Cost-Sharing Subsidy Update
Cost-Sharing Subsidy Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- I once again feel vindicated. As you know, back in August, I highlighted what the Congressional Budget Office (CBO) said in its report analyzing the impact of the decision to cancel the cost-sharing subsidies. More recently, I highlighted how California required its insurance carriers to shift the unfunded cost-sharing liabilities onto the “silver” Exchange plans only. And – based on CBO’s conclusions and California’s actions – I suggested that Exchange planholders may actually be better off in the end. So, what did the judge say last Wednesday? “California is doing a really good job in responding to the termination of [the cost-sharing subsidy] payments in way that is avoiding harm for people and actually benefiting people.” It was reported that the judge even read the California Exchange’s press release (which I highlighted in my update from a couple weeks back, and is attached).
- Analysis: My wife told me that I have to be careful when pointing back to stuff I said on this. I agree. No one likes it when someone pats-themselves-on-the-back for past things they have said. I know I don’t. But here’s the thing: While it may seem like I am doing just that, please know that I am NOT. To be honest, the reason I consistently keep hitting on these points is this: Most of the news articles that discussed the cancellation of the cost-sharing subsidies quoted stakeholders saying things like “this decision will destabilize the market,” and the articles essentially painted a picture of “doom and gloom.” And in most of these articles, there was NO contrasting view highlighting, for example, the CBO report. Actually, the only references to the CBO report was to point out that premiums would go up by 20% and the deficit would increase by $194 billion over 10 years. Those points are true, so I have no qualms with them being made. But my problem lies with the fact that CBO’s points (1) that the Exchange markets could actually improve in the long-run and (2) that consumers will generally be held harmless was nowhere to be found in these news articles. Which is why I was so happy to see the judge connect-the-dots here, and declare that – in his opinion – most consumers would not be harmed and they would be better off by the decision to cancel the payments. Make no mistake, I am not happy that the decision to cancel the payments was actually made. As stated previously, I would NOT have recommended it. I am just glad that – CBO’s conclusions and California’s actions – are finally getting the air-time that I believe they deserve. I also remain fixated on this for the following reason: If CBO and the judge are correct – that most consumers would NOT be harmed by the decision to cancel the payments – how will this realization impact support for the Alexander-Murray bi-partisan “market stabilization” package”? After all, no one would have expected that the Exchange markets might actually be better off if the cost-sharing subsidies were cancelled. That’s because we all heard the constant drum-beat that “bad things will happen if the payments are cancelled.” So here is my question: Will Congressional Democrats actually say to themselves, “Hey, we’ve been wanting to improve the Exchange markets by increasing the premium subsidy amounts for a couple of years now. In a strange twist-of-fate, now is our chance to do just that. And as an added bonus, we can beat President Trump over the head with the political argument that he continues to sabotage the markets.” Win-Win. And, if you are a Congressional Republican, well, you really are in a pickle now. On the one hand, you DO want to fund the cost-sharing subsidies because you do NOT want to increase the deficit by $194 billion over 10 years. And, you DO want to fund the cost-sharing subsidies because you also do NOT want to give Democrats a “win.” But on the other hand, if you DO fund the cost-sharing payments so as to negate the $194 billion increase – and also snatch away a potential “win” for the Democrats – guess what you are doing? You are “bailing out the insurance carriers.” And to add more salt to the wound, you are bailing the carriers out with NO substantive changes to the ACA. Lose-Lose. The bottom-line is this: Because the judge last Wednesday found that cancelling the cost-sharing subsidies would actually benefit most consumers, that decision will NO DOUBT have an impact on how BOTH Congressional Democrats and Republicans view the Alexander-Murray bill. Will the judge’s decision erode support for funding the cost-sharing payments, thereby calling into question whether the Alexander-Murray can get enacted? It should, right?!? But maybe it won’t because at the end of the day, while most consumers might be better off without the cost-sharing payments, the politics of funding the payments – and claiming that Congress “finally did something to reduce premiums” – are the optics that Republicans and Democrats will prefer.
ACA “Repair” Update
- Here is another issue that might impact the fate of the Alexander-Murray bill: This past Monday, Iowa withdrew its ACA Section 1332 request. I don’t want to go into the details of “why” Iowa decided to withdraw its Waiver request, but I do want to highlight one of Iowa’s suggested changes to the ACA. In short, Iowa was going to eliminate the cost-sharing subsidies, and re-allocate that money to the premium subsidies (e.g., plusing up the premium subsidy amounts for younger individuals, and offering a subsidy to people no matter their income). Iowa, however, was still going to provide some sort of assistance for out-of-pocket costs for individuals between 100% and 200% of the Federal Poverty Level (FPL). But, people between 200% and 250% of FPL would not get any help (which is a departure from the ACA because the cost-sharing subsidies are available to people between 200% and 250% of FPL).
