INSURANCE is supposed to be about the careful management of risk. Recently, for America’s health insurers, it has had a lot to do with keeping track of President Donald Trump’s Twitter feed. On October 12th the White House announced that it would cut off payments to insurers that underpin parts of the Affordable Care Act (ACA), better known as “Obamacare”. The move will knock already wobbly markets, a prospect that seems to delight Mr Trump. Yet on October 17th Senators Lamar Alexander, a Republican, and Patty Murray, a Democrat, launched a bipartisan proposal to shore up Obamacare, in part by guaranteeing the payments for two years. At first, Mr Trump seemed to be encouraging the deal. Then, on October 18th, he declared his opposition to reinstating the payments.
The money in question compensates insurers for lowering deductibles and out-of-pocket costs (the slice of medical bills not covered by insurance) for poor buyers on Obamacare’s insurance marketplaces, or “exchanges”. When the payments stop, insurers must still provide the discounts, but without recompense. The result will be higher premiums as insurers seek to recoup their costs. That could affect 18m Americans who buy health insurance in the so-called “individual market”, which serves those who do not get coverage from another source, such as an employer.
Republicans regularly claim the individual market is imploding; Democrats say it needs only minor reform. In reality, its strength varies greatly by state. In urban, densely populated states, such as New York and Massachusetts, consumers have a wealth of choices and comparatively low premiums. In several rural states—which have tended to resist Obamacare—matters are much worse.
Take Oklahoma. In 2014, the first year of Obamacare, a family of four Oklahomans paid a little over $7,500 a year for a benchmark plan. That turned out to be far too little for a market in which nobody can be turned away on account of ill health. Facing losses, insurers either raised premiums or left the exchanges. Today, just one insurer remains, and charges nearly $18,500 annually for a comparable plan (see chart). Such prices are nearly impossible to pay for those who earn just too much to qualify for a helping hand in the form of tax credits. These tax credits, which Mr Trump cannot stop, disappear abruptly at 400% of the poverty line (that is, at an income of about $48,000 for an individual, or about $98,000 for a family of four).
One of those affected is Brandon Smith, a 25-year-old field engineer for a small Oklahoman oil firm. Mr Smith would be covered by his father’s insurance had the elder Mr Smith not cancelled his plan because the premiums were too high. So at the start of 2017 Mr Smith bought coverage of his own. His plan cost $400 a month, yet came with a $9,000 deductible. Deeming that too expensive, he too has now dropped out of the market, one of 30,000 Oklahomans to have done so in 2017.
It is people like Mr Smith, who work for or run small businesses, whom Republicans say they want to help. But Mr Trump’s new strategy hurts them, at least in the short term. The Congressional Budget Office estimated in August that ending the payments to insurers would push up premiums by 20% in 2018. This effect has, in many cases, already been incorporated into prices for next year, because insurers anticipated an end to the payments. (In 2016, a federal court ruled that payments could not continue without a congressional authorisation, though the ruling never came into effect.) Nonetheless, Mr Trump’s announcement sent some states scrambling to adjust premiums before enrolment for 2018 begins in November.
For Oklahomans, the effect is minor compared with that of another, still more curious decision by the Trump administration. Earlier this year, after encouragement by Tom Price, then health secretary, Oklahoma proposed a “reinsurance” programme. The state wanted to assume enough of insurers’ risks to reduce premiums by about 30%, mainly funded by recycling the money the federal government would save when premiums fell. Similar proposals have been approved for Alaska and Minnesota. Yet Oklahoma’s green light did not arrive in time. This was despite close co-ordination with Mr Trump’s health department in advance of the deadline, according to Mike Rhoads of the Oklahoma Insurance Department. Mr Rhoads says the state was even sent a draft letter of approval from Seema Verma, the relevant Trump appointee, before being disappointed. (The health department did not confirm this version of events to The Economist, saying only that it had received “substantive comments” on the waiver that “needed to be addressed”.)
It is unclear what Mr Trump’s strategy is. Pushing premiums up to force Democrats to support Republican ideas for health reform, which stalled in Congress earlier this year, is risky. For a start, Democrats have never shown much concern about high costs for people who are otherwise financially comfortable.
Yet Mr Trump evidently thinks that he will escape the blame for the disruption. He may be right. Mr Smith, a registered Republican, says he is “not the biggest Trump fan”, but holds Obamacare responsible for high premiums. As for Oklahoma’s failed waiver, it hardly made a splash, even on the local news. Compared with the huge increase in premiums that has already occurred, what is happening now looks insignificant, says Trent England of the Oklahoma Council of Public Affairs, a conservative think-tank. (Oklahoma’s premiums will rise by about 8% next year.)
If sabotage is indeed the strategy, Mr Trump is unlikely to sign a bipartisan bill to shore up the market. The concessions to Republicans in the Alexander-Murray bill allow states more flexibility to experiment with Obamacare’s rules. But, given what happened to Oklahoma’s waiver, and the uncertain fate of a wider proposal in Iowa, the administration does not seem completely committed to this principle, either.
For now, Mr Trump seems content to argue that he has stopped filling insurers’ pockets with taxpayer cash. But in reality, ending the payments is probably even bad for taxpayers, because when premiums rise, tax credits must go up, too. In any case, insurers were promised the money, and so may be able to recoup it in court. Two firms have already won similar cases brought after Republicans defunded a different aspect of the law in 2014.
It is hard to see who would lose if the Alexander-Murray bill becomes law. If it does not, insurance markets will continue to be plagued by Washington’s confusion, and premiums will continue to rise.