Budget Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

The President Released the Administration’s Annual Budget Today

I haven’t had a chance to dig into the President’s Budget – because I was busy writing the below update all day.
- Analysis: But here are 3 points that I will elaborate on next week once I have wrapped my head around what the Administration is proposing:

- - Funding for the ACA’s “risk corridor” program: As you may recall, payments from insurance carriers into the ACA’s “risk corridor” program were NO WHERE close to covering the “risk corridor” payments the carriers were requesting (for example, the program could only pay 13 cents on the dollar). Congress later tied the previous Administration’s hands by including language in enacted legislation prohibiting HHS from using money from “other accounts” within the Department to make-up for the unpaid “risk corridor” payments. These unfunded liabilities led to litigation to compel funding from the government and/or settlements from the Federal government’s Judgement Fund. BUT – after all of that – it now appears that the Trump Administration is open to funding the unpaid “risk corridor” payments? Again, I want to wrap my head around this to make sure I am right, but I wanted to let you know, as news stories will be covering this development in the days to come.
  - Funding for the cost-sharing subsidies: As I indicate below, my bearish outlook on cost-sharing subsidies is fading due to increased calls for funding the cost-sharing subsidies among Congressional Leaders. Add to this the Trump Administration’s position on the matter – the President’s Budget includes funding for the cost-sharing subsidies for what appears to be 2 years.
  - Graham–Cassidy “repeal-replace”: There appears to be a place-holder for the Graham-Cassidy bill, which would re-allocate all of the Federal spending under the ACA directly to the States in the form of block grants. Last week, I explained to you that I do NOT foresee Republicans pursuing ACA “repeal-replace” in 2018, even through Graham-Cassidy. I still stand by that statement. BUT, you can never-say-never in this town, and the Administration is making sure there is a spending-window available if the stars-align for Republicans.

A word of caution before you get too excited about these proposals: President’s Budgets NEVER go anywhere. Congress is going to do its own thing when it comes to spending priorities. BUT, the President’s Budget is helpful because it gives stakeholders a sense of the Administration’s position on things. For example, I personally was surprised to see funding for the “risk corridor” payments. I wasn’t so surprised to see funding for the cost-sharing subsidies (which I will talk more about below), and I certainly wasn’t surprised to see the Graham-Cassidy ACA repeal-replace “block grant” placeholder in the President’s Budget. More later next week.

“Market Stabilization” Update

Senate Democrats Want To Increase the ACA’s Premium Subsidies

According to Congressional staff, Sen. Murray (D-WA) wants to increase the ACA’s premium subsidy amounts in the Alexander-Murray “market stabilization” deal.
- Analysis: When it comes to “market stabilization,” this is a new “ask.” But to me, it is not surprising to hear. Why? Because Democrats now understand that by funding the “cost-sharing” reduction subsidies, they will effectively reduce the higher premium subsidy amounts Exchange consumers enjoyed for 2018. And, the last thing Democrats want to do is to “take-away” dollars that these Exchange plan-holders are effectively benefiting from. As I have explained a million times, the higher premium subsidy amounts resulted from insurance carriers shifting the unfunded cost-sharing liabilities onto the “silver” Exchange plans only. And so it goes…if insurance carriers end this “silver loading” practice – because Congress decides to fund the cost-sharing subsidies – the premium subsidy amounts will effectively go down. Which means, most consumers would NO longer be able to find free “bronze” coverage or access to no-additional-cost “gold” coverage. Senate Democrats do not view this as a good thing. As a result, it appears to me that Senate Democrats want to increase the premium subsidy amounts so current Exchange plan-holders are held harmless by any decision to fund the cost-sharing subsidies for future years. What I find most interesting about all of this is the following: News reports indicate that Democrats are seeking to increase the premium subsidies “to offset Republican premium increases.” Ummmm, I suppose Congressional staff does not understand the way the ACA currently works. According to the ACA, any premium increases experienced by Exchange plan-holders are NOT paid by the plan-holder him- or herself. Instead, premium increases are absorbed by the premium subsidy, NOT the consumer. In other words, there is a corresponding relationship between premium increases and the premium subsidy amounts. The greater the premium increase, the higher the premium subsidy amount. Sooo, you are NOT going to “protect” a subsidized consumer from premium increases by plusing up the premium subsidies (because – by operation of law – the premium subsidies already protects the consumer). I say all of that with a chuckle because to me, the “political rhetoric” is obvious (because staff is getting it wrong). Look, if Democrats explained that they wanted to increase the premium subsidy amounts so they could allow current Exchange plan-holders to continue to purchase free “bronze” coverage or access to no-additional-cost “gold” coverage, I would have NO problem with that because – at the end of the day – this is why you would want to increase the premium subsidy amounts (in the wake of deciding to fund the cost-sharing subsidies). Actually, Democrats should “message” that “the evil Republicans are taking away people’s benefits by refusing to increase the premium subsidies.” This “political rhetoric” at least gets it right. This is going to be an interesting issue to follow as the debate over “market stabilization” heats up.

