By Yasmeen Abutaleb and Jeff Mason

WASHINGTON (Reuters) – U.S. President Donald Trump on Friday urged Democrats to make a healthcare deal after cutting off Obamacare subsidies to health insurance companies for low-income patients in a forceful move that sparked threats of legal action and concern of chaos in insurance markets.

“ObamaCare is a broken mess,” Trump tweeted early on Friday. “Piece by piece we will now begin the process of giving America the great HealthCare it deserves!”

The decision is the most dramatic action Trump has taken yet to weaken the Affordable Care Act, President Barack Obama’s signature healthcare law, which extended insurance to 20 million Americans.

The move drew swift condemnation from Democrats and threats from state attorneys general in New York and California to file lawsuits. Trump, a Republican, urged opponents to reach out to him.

“The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!” Trump said in another tweet on Friday.

Trump has been frustrated by Republicans’ failure to repeal and replace the law known as Obamacare, thwarting a promise he made during his successful 2016 presidential campaign.

His decision is likely to please those among his political base who detest the Obamacare system, which many Republicans have attacked for years as an unneeded government intrusion in Americans’ healthcare.

In a nod to that same constituency, the president signed an executive order earlier on Thursday to make it easier for Americans to buy bare-bones health insurance plans exempt from Obamacare requirements.

Senate Democratic Leader Chuck Schumer and House 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 leveled 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.”

Insurers and proponents of Obamacare have implored Trump for months to commit to making the payments, which are worth billions of dollars. Several insurers have cited uncertainty over the payments when hiking premiums for 2018 or exiting insurance markets altogether.

Healthcare stocks have edged lower in recent days. Ending the payments could hurt shares of insurers such as Anthem Inc, Molina Healthcare Inc, Cigna Corp and Centene Corp, which are offering plans on Obamacare markets for 2018.

Trump has made the payments, guaranteed to insurers under Obamacare to help lower out-of-pocket medical expenses for low-income consumers, each month since taking office in January. But he has repeatedly threatened to cut them off and disparaged them as a “bailout” for insurance companies.

For Kathryn Haydon and her husband, who bought insurance under the law’s marketplace three years ago as struggling college students in Arkansas, the subsidies reduced the cost of their $310 plan by about $250, leaving them to pay $60 each month.

“If the subsidy was not there, we would have gone without health insurance,” she said. “Our finances were extremely tight at the time for us… we would have just hoped there were no catastrophes.”

LAWSUITS

The White House said late on Thursday that it could not lawfully pay the subsidies anymore.

A White House statement said that based on guidance from the Justice Department, “the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.”

“In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments,” it said.

New York Attorney General Eric T. Schneiderman said in a statement he was prepared to lead other attorneys general in a lawsuit.

“I will not allow President Trump to once again use New York families as political pawns in his dangerous, partisan campaign to eviscerate the Affordable Care Act at any cost,” he wrote.

The payments are the subject of a lawsuit brought by House Republicans against the Obama administration that alleged they were unlawful because they needed to be appropriated by Congress. A judge for the federal district court for the District of Columbia ruled in favor of the Republicans, and the Obama administration appealed the ruling.

The Trump administration took over the lawsuit and had delayed deciding whether to continue the Obama administration’s appeal or terminate the subsidies, but in April Trump began threatening to stop the payments.

That case became more complicated in August when a U.S. appeals court allowed 16 Democratic state attorneys general to defend the payments and have a say in the legal fight.

The political turbulence has affected insurers’ decisions.

Anthem Inc, one of the largest remaining Obamacare insurers, in August scaled back its offerings in Nevada and Georgia and blamed the moves in part on uncertainty over the payments.

Blue Cross and Blue Shield of North Carolina earlier this year raised premiums by more than 20 percent, but said it would have only raised premiums by about 9 percent if Trump agreed to fund the payments.

The nonpartisan Congressional Budget Office estimated that cutting off the payments would cause premiums to rise 20 percent in 2018, and that 5 percent of Americans would live in areas that do not have an insurer in the individual market in 2018.

Trump has taken other steps to undermine Obamacare. Last week, his administration allowed businesses and non-profit organizations to seek exemptions from Obamacare’s mandate that employers provide birth control in health insurance with no co-payment.

The administration also slashed the Obamacare advertising and outreach budget and halved the open enrollment period.

(Additional reporting by Steve Holland, Brendan O’Brien and Susan Heavey and; Editing by Michael Perry and Bernadette Baum)