the Obama Administration was to draw money from the Treasury Department to help lower-income people purchase insurance through the exchanges. This was above and beyond the taxpayer-subsidies allowed in the Obamacare law.

This money from the Treasury Department is called “cost sharing reduction payments.” (here)

The Republican Party sued because these payments are not specified in the Obamacare law. This court battle is still playing out. The Trump Administration could drop the law-suit and simply withdraw the cost sharing payments. This would have a serious impact on the Obamacare exchanges and could cause the demise of that part of Obamacare.

This would not be the death-knell for Obamacare, however. Lost in this whole discussion is the fact that over 50 percent of people now enrolled in Obamacare nationally, and 80 percent in Washington state, are in the Medicaid expansion. Even if the exchanges collapse, Obamacare would continue on through the Medicaid expansion.

It will take comprehensive health care reform to move the country away from Obamacare and toward a patient-centered health care system. (here)