Cost Sharing Reduction Debate: Why This Matters and How States Are Preparing for an Uncertain Future
An update on CSRs – Aug. 18
Since publication of this blog, two major developments have occurred. The White House indicated that the Administration will make CSR payments for August. The Administration has not commented about future payments; the next is due Sept. 20. On Aug. 15, the Congressional Budget Office (CBO) released an analysis of possible impacts if CSR payments were terminated. Major findings include:
- A projected 20 percent gross premium increase in 2018 for silver-level plans; 25 percent increase by 2025 (based on March 2016 baseline). Premium increases would be used by insurers to make up for funding and instability caused by the loss of CSR payments.
- A $194 billion dollar increase in the federal deficit from 2017 to 2026. Increases could result from increases in premium tax credits provided to individuals because of the rise in premiums for silver-level plans, which are the benchmark plans by which tax credits are calculated. Increases would also be driven by a modest increase in insurance enrollment, which is expected because of the availability of higher net premiums available to some consumers.
- Issuer exits, then stabilization. Through 2019, insurers are expected to exit individual markets, leaving an estimated 5 percent of the population in regions with “bare” counties. In 2020, insurer participation is expected to increase as markets stabilize.
- Stable net premiums for marketplace consumers and some shifting of plan purchasing. Increased tax credits would mean that most individuals would pay premiums similar to or less than what would have been expected if CSRs had continued. CBO expects that those between 100 to 200 percent of the federal poverty level (FPL) would mostly continue to purchase plans at the silver-level, and those earning from 200 to 400 percent of FPL would switch to gold- or bronze-level plans. Of those in the 200 to 400 percent of FPL who switch plans, most are expected to purchase gold plans which, due to tax credit increases, would offer both higher actuarial values and lower premiums than silver plans.
The CBO score is based on many assumptions of projected market behavior and decisions that have significant weight on its findings.
First, CSR payments would remain funded through December 2017, meaning insurers would receive at least four more months of CSR funding before the program is eliminated.
Second, most states’ insurance commissioners would opt to have their insurers load the full cost of CSR payments onto silver-level plans offered through the health insurance marketplaces. As discussed in the blog, states are considering several contingencies in the case of CSR elimination, from fully loading the premiums onto marketplace silver-level plans to requesting that issuers split the load across all plans in the individual market.
Third, the CBO makes several assumptions about the projected behavior of employers and individuals, basing their estimates on a perceived increase in the value of on-marketplace coverage among both employers and individuals. The CBO assumes this will result in some employers dropping coverage, and in greater uptake of marketplace coverage among individuals.
Today, the Affordable Care Act (ACA) includes several provisions designed to reduce the cost of insurance for consumers purchasing policies on individual markets. The Administration, Congress, states, insurers, and health policy stakeholders are currently debating the fate of these cost-sharing reduction (CSRs) programs and the result could significantly alter ACA markets in 2018. NASHP reviews what CSR payments are, the status of this critical debate, and how states are preparing for its possible impact.
Just what are cost-sharing reductions (CSRs)?
In addition to providing premium tax credits that make monthly premiums more affordable, the ACA includes CSR payments designed specifically to reduce out-of-pocket costs for lower income consumers. Individuals or families earning between 100 to 250 percent of the federal poverty level qualify for CSRs if they purchase a silver-level health plan through an ACA marketplace. The payments are delivered to insurers who, in turn, lower what consumers pay for copayments and deductibles. Every month, issuers receive CSR payments to cover these costs. Payments are calculated monthly based on consumer utilization of services. According to CMS, 7 million people have qualified for CSRs this year, and the expected payout to insurers — if these payments continue — is estimated at $7 billion in 2017, reaching $10 billion by 2018. The next payment to insurers is due Aug. 21.
What’s the debate?
In 2014, the House of Representatives sued the Obama Administration over CSR payments. They claimed the Administration violated the Constitution’s separation of powers mandate by authorizing payments to insurers though the language of the law, due to a purported drafting error, did not explicitly appropriate funding for CSRs. Congress argued that by directing funds to CSRs without Congressional appropriation, the Administration broke the law.
