By Yasmeen Abutaleb and Jeff Mason
WASHINGTON (Reuters) - U.S. President Donald Trump on Friday pledged to dismantle Obamacare "step by step" after he scrapped subsidies to health insurers that help low-income Americans pay out-of-pocket medical expenses, a move that raised concerns about chaos in insurance markets and could face legal challenges.
Trump's action, announced late on Thursday, took aim at a critical component of the 2010 law, his Democratic predecessor Barack Obama's signature domestic policy achievement. Frustrated by the failure of his fellow Republicans who control Congress to repeal and replace Obamacare, Trump has taken this and several other steps to chip away at it.
The administration will not make the next payment to insurers, scheduled for Wednesday, Attorney General Jeff Sessions said. The subsidies cost $7 billion this year and were estimated at $10 billion for 2018, according to congressional analysts.
Trump's action came just weeks before the Obamacare open enrolment period begins on Nov. 1 for 2018 insurance policies through the law's marketplace.
Congressional Democrats accused Trump of sabotaging the law, and Democratic state attorneys general in New York and California threatened a legal challenge.
Hospitals, doctors, patient advocates and health insurers decried Trump's move, saying consumers will ultimately pay the price. They called on Congress to appropriate the funds needed to keep up the subsidy payments.
About 10 million people are enrolled in Obamacare through its marketplace, and most receive subsidies.
Trump, who as a candidate last year promised to roll back the law formally called the Affordable Care Act, received applause for his latest action during an appearance on Friday before a group of conservative voters.
"It's step by step by step, and that was a very big step yesterday," Trump said. "And one by one, it's going to come down, and we're going to have great healthcare in our country."
He said he was taking "a little different route than we had hoped" because of Congress' inability to act. Republicans for seven years had vowed to get rid of Obamacare, but deep intra-party divisions have sunk their efforts to get legislation through the Senate.
Trump on Friday called Obamacare "a broken mess" and urged Democrats to reach out to him to make a deal.
"The Democrats ObamaCare is imploding," he said in a Twitter post. "Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!"
Since taking office in January, Trump has made the monthly subsidy payments, which Obamacare guaranteed to insurers to help reduce out-of-pocket medical expenses for low-income consumers, but that he had called a "bailout" for insurance companies. Trump had the power to stop the payments and previously had threatened to do so.
The American Medical Association, the nation's largest group of doctors, said it was "deeply discouraged" by the subsidies cut-off.
AMA President David Barbe said the move "creates still more uncertainty in the ACA marketplace just as the abbreviated open enrolment period is about to begin, further undermining the law and threatening access to meaningful health insurance coverage for millions of Americans."
Health insurers' stocks took a hit on Friday, with Centene Corp and Molina Healthcare both sinking 4 percent. Hospital shares also fell, with Tenet Healthcare and Community Health Systems both down about 5 percent.
"The effect of the order is likely to be profoundly destabilising, disruptive and potentially materially damaging to hospitals and those exchange plans who are still required to offer benefits despite the loss of the cost-sharing reduction (CSR) payments," Mizuho analyst Sheryl Skolnick wrote in a research note.
Health plans still in Obamacare exchanges will incur immediate, potentially big losses, and some will rapidly exit the marketplaces, Skolnick wrote.
Hospital operators should expect debts to rise in 2018 as their co-pays and deductibles go unfunded, she added.
The White House announced the cut-off just hours after Trump signed an order intended to allow insurers to sell lower-cost, bare-bones policies with limited benefits and consumer protections.
Republicans have called Obamacare an unnecessary government intrusion into the American healthcare system. Democrats have said the law needs some fixes but noted that it had brought insurance to 20 million people.
Senate Democratic leader Chuck Schumer and House of Representatives Democratic leader Nancy Pelosi derided the subsidies cut-off in a joint statement, saying Trump would single-handedly push Americans' healthcare premiums higher.
"It is a spiteful act of vast, pointless sabotage levelled at working families and the middle class in every corner of America," they said. "Make no mistake about it, Trump will try to blame the Affordable Care Act, but this will fall on his back, and he will pay the price for it."
The White House said that based on Justice Department guidance, it concluded it could not lawfully pay the subsidies anymore because "there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare."
Insurers and proponents of Obamacare have implored Trump for months to commit to making the payments. Several insurers have cited uncertainty over the payments when hiking premiums for 2018 or exiting insurance markets altogether.
Trump has taken other steps to undermine Obamacare. Last week, his administration allowed businesses and non-profit organizations to seek religious and moral exemptions from Obamacare's mandate that employers provide coverage for women's birth control.
The administration also slashed the Obamacare advertising and outreach budget and halved the open enrolment period.
(Additional reporting by Steve Holland, Makini Brice, Lawrence Hurley and Susan Heavey in Washington, Megan Davies in New York, Brendan O'Brien in in Milwaukee and Divya Grover in Bengaluru; Writing by Will Dunham; Editing by Bernadette Baum and Lisa Von Ahn)