- Analysis: Why is this important? Because the Alexander-Murray bill modified the “affordability guardrail” in Section 1332. I – along with others – have argued that the modified language does NOT represent a material change to the “guardrail” (see my attached update from last week). But, what the modified language seems to do is this: Allow HHS to approve Iowa’s 1332 Waiver. Actually, a strong argument can be made that the ONLY reason why the “affordability guardrail” was modified in the first place, was so Iowa could get its Waiver approved. So what happens now that Iowa has withdrawn its Waiver request? Does Iowa’s withdrawal render the Alexander-Murray bill moot? Note, if Alexander-Murray becomes law – along with the change to the “affordability guardrail” – Iowa could re-submit their 1332 Waiver request with a similar change to the ACA’s cost-sharing and premium subsidy structures. And, other Republican States could submit “me too” Waivers and get them approved on an expedited basis. BUT, it seems to me that if the ONLY reason why the “affordability guardrail” was modified was to help Iowa – and now that Iowa no longer has a 1332 Waiver request pending – does the modification to the “affordability guardrail” provide any value for Republicans? As I have explained, Republicans already believe that Alexander-Murray did NOT go far enough when it comes to Section 1332 modifications. And now, if Republicans are NO longer in a position to help out Iowa, why would they support the Alexander-Murray bill? Make no mistake, I believe there are some good things in the Alexander-Murray bill (e.g., allowing 1332 Waivers to be budget neutral over the 6-year life of the Waiver as opposed to achieving budget neutrality on a year-by-year basis, and also allowing individuals of all ages to purchase an ACA-defined “catastrophic” plan (referred to as “copper” plans)). But, as stated above, if by NOT funding the cost-sharing subsidies, consumers would better off – and if there is NO longer a material reason to modify the “affordability guardrail” – is there any reason for both Democrats and Republicans to vote yes on the Alexander-Murray bill?
- Note, I have NOT heard any members of Congress make any of the above points, so I would argue that the Alexander-Murray bill still has steam behind it. And also, I think the optics of funding for the cost-sharing subsidies – so BOTH Republicans and Democrats can say they did something to reduce premiums – will keep the Alexander-Murray bill front-and-center. But at the end of the day, when we get to December – and Republicans and Democrats decide to include funding for the cost-sharing subsidies in the end-of-year legislative package – I do NOT think that the rest of Alexander-Murray makes its way into that omnibus bill. That’s because Congressional Republicans will likely demand changes like the changes suggested in an alternative “market stabilization” bill that Chairmen of the tax-writing Committee – Sen. Hatch (R-UT), Chair of the Senate Finance Committee and Cong. Brady (R-TX), Chair of the Ways and Means Committee – just introduced.
- Analysis: Like the Alexander-Murray bill, the legislation would also fund the cost-sharing subsidies for 2 years. BUT, unlike Alexander-Murray, the legislation would (1) suspend the penalties for the “individual” mandate for 5 years; (2) waive the “employer mandate” penalties for 2015, 2016, and 2017; and (3) increase the HSA contribution limits to equal the out-of-pocket maximum limit. No changes to ACA Section 1332 and no “copper” plans. Interestingly, days before this bill was introduced, the White House released its ideas on how to “stabilize” the individual market. And, the ideas that were advanced were similar to what we see in the Hatch-Brady bill. These ideas are also similar to what Sen. Johnson (R-WI) suggested should be included in the Alexander-Murray bill when the bi-partisan package was first released. So, if you connect-the-dots here: (1) you have the White House, (2) you have a conservative member of the Senate (i.e., Sen. Johnson), and (3) you have the Chairmen of the powerful tax-writing Committees all talking about similar ideas. Which to me means this: Come December – when Republicans and Democrats are negotiating over what provisions should be included in an end-of-year legislative package – the ideas enumerated above will NO DOUBT be on list of Republican “asks.” I actually think they will supplant the “stabilization” provisions included in the Alexander-Murray bill. Will these ideas become law? Certainly not all of them. There is NO way Democrats agree to suspend the individual mandate penalties. And, because increasing the HSA contribution limits has always been a Republican “ask,” I don’t think Democrats want to give Republicans a “win,” so they are a NO on this. There is – in my opinion – a chance that waiving the penalties for the employer mandate finds its way into the law. After all, even Democrats agree that the employer mandate doesn’t have a huge impact on insurance coverage and the ACA’s consumer protections for less healthy people (provisions that are sacrosanct for the Democrats). And, Democrats are sympathetic to the fact that small and large employers continue to struggle with the administrative burdens of complying with the employer mandate. So the question is: Will funding the cost-sharing subsidies and waiving the employer mandate penalties be enough for Republicans? Because there ain’t no way that Democrats are going to agree to alternative modifications to the 1332 “guardrails” (like modifications to the “Federal EHB guardrail”). Which means, Republicans may be resigned to agreeing to waive the employer mandate penalties in exchange for funding the cost-sharing subsidies. We’ll just have to wait and see.
