Legislation & Regulation

CSR Cuts Bring Unintended Consequences, Prompt State Responses

Can the bipartisan Alexander–Murray bill restore cost-sharing reduction payments and bring some sanity back to the individual market?

Richard Mark Kirkner
Contributing Editor

The Trump administration’s move to eliminate cost-sharing reduction (CSR) payments to insurers to hold down out-of-pocket costs for low-income people who purchase individual health plans on the ACA exchanges could have two unintended consequences. First, the cuts may wind up increasing overall federal spending, and, hence, the deficit, by driving up premium subsidies to cover the higher prices plans are charging to cover the CSRs. Second, instead of discouraging people from buying insurance on the exchanges, those enhanced premium subsidies just might create enough no-premium plans in enough counties to bring buyers back.

Latest chapter

Sara Collins

The idea behind cost-sharing reductions is to bring deductibles down to a level comparable to employee-sponsored insurance, says Sara Collins, vice president of the Commonwealth Fund.

This irony is only the latest chapter in the tortuous history of CSRs. The ACA set them up as a mechanism to reimburse insurers for lowering deductibles and other out-of-pocket costs that people with incomes at 250% or less of the federal poverty rate bear when they purchase silver-level policies on the ACA exchanges. The idea, says Sara Collins, vice president of the Commonwealth Fund, was to bring those deductibles down to a level comparable to employer-sponsored insurance. “What we found in our survey data is that these payments have been extremely effective at lowering peoples’ deductibles to levels that we see actually in employer-based plans at that income level,” she says.

However, in 2014 Republicans in the House took the Obama administration to court for making the payments, and a federal judge last year ruled in their favor. In October of this year, the Trump administration announced a halt to CSR payments for the rest of this year and for next year just as insurers were scrambling to file their rates for next year.

A few days after Trump cut off CSRs, Sen. Lamar Alexander of Tennessee, a moderate Republican, and Sen. Patty Murray of Washington, a Democrat, unveiled their plan to fund the CSRs for 2018 and 2019 and restore $110 million in ACA outreach funding the Trump administration cut. At first Trump praised this brief ray of bipartisan sunshine, but then walked that back.

Without CSRs, premiums are going to go even higher, but so will subsidies that lower-income people get to pay those premiums. And in that ruling in the House lawsuit, the court noted that the ACA mandate for paying the premium tax subsidies was much clearer than that for the CSRs, so short of ACA repeal, the premium subsidies can’t be canceled in the way that the Trump administration has canceled the CSRs.

The Congressional Budget Office found that, by making the CSR payments for 2018 and 2019, the Alexander–Murray legislation would actually reduce the federal deficit by $3.8 billion over the next 10 years. Moreover, said the CBO, not making the CSR payments would increase the deficit by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026.

“It’s much more expensive to do it this way than just by paying the cost-sharing reductions, so it doesn’t make a lot of fiscal sense to proceed this way,” notes Collins. “If one wants to be fiscally conservative, the decision would likely be to make the [CSR] appropriation.”

States have taken steps

Despite the CBO numbers and its bipartisan glow, Alexander–Murray could end up on the legislative ash heap. Sen. Joe Manchin, a West Virginia Democrat, who supports the legislation, told MSNBC, “That bill is teed up and ready to go.” The question is, will McConnell let it get to the floor? And if he does, will the House act on it? Will Trump even sign it?

Many states have taken steps to mend the breach left by the cancellation of CSR payments. Scott Harrington, a University of Pennsylvania Wharton School professor who follows health insurance, says the state responses fall into four categories:

  1. Direct plans to assume that CSRs would continue when calculating and filing their rates for 2018. The District of Columbia, North Dakota, and Vermont have gone this route.
  2. Allow companies to file rates that spread the costs of CSRs among all exchange plans—platinum, gold, silver, and bronze. Five states—Colorado, Delaware, Indiana, Oklahoma, and West Virginia—have taken this approach.
  3. Let insurers factor the cost of the loss of the CSRs into the prices for individual silver plans sold both on and off the exchange.
  4. Limit insurers to factoring the cost of the loss of CSRs only to silver plans sold on the ACA exchanges.

“I think in many cases the states were pretty savvy about how they played this,” Harrington says. “When you load these reduced cost-sharing payments into silver premiums on the exchanges, it increases the amount of premium subsidies that’s available because premium subsidies depend on the second-lowest cost silver plan premium in the market.”

Use it till you lose it

Scott Harrington

There’s a lot of discussion about how many counties are going to be zero-premium counties, says Scott Harrington of the University of Pennsylvania.

Some consumers who buy insurance on the exchanges could benefit and pay nothing for coverage in 2018, Harrington notes. “Once the premium subsidy is determined, you don’t have to buy a silver plan,” he says. “You can buy a low-cost bronze plan, and there’s an increasing discussion of how in many counties throughout the country there are now going to be zero-premium plans because of increased subsidies in these states that loaded the CSR reduction in the silver plan premiums.” That, he says, could even cause an uptick in enrollment that could offset other expected losses in exchange participants. Of course, these bronze plans have high deductibles so they are free only till you start getting medical care.

But while increased premium subsidies will soften the blow for millions, those who don’t qualify for premium subsidies will take the hit, Collins says. “From the consumer’s point of view, they really have to shop around.” The shortened open enrollment period this year (six weeks from November 1 through December 15) along with cuts to the navigator program make the task only more daunting.

Confused consumers

“The secondary implication of this is that consumers are just confused and it just adds to the complexity of the choices that people have this year compared to what it was last year,” Collins says. Yet, in the early days of open enrollment for exchange plans, signups were keeping pace with previous years.

Deep Banerjee, an analyst who follows health insurance for S&P Global, says all the doubts about the ACA may affect medical costs next year. “The person who has the policy is also feeling perhaps uncertainty about the future of this law, so their behavior may be different,” he says. Their utilization of medical services may go up while they have insurance because they’re afraid of losing it, says Banerjee. It is the use-it-before-you-lose-it psychology of insurance coverage.

The way forward

Two things businesses—and maybe all of us— want when planning for the future are predictability and stability. For health plans, the CSR payments have meant anything but.

Canceling of CSRs are “a continuation of things that keep changing with the Affordable Care Act,” says Banerjee. He mentions that the Senate’s 2015 action to roll back risk corridor payments, which covered losses of not-for-profit cooperative health plans set up under the ACA, contributed to that pattern of uncertainty. “It requires insurers who want to stay in the marketplace to keep adapting to the rules that keep changing,” he says. “That is not a very welcoming environment for the insurance company.”

But hope springs eternal even as we are headed into winter and when the political climate has gone haywire. “Network design changes, which really can be formative in nature, and pricing changes, which health plans have to continually make naturally, make us think there is a path forward,” Banerjee says.

That path forward would be a lot easier to see with predictable CSRs.

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