In September 2015, a judge ruled in favor of the House of Representatives. The Obama Administration appealed and the case moved to the D.C. Circuit Court, where it has received a series of extensions, during which the Administration continued to issue CSR payments. After the November 2016 election, the Trump Administration and the House continued to keep the case on hold. The most recent 90-day delay is due to expire Aug. 20, at which point the parties must decide if they wish to continue with the lawsuit or continue to extend the status quo. On Aug. 1, the U.S. Court of Appeals granted 17 states and the District of Columbia a motion to intervene in House v. Price, which would allow states to continue the case should the Trump Administration pull the Administration’s appeal. Meanwhile, the Trump Administration each month has debated whether to continue to issue payments for that month.
What does this mean for the insurance markets?
Elimination of CSR payments would have a significant impact on the stability of the individual market. If the Administration ends payments immediately, insurers will not receive the payments they were expecting to supplement the coverage they have already provided in 2017. Without an ability to adjust rates this year, insurers are expected to hike rates next year to account for the loss of CSR funding for the remaining months of 2017 and in 2018. An analysis of announced rate increases found that insurers are adding anywhere from 3 percent (Washington) to 23 percent (Idaho) extra to their premiums to compensate for a possible loss of future CSR funding.
Some insurers have announced their intent to exit the ACA marketplaces, citing uncertainty over CSR payments as one key consideration in determining their exit. It is predicted that others may follow suit if an official elimination of the payments is announced. In states where the Federally Facilitated Marketplace operates, insurers have the contractual right to end coverage midyear upon the loss of CSRs. To compound this instability, President Trump has indicated that the administration may choose to end payments if Congress fails to pass health reform legislation soon.
These changes would likely reverberate across the markets in important ways. Individuals who do not qualify for tax credits could bear the brunt of increases, potentially pricing out healthy individuals and, in turn, worsening risk pools. Increases in premiums for consumers who qualify for tax credits (individuals between 100 to 400 percent of the federal poverty level) would largely be offset by premium tax credits, which are calculated based on overall premium costs. Experts estimate that the increase in federal costs due to increased cost of APTC will outpace savings from ending CSR payments. The Kaiser Family Foundation and the Urban Institute predict that federal government spending could increase by $31 billion or $47 billion, respectively, if payments are eliminated.
What actions are states taking?
State regulators are leveraging flexibility and creativity as they work with insurers to navigate a challenging rate-filing environment. Colorado, New Hampshire, Oregon, and Kentucky as well as the Federally Facilitated Marketplace extended deadlines for their 2018 rate filings. As of Aug. 12, the federal deadline for final rate submissions has been pushed to Sept. 5, almost two months later than the 2016 deadline. In some states, including Utah and Pennsylvania, state departments of insurance have issued guidance instructing insurers to file two sets of proposed rates — one that assumes that CSR payments will continue, and another set that does not. California, Florida, Michigan, and Washington, have specified that insurers should file their second set of proposed rates so that calculations accounting for CSR changes are only applied to silver-level plans, rather than applying all plans. By loading all of the premium increases onto silver-level plans, which serve as the benchmark from which tax credits are calculated, bronze- and gold-level plans would presumably become more competitively priced. On the other hand, this may lead to pricing out consumers who do not qualify for the Advanced Premium Tax Credit (APTC), leading some states to ask insurers to spread the premium increase across all plan levels. States, including Maryland, have asked insurers to file rates that assume CSR payments will be maintained, with the caveat that they can refile if CSR payments end midyear. Premium rate requests are currently under review by state departments of insurance, with final decisions due for most states in September in order to be ready for Open Enrollment on Nov. 1. The longer these deadlines are delayed, the less time states will have to perform their typical pre-open enrollment activities.
Despite promises from Administration officials that an announcement about the future of CSR payments would be forthcoming, it remains unclear what that decision will be or when it will be announced. A possible solution to the CSR conundrum would be for Congress to appropriate funds. There are signals from Congress that such an approach could be in the works — two years of CSR funding was included in drafts of both the Senate and House ACA repeal bills, and the bipartisan House “Problem Solvers Caucus” included cost-sharing reduction payments at the top of their list of market stabilization strategies. Senate leaders on both sides of the aisle have stated that they want CSRs to continue to be funded. Meanwhile, U.S. Health and Human Services is taking steps to prepare for potential CSR changes, signaling it will issue changes through future rulemaking to account for any decisions around CSR. NASHP will continue to monitor the decisions of state insurance departments as they navigate the continued uncertainty.