Among the Trump administration’s first promises was to give states more flexibility and control over their health insurance markets than they had had during the Obama years. To date, however, the administration has offered states only uncertainty about what to expect in 2018, which has made it difficult to set premium rates. In particular, state officials are struggling to keep their insurance markets afloat in the face of the Trump administration’s continued indecision over whether to reimburse insurance companies for Affordable Care Act (ACA) cost-sharing reduction (CSR) plans. And time is running out.

No Clarity About Future Payments

Under the ACA, insurers are required to offer plans with reduced cost-sharing for out-of-pocket expenses like copayments and deductibles to eligible low-income enrollees; the government then reimburses insurers for the higher cost of those plans. The Trump administration has threatened to cut off those reimbursements, which for 2018 were projected to reach $8 billion. If these reimbursements do terminate at the end of this year, the Congressional Budget Office has estimated that 2018 premiums will rise by an average of 20 percent. This projection is consistent with similar estimates from the Kaiser Family Foundation and insurers’ own proposed 2018 rates, which were submitted to states this summer.

While the administration has continued to make the monthly CSR reimbursements so far, federal officials have not committed to any future payments. The Trump administration has extended the deadline for finalizing premium rates to September 20, 2017, but even that deadline is fast approaching. Once rates are finalized by states, insurers are locked into them for the full calendar year.

State Decisions Will Drive Insurer Participation and Costs for Consumers and Taxpayers

Whether insurers continue to participate in the ACA marketplaces and what consumers — and federal taxpayers — ultimately pay could depend on the actions of 50 different state insurance commissioners (plus D.C.). Yet, as noted, these state regulators and insurers are in a race against the clock to develop, review, and implement 2018 premium rates that reflect insurers’ likely costs as accurately as possible.

To date, state departments of insurance have given insurers different directives about how to set their premium rates for next year. The variation in these directives will result in different — and potentially significant — consequences for consumers, insurers, and federal taxpayers.

At least one state insurance department, Maryland’s, is currently requiring insurers to submit 2018 premium rates assuming they will be reimbursed for CSR plans throughout 2018. This approach has the advantage of helping to keep rate increases in check for consumers, particularly those not eligible for the tax credit subsidies that shelter low- and moderate-income enrollees from premium hikes. But this directive also carries big risks. If the Trump administration cuts the CSR reimbursements and insurers don’t have sufficient time to submit new rates, then they will face significant financial losses and some (if not all) will likely exit the market, leaving consumers without coverage options.

Other states, such as in New York and Utah, have required or allowed insurers to assume they won’t be reimbursed for CSR plans in 2018. While this means big premium increases for many consumers, it gives insurers more confidence to participate in the market by protecting them from major financial losses. At the same time, if the Trump administration decides to keep the CSR reimbursements going (or if Congress steps in to appropriate the necessary funds), these insurers will reap a windfall, financed largely by federal taxpayers through the ACA’s premium tax credits. Yet more state insurance departments, such as in Arkansas, California, Michigan, and New Mexico, have tried to hedge their bets by asking insurers to submit two sets of rate requests — one assuming CSR reimbursements will be paid, one assuming they won’t.

Still other states have not yet provided directives or reassurances to their insurers, essentially leaving it up to each company to decide how to respond to the uncertainty over CSRs. However, allowing each insurer to decide for themselves could lead to significant market disruption. For example, if one insurer sets premiums assuming they will be paid CSRs, but others in the market increase premiums assuming they will not, it will drive enrollment to the lower-cost plan at the expense of its competitors, placing that insurer at risk of insolvency if the CSRs are not paid.

Looking Ahead

Most observers have hoped that federal policymakers would announce a decision on CSRs one way or another in time for insurers to adjust premium rates for 2018. But as the deadline for finalizing rates looms, it is less and less likely that states will have the clear federal signal they need to decide how to best regulate their insurance markets and review proposed premiums for the upcoming year. Without clarity from federal officials or commitment from Congress to continue funding for CSRs, state insurance departments and insurers will need to make some high stakes bets on the future of these markets by setting premiums that may be too high or too low. Ultimately, the risk of losing these bets will be borne primarily by consumers and federal taxpayers.