- Maybe talking about the CBO score of the Alexander-Murray bill is not worthwhile based on my comments above. But, the fact that the Alexander-Murray package reduces the deficit by $3.8 billion dollars over 10 years boosts the bill’s appeal among both Democrats and Republicans.
- Analysis: So what did CBO say about the Alexander-Murray bill? When it comes to the modifications to ACA Section 1332, CBO said that the proposed changes will have NO significant budgetary effect. CBO actually referred to the proposed 1332 changes as “mainly procedural,” feeding the argument that the Alexander-Murray bill does NOT make substantive changes to Section 1332, something Republicans very much want. When it comes to funding the cost-sharing subsidies, this is where CBO finds most of the savings/tax revenue, which ultimately reduces the deficit by about $3 billion. First and foremost though, CBO assumes that the cost-sharing subsidies are already paid for, so CBO does NOT “score” the funding of the payments as a cost to the government. This is because CBO views the cost-sharing subsidies as an “entitlement,” and CBO always assumes that entitlements are always fully funded. This differs from the opinions of judges who have looked at this issue. For example, the judge from last week’s cost-sharing subsidy case actually said that – based on his read of the statute – there is NO standing “appropriation” for the cost-sharing subsidies. This is how another judge previously ruled in the ongoing litigation over the cost-sharing subsidy payments. So now we have 2 courts of law finding that there is NO Congressional “appropriation” for the subsidies. Again, that differs from CBO’s interpretation, and also the Senate Parliamentarian. Then where does the savings/revenue come from? Answer: From the language that prevents double payments for those insurance carriers that built the unfunded cost-sharing subsidy liabilities into their premiums. Huh?!? In short, to deal with this double payment phenomenon, the Alexander-Murray bill (1) requires those insurance carriers that already “loaded” their “silver” Exchange plans with the unfunded cost-sharing subsidy liabilities (2) to “rebate” the cost-sharing payments back to consumers, or to the Federal government. In this case, CBO estimates that insurance carriers would pay the Federal government about $3 billion in rebates. Last point: CBO estimates that the introduction of the “copper” plans would save $1.1 billion because CBO assumes that more young and healthy individuals will enter the risk pool, thereby lowering premiums for everyone in the individual market. To me, this “copper” plan issue is an interesting one. Why? Because the provision – as drafted – requires these “copper” plans to be a part of the same risk pool as all of the other ACA-compliant individual market plans. Why is this important? Because first, the existing ACA-defined “catastrophic” plans have their own risk pool (i.e., they are NOT a part of the larger individual market risk pool). And in my opinion, this has adversely affected the current ACA individual markets. Which is why policymakers have wanted to bring into the broader market the health risks that would be purchasing a catastrophic-like plan. BUT, in the past, the insurance carriers fought tooth-and-nail to keep the ACA-defined “catastrophic” plans – now the “copper” plans – out of the broader risk pool. Why? Because the carriers said it would be too hard to pool the health risks of individuals covered by different health plans. But guess what? I do NOT hear the carriers screaming over the Alexander-Murray bill, and its proposal to include catastrophic-like plans in the same risk pool as all ACA-compliant individual market plans. Maybe the carriers have finally figured out how to pool all of these risks together. Or, maybe the carriers determined that this is actually not as big of an issue as originally thought. Or, maybe the carriers want the certainty of the cost-sharing payments so badly that they are willing to over-look their aversion to this single risk pool concept.
