August 16 Update
Administration Will Make CSR Payments For August
Multiple media sources are reporting that the White House has confirmed that cost-sharing reduction payments will be made for August. This will lessen the financial impact on insurers of a CSR payment termination during 2017, if one occurs, as it will mean one less month that insurers will have to absorb the cost of termination themselves. It does nothing, however, to clarify for insurers or state insurance regulators what they should assume regarding CSR payments in determining which insurers will participate in the individual market and what premiums they will charge for 2018.
Health insurers offering qualified health plans through the marketplaces for 2018 must file their rates for 2018 by September 6, 2017. As no guidance has been offered as to whether CSRs will be paid in 2018 (or even in September 2017), state regulators should presumably instruct their insurers to file their rates based on an assumption that CSRs will not be paid, or at least to file two sets of rates assuming on the one hand that CSRs will be paid and on the other hand that they will not be. As the CBO has projected and multiple insurers have confirmed in rates already filed, the nonpayment of CSRs would result in significant rate increases, probably in the order of 20 percent in most states. If not action is taken by the White House or by Congress very soon, it should be assumed that these are the rates that will be in effect.
Congress could, of course, specifically appropriate funding for the CSRs. The CBO has confirmed that such an appropriation would not increase the budget deficit since it has already assumed an appropriation to exist. A CSR appropriation is high on the agenda of a number of members of Congress of both parties. But even assuming the most rapid conceivable schedule for both houses to enact and the President to sign such an appropriation, it would still come after the rate filing deadline—which is the day after Congress reconvenes on September 4.
Only the Trump administration can at this point provide assurances that the CSRs will be paid at least through the end of the 2017 and for 2018 unless the appellate court in House v. Price decides at some point to affirm the lower court judgment—now on hold—that the payments must end. The only responsible step for the administration at this point is to immediately provide such assurances, and to state that it intends to work with Congress to clarify that an appropriation exists as quickly as possible and independent of any other actions Congress might take on health care reform. Senator Lamar Alexander (R-TN), Chair of the Senate Health, Education, Labor, and Pensions Committee, has urged the President to continue the payments, at least through September, while Congress takes action.
Any other approach simply increases the likelihood, indeed the certainty, that premiums in many state individual markets will increase dramatically for next year. A failure to take action is also likely to result in the number of counties without any insurer in the individual market for 2018 beginning to grow again.
Nevada-Centene Arrangement Leaves Only Two Bare Counties For 2018
Centene announced on August 15, 2017, that it had worked out an arrangement with Nevada to offer coverage in the fourteen Nevada counties that had previously had no insurer signed up to offer coverage through the exchange for 2018. This leaves the “bare county” problem largely solved for 2018, with only two counties remaining in the country—one in Wisconsin and one in Indiana—with no insurers currently offering coverage for 2018. Between them they have fewer than 400 current exchange enrollees.
The bare county problem may reappear, however. As noted earlier, the CBO report on terminating cost-sharing reductions projects that five percent of Americans would live in counties with no 2018 coverage if the CSR payments are terminated.
On the afternoon of August 15, 2017, the Congressional Budget Office and the Joint Committee on Taxation released an analysis of the potential effects of an administration or congressional decision to terminate the Affordable Care Act’s cost-sharing reduction (CSR) payments to insurers. The CBO examined the effects on the federal budget, health insurance coverage, market stability, and premiums. The CBO projects that the primary negative effect of CSR payment termination would be an increase in the federal budget deficit, but if the CBO’s assumptions prove unwarranted, CSR payment termination could be more damaging than the CBO predicts.
Health Affairs Blog readers are well acquainted with the underlying controversy surrounding the CSRs. The ACA requires insurers to reduce out-of-pocket limits and increase the actuarial value of benchmark silver plan insurance coverage for individuals whose household income does not exceed 250 percent of the federal poverty level (FPL). The federal government has been reimbursing insurers since this requirement went into effect in 2014.
The House of Representatives filed a lawsuit late in 2014 claiming that Congress had not appropriated money to fund the CSRs and that the payments were therefore illegal. In 2016 a federal district court ruled for the House and enjoined the CSR payments. It stayed its order, however, and the Obama administration appealed the court’s ruling to the District of Columbia Circuit Court of Appeals. The Obama administration filed its opening appeal brief in the fall of 2016, but since then the case has been on hold. The Trump administration has refused to take a position on the legality of the CSR payments. The District of Columbia Circuit Court of Appeals recently allowed attorneys general from 18 states to intervene in the appeal to defend the CSR payments, but uncertainty remains.
What The CBO Found: A Possible “Soft Landing”
The CBO affirms what earlier analyses have concluded: in the long run the primary loser if CSR payments are terminated would be the federal budget, which would see a net increase in the deficit of $194 billion over the 2017 to 2026 budget window. The report also projects, however, that market instability would increase in the short run; in 2018, 5 percent of the population would live in areas with no insurers in the individual (not just exchange) market.
The CBO predicts that termination of the CSR payments would increase premiums for silver plans by 20 percent above 2016 baseline projections in 2018, and by 25 percent in 2020. The CBO further predicts, however, that the premium increases would be covered in large part by increased premium tax credits. Enrollees eligible for premium tax credit—people with incomes not exceeding 400 percent of the federal poverty level—would, therefore, not have to bear much of the increased cost of coverage and might in fact be able to purchase more generous coverage without additional cost. Individuals with incomes above 400 percent of the poverty level would experience no increase in premiums if they purchased coverage outside the exchange.
