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August 7, 2017

Trump threatened to end 'bailouts for insurance companies.' What would that mean for providers?

Daily Briefing

    President Trump has repeatedly threatened to halt payments that reimburse insurers for reducing out-of-pocket costs for low-income enrollees on the Affordable Care Act's (ACA) exchanges.

    Here's what you need to know about the payments and what could happen if Trump halts them.

    What are cost-sharing reductions?

    The ACA requires insurers to give discounts on out-of-pocket costs to individuals with silver-level exchange plans whose household incomes are between 100 percent and 250 percent of the federal poverty level (FPL).

    For example, for someone earning less than 150 percent of FPL, these so-called cost-sharing reductions (CSRs), increase the actuarial value—the average portion of a patient's medical costs covered by a plan—of a silver plan from 70 percent to 94 percent.

    In practice, that results in lower deductibles, coinsurance, copayments, and maximum out-of-pocket costs. In one Ohio plan, for instance, cost-sharing reductions reduce the deductible all the way from $7,150 to $1,250. CSRs benefit about seven million people (representing 58 percent of all exchange enrollees) and are expected to total more than $7 billion in 2017.

    The ACA also calls for the federal government to reimburse insurers for those CSRs, which the executive branch has been doing. But the GOP-controlled House in Nov. 2014 filed a lawsuit stating that the executive branch does not have the constitutional authority to make those payments. Congress hasn't explicitly appropriated any money for CSRs, the House argues, and the Constitution states that "[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."

    A district court ruled that the House has standing to sue and that the executive branch's payments are illegal without a congressional appropriation. The Obama administration appealed the ruling, which has been stayed while the case proceeds, meaning the payments can continue for now. After President Trump took office, an appeals court granted the House's request to put the case—called House v. Price—on hold.

    More on House v. Price

    How could Trump end the payments?

    Up until last week, the Trump administration could have ended the payments by dismissing the appeal of House v. Price, says University of Michigan law professor Nicholas Bagley. But that changed on Tuesday, when a district court granted a motion by 16 attorneys general to intervene and continue to defend the CSR payments even if the administration drops the appeal.

    Now the administration would have to go a different route, Bagley writes: "The administration could simply announce that, after a thorough review, the Justice Department has concluded that no appropriation exists to continue making the payments."

    The next payments are scheduled to be made on Aug. 21.

    (Ultimately, the White House also might be forced to stop the CSR payments months from now if Congress has not appropriated funding and the courts rule the payments are illegal).

    What effects would stopping the payments have on patients and the exchanges?

    The ACA still would require insurers to offer more generous plans with cost-sharing discounts, but the federal government wouldn't be able to reimburse insurers without an explicit appropriation from Congress.

    If the CSR payments stop, some insurers would likely bolt the ACA's exchanges altogether, which could lead some marketplaces to collapse. Insurers that remained would likely increase their premiums; the Kaiser Family Foundation (KFF) estimates that insurers would need to increase silver plan premiums by 19 percent on average to make up for the loss of payments.

    Ending CSR payments would actually increase federal spending by $2.3 billion in 2018, KFF projects, because the government would have to spend more on the ACA's other type of subsidies—premium tax credits—to account for higher premiums.

    Insurers are scheduled to finalize their 2018 exchange rates on Aug. 16 and to make final decisions about participating on the exchanges on Sept. 27. KFF's Larry Levitt says those dates "aren't written in stone. But they can't slip by much without risking a chaotic start to open enrollment," which is scheduled to begin on Nov. 1.

    Several insurers have said their 2018 premiums will be far higher if uncertainty persists about whether they will receive CSR payments. For instance, Blue Cross Blue Shield of Tennessee said that two-thirds of its requested 21 percent premium increase for 2018 was due to CSR payment uncertainty. Other insurers have said they will not participate on certain exchanges in 2018 because of the uncertainty.

    What would stopping the payments mean for providers?

    Here's what Advisory Board expert Yulan Egan told the Daily Briefing:

    "Ending the CSR payments would almost certainly reverse some of the coverage gains on the exchanges, and providers would likely experience an uptick in uncompensated care.

    It is important to keep in mind, however, that exchange enrollees represent only a small portion of the typical health system's patient base. In 2016, only about 4 percent of the U.S. population received coverage on the ACA exchanges, a number far dwarfed by the proportion of the population receiving coverage through Medicare (about 17 percent), Medicaid (about 19 percent), or employer-sponsored insurance (about 47 percent). As a result, ending the CSR payments is unlikely to have a destabilizing or catastrophic impact on most provider organizations.

    However, to the extent that ending the CSR payments reinvigorates the GOP's legislative health reform efforts or generates interest in bipartisan reforms, the move could spur additional actions that would have a more substantial impact on provider organizations. "

    What should health plans do if the payments stop?

    Here's what Advisory Board expert Rachel Sokol told the Daily Briefing:

    "If the CSR payments were to end, many plans would take the safe route and exit the ACA marketplaces.  However, those that stay may be able to benefit from a 'winner-take-all' market if:

    1. They have the time and money to stay in it for the long haul and still survive. Once many plans leave the marketplace, the few who stay would be able to secure more favorable rates from both providers and regulators.

    2. They could market their members to switch tiers. Successful exchange plans built their membership on the 100 to 250 percent FPL population that qualified for CSR subsidies and therefore was less price-sensitive. But as silver plan premiums increase with the loss of CSR payments, some members wouldn't want to stay on the relatively expensive silver plans when bronze plans would be practically free and gold plans could have nearly the same possible out-of-pocket costs as silver plans."

    Who could re-start the payments?

    The courts. Timothy Jost, an emeritus professor at Washington and Lee University School of Law, writes that if the administration halts the payments, "the states—or insurers, or possibly consumers—would be able to sue to require the payments to be made."

    While lawsuits are ongoing, however, Bagley says insurers would "just pass on the costs of the litigation, delay, and uncertainty to their customers."

    Congress. Several Democrats and Republicans have called for Congress to appropriate funding for CSR payments, and Sen. Lamar Alexander (R-Tenn.)—chair of the Health, Education, Labor, and Pensions Committee—on Tuesday called for the passage by mid-September of a bipartisan exchange stabilization package that would include CSR funding.

    However, other GOP lawmakers have objected to providing the funding, which they've argued would amount to propping up the ACA.

    The White House. Theoretically, the administration could re-start payments so long as the courts haven't ruled them illegal, although they would be highly unlikely to do so.

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