Reinsurance and Funding for the Cost-Sharing Subsidies

As you know, I have been bullish on Federal reinsurance funds being included in an “omnibus” spending bill (which we should see in the coming weeks). I am still “bullish.” When it comes to funding the cost-sharing subsidies, however, I have been pretty bearish on this happening. But, I am starting to change my tune as I keep hearing that both Republicans and Democrats are supportive of funding the cost-sharing subsidies in the upcoming omnibus bill.
- Analysis: Why would Republicans want to fund the cost-sharing subsidies? The “practical” reason is because funding the cost-sharing subsidies would “reduce costs for the taxpayers.” What I mean here is this: Because the premium subsidy amounts went up (as a result of cancelling the cost-sharing subsidy payments), so too did government spending (in the form of higher premium subsidy payments). For example, the Congressional Budget Office (CBO) estimated that cancelling the cost-sharing subsidies would cost the government $194 billion over 10 years. So, if Republicans can fund the cost-sharing subsidies – even only for 2 years – costs will go DOWN for the taxpayer. The “political” reason Republicans want to fund the cost-sharing subsidies is so they can say they are “reducing premiums” for individual market plan-holders. The curious part about this statement – which I will call “political rhetoric” – is that the only people whose premiums might go down by funding the cost-sharing subsidies are people in the UN-subsidized market (i.e., those purchasing a plan OUTSIDE of the Exchange). BUT, the problem with this is that most if not all consumers in the UN-subsidized market did NOT see their premiums go up on account of cancelling the cost-sharing subsidy payments (because the “silver loading” practice shielded these UN-subsidized consumers from premium increases). So, if the premiums for UN-subsidized consumers did NOT go up, you are NOT going to reduce their premiums by funding the cost-sharing subsidies are you? Soooo, saying that you are funding the cost-sharing subsidies to “reduce premiums” is not correct. And funding the cost-sharing subsidies to reduce the premiums for subsidized consumers is also not accurate, because – as stated above – these consumers never felt the brunt of the unfunded cost-sharing liabilities in first place (because the premium subsidies absorbed the premium increases, NOT the subsidized consumers). Why would Democrats want to fund the cost-sharing subsidies? Well, for about 3 years, Democrats have been beating Republicans over the head, berating them that they should appropriate the necessary funds for the cost-sharing subsidies. Democrats even developed a “narrative” that was spread far-and-wide, asserting that if President Trump cancelled the cost-sharing subsidy payments, the markets “would crater.” As we all know, that did NOT happen. BUT, Democrats want to be consistent on their insistence on funding the cost-sharing subsidy payments, despite their recent realization that funding the cost-sharing subsidies would disadvantage existing Exchange plan-holders. Democrats also want the “political” talking point that they are “reducing premiums.” But – as discussed above – I believe this “political” talking point is mis-placed. BUT, I don’t think that is going to stop Democrats – or Republicans – from continuing to make this claim. Last comment: 2 weeks ago I mentioned that CBO will be releasing updated “budget” numbers soon (see attached update). There is speculation that CBO’s updated assumptions may find that funding the cost-sharing subsidies actually produces “savings” to the government. What I also told you 2 weeks ago was this: If there is indeed some sort of savings from funding the cost-sharing subsidies, Republicans and Democrats will likely want to use that new-found money to pay for Federal funds for a reinsurance program or “invisible high-risk pool.” So, another reason to fund the cost-sharing subsidies – for both Republicans AND Democrats – is the ability to use any savings, should CBO actually