The CBO projects, in short, that a termination of CSR payments could be accomplished with a soft landing—after perhaps an initial bump for 2018.
Some Potentially Problematic CBO Assumptions
The CBO report, however, depends on some crucial assumptions, which may or may not be accurate. First, the CBO assumes that action terminating the CSR subsidies effective in 2018 would be taken by the administration or Congress in time for insurers to adjust their 2018 rates. The CBO acknowledges that if action is taken after insurers have finalized their rates, insurers would suffer significant losses and be more likely to abandon markets. The CBO does not analyze the financial effects of an immediate termination of CSR payments.
Second, the CBO assumes that state insurance departments would require insurers to load the entire cost of the cost sharing reductions, which they would still legally be required to make in any event, onto the premiums of silver plans in the exchanges. This would have the effect of increasing the premiums for silver plans, but since premium tax credits are determined based on the cost of the second-lowest-cost benchmark silver plan, premium tax credits would also increase.
Under the ACA, premium tax credits must cover the difference between the premium of the benchmark plan and a set percentage (which increases as income increases) of household income for individuals with incomes up to 400 percent of the poverty level. Loading the extra cost of covering the CSRs onto the premiums of silver plans, therefore, would protect individuals eligible for premium tax credits from the full additional cost of insurance—most of extra cost would be borne by the federal government.
The Problems That Could Result From Loading The Entire CSR Cost Onto Silver Premiums
Loading the extra cost onto silver premiums would, however, have follow-on effects. Premiums for silver plans (which cover 70 percent of costs for a standard population) could well be higher than premiums for gold plans (which cover 80 percent of costs, and thus have lower deductibles and co-insurance). Individuals with incomes between 250 and 400 percent of poverty, who are not eligible for cost-sharing reductions, would likely abandon the higher-cost silver plans.
Some exchange enrollees would take their increased premiums tax credits and buy gold plans, which could be cheaper than silver plans. Others might opt for bronze plans (which cover 60 percent of costs), which would have much lower premiums than silver plans. Bronze plan premiums would likely fully covered by the higher premium tax credits. These dynamics might also hold for people with incomes between 200 and 250 percent of the poverty level, who receive only minimal cost-sharing reductions, or even for some people with incomes below 200 percent of the poverty level.
These dynamics would likely cause further adjustments. As more people moved into gold plans, those plans would cover a healthier population, causing their premiums to drop, in turn causing even more people to enroll in them. Insurers would offer more generous bronze plans, with actuarial values of up to the 65 percent maximum allowed by current rules to attract individuals who could have their full bronze premium covered.
Individuals who are not eligible for premium tax credits would flee the exchanges; assuming insurers load the full cost of CSRs onto plans in the exchange, these people would find premiums outside the exchange comparable to what would have been the case absent the CSR defunding, but with gold plans likely more affordable. The CBO predicts that market competition and the medical loss ratio rebate requirement would incentivize insurers to keep coverage affordable once they had covered the cost of the lost CSR payments.
As premium tax credits increased, more individuals eligible for those credits would purchase coverage through the exchanges. The CBO projects that after the initial reduction—when one million people would lose coverage during 2018 from insurers fleeing the individual market—enrollment in the individual market would begin to climb, increasing by three or four million for 2021 through 2026. As the individual market became more attractive, however, employers would drop coverage, with three million individuals losing employer coverage by 2022. In the end, the total number of uninsured would drop by about one million.
How A Bumpier Landing Could Occur
But again, this all depends on the CBO’s assumptions. Although an HHS guidance issued on August 10, 2017 suggested that states direct insurers to load the increased costs of CSRs onto silver plans (though not specifically on-exchange silver plans), not all states are taking this approach. Some have reportedly told insurers to load the costs onto all plans and others have to date given insurers no direction. Obviously, if insurers did not load the increased costs from a termination of CSR payments onto on-exchange silver plans, premium tax credits would not increase as much and coverage would become more expensive for people who do not receive premium tax credits. Thus, if insurers take different approaches than assumed by CBO, markets would likely be seriously disrupted.
The CBO also assumes that the individual mandate will continue to be enforced. If it becomes clear that it is not being enforced, healthy individuals could simply leave the insurance market, causing the number of the uninsured and premiums to increase, and markets to destabilize.
In sum, if any one of the CBOs assumptions—as to timing or the response of regulators, insurers, or consumers—proves unwarranted, the landing from a CSR termination could be much bumpier than the report projects.
Finally, the CBO report clarifies a couple of issues. First, the CBO clearly states that is has consistently assumed that the CSR payments are direct entitlement spending and thus “in the baseline.” It has not altered this position in light of the House v. Price litigation because the case is on appeal and the payments have continued to be made. The import of this is that if Congress enacts a specific appropriation to fund the CSRs, the appropriation will not have an effect on the budget deficit.
Second, the CBO notes that its analysis is based on its 2016 budget baseline. The CBO states that it expects to have updated projections soon, but that most of the analysis in the report would hold under the new 2017 baseline. The one change would be that premiums would be projected to increase less if CSRs were defunded because insurers have already to some extent built the uncertainty surrounding the CSR funding into their 2018 premiums.