White House: Sequester No Longer Applies to Part of Obamacare

The administration is no longer applying the mandatory spending cuts to the Affordable Care Act’s cost-sharing subsidies.

President Barack Obama delivers remarks during the Democratic National Committee's Winter Meeting at the Capitol Hilton February 28, 2014 in Washington, DC.
National Journal
Sam Baker
March 13, 2014, 1 a.m.

The Obama ad­min­is­tra­tion has de­cided that the se­quester’s man­dat­ory spend­ing cuts no longer ap­ply to part of Obama­care.

The health care law provides sub­sidies to help low-in­come people cov­er some of their out-of-pock­et costs. Last year, the ad­min­is­tra­tion said those sub­sidies were tak­ing a 7 per­cent cut be­cause of the se­quester, which im­posed across-the-board re­duc­tions in fed­er­al spend­ing.

But now, the White House has changed its mind. It re­moved the cost-shar­ing sub­sidies from its list of pro­grams that are sub­ject to the se­quester, elim­in­at­ing the 7 per­cent cut for 2015.

The Com­mit­tee for a Re­spons­ible Fed­er­al Budget, which no­ticed the change, said the re­versal would likely re­store about $560 mil­lion to the sub­sidies — and re­quire $560 mil­lion in cuts to oth­er pro­grams to make up for it.

The cost-shar­ing sub­sidies are ex­pec­ted to total $8 bil­lion this year and $156 bil­lion over the next dec­ade.

Who be­ne­fits from the change? The low-in­come fam­il­ies who qual­i­fy for these sub­sidies, as well as the White House and in­sur­ance com­pan­ies.

Some con­sumers have com­plained about high out-of-pock­et costs in the plans they’ve pur­chased through the health care law’s ex­changes. This change will help re­duce those costs, at least for low-in­come fam­il­ies. And be­cause the sub­sidy is paid dir­ectly to in­sur­ance com­pan­ies, the change means more money for in­surers as well.

The cost-shar­ing sub­sidies aren’t the Obama­care sub­sidies that get the most at­ten­tion.

Those high­er-pro­file in­cent­ives are tax sub­sidies to help people cov­er the cost of their in­sur­ance premi­ums. Those sub­sidies wer­en’t af­fected by the se­quester be­cause they’re ad­min­istered as tax cred­its. Rather, the sub­sidies at is­sue here are de­signed to help low-in­come people re­duce their out-of-pock­et spend­ing — costs like co-pays and de­duct­ibles.

An ad­min­is­tra­tion of­fi­cial said the two types of sub­sidies were com­bined, and that’s why the out-of-pock­et sub­sidy is no longer sub­ject to se­quest­ra­tion.

“To im­prove the ef­fi­ciency in the ad­min­is­tra­tion of these pay­ments for both in­surers and the fed­er­al gov­ern­ment, it was de­term­ined that the cost-shar­ing sub­sidy pay­ments would be made as ad­vance pay­ments and thus would be paid out of the same ac­count used for the premi­um tax cred­it por­tion of the ad­vance pay­ments,” the of­fi­cial said.

Cost-shar­ing sub­sidies are avail­able only to house­holds with an in­come between 100 and 250 per­cent of the fed­er­al poverty line — up to roughly $29,000 for a single per­son, or $60,000 for a fam­ily of four un­der this year’s guidelines.

COR­REC­TION: An earli­er ver­sion of this story in­cor­rectly iden­ti­fied the Com­mit­tee for a Re­spons­ible Fed­er­al Budget.

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