- Late Friday, HHS issued its proposed 2019 Notice of Benefit and Payment Parameters (NBPP). I unfortunately have not had a chance to dig into the regs. I hope to do that soon, and provide you with more detail. But there is 1 issue that I did want to discuss because it is getting a lot media attention. And that issue is: The proposed changes to the “essential health benefits” (EHB) requirement. I will also mention 3 additional proposals today, and hopefully provide you with more detail on the majority of the proposed regs next week.
- Analysis: Changes to the EHBs – In the past, when I have been asked how HHS could modify the EHBs through regulations, I have always said that the Department CANNOT change the list of the 10 medical services that are set forth in the statute. You would need an act of Congress to change what’s on that “list.” BUT, the statute gives HHS broad authority to further define the EHBs. The only constraint is that HHS must “ensure that the scope of the EHBs is equal to the scope of benefits provided under a typical employer plan.” The Obama Administration did not specifically act on the authority that the statute provided. Instead, the Obama HHS kicked much of the responsibility of further defining the EHBs to the States, and allowing each State to build its own “EHB-benchmark” plan. Contrary to Congressional intent, HHS also allowed the States to include their own benefit mandates that were on the books as of Dec. 31, 2011 into their EHB-benchmark plans. Based on this history, I have further explained that if the Trump HHS wanted to, the Department could further define what “categories” of services would fall underneath the umbrella of each of the EHBs. For example, HHS could say that under “mental health and substance abuse disorder” EHB, that only certain visits to specified doctors for only a defined set of ailments would be covered as an EHB. Same with the “prescription drug” EHB. That is, only certain drugs could fall under the umbrella of the “prescription drug” EHB. Actually, the Obama HHS did take steps to attempt to define what types of drugs would be covered under this EHB. The point I am trying to make here is that the Trump HHS could be more prescriptive if they wanted to. Well, it does NOT appear that the Trump HHS decided to take on the challenge of defining what “categories” of a particular EHB would be covered. BUT, the Trump HHS does allow a State to examine what other State EHB-benchmark plans cover as “categories” of a particular EHB, and adopt that coverage “category” in their State. More specifically, a State could replace one or more of their EHB “categories” with EHB “categories” of another State. For example, a State could choose a “prescription drug” category that covers fewer drugs (or even more drugs), or the State could choose the “categories” under the “mental health and substance abuse disorder” EHB that differs from their current “categories” under that particular EHB. States could also select the entirety of another State’s EHB-benchmark plan, or the State can do nothing and stick with its existing EHB-benchmark plan. This new proposal is being characterized as giving States the ability to loosen up the EHBs. To an extent, I would agree with this statement. For example, if a State has an overly comprehensive EHB-benchmark plan, the State can choose a less comprehensive EHB-benchmark plan that is offered in another State (or less comprehensive “categories” under a particular EHB). But what is most important here is this: States CANNOT change the statutory list of the 10 medical services which serve as the Federal EHB standard. And also note, States could strengthen their EHB-benchmark plan too by adopting a benchmark plan that is more comprehensive than their own plan (or adopting more comprehensive “categories” under a particular EHB). It’s a two-way street. Not just a one-way street to less comprehensive benefits.
“Standardized Plan Options and VBID/HSA-Eligible HDHPs – Two other noteworthy proposals include: The Trump HHS is doing away with the “standardized” plan options. As you may recall, the “standardized” plan options – while intended to help consumers better understand the design of a particular health plan – was cast by insurance carriers as stifling innovation. In addition, the “standardized” plan options were viewed as limiting the ability to enroll in an HSA-eligible high-deductible plan (HDHP). So again, HHS proposed to eliminate the “standardized” plan options. At the same time, HHS is actually interested in hearing from the public on ways the Department can promote HSA-eligible HDHPs by (1) encouraging insurance carriers to offer an HDHP that is already paired with an HSA and (2) prominently displaying HSA-eligible HDHPs on Healthcare.gov. This emphasis on HSA-eligible HDHPs – and offerings of HDHPs paired with an HSA – is more-or-less a 180 degree shift from the previous Administration. HHS also wants to hear from the public on how to encourage value-based insurance designs (VBID) in the individual and small group markets.
The Medical Loss Ratio (MLR) Rules – The third noteworthy proposal: HHS proposed to loosen up the MLR rules. In short, if a State feels that it needs to provide its carriers more flexibility as a way to help “stabilize” its markets, the State can set their MLR thresholds at a percentage that is less than the statutory 80% MLR threshold. Most policy analysts have been awaiting HHS regulations that would provide more flexibility under the MLR rules. It appears this proposal is the flexibility we have all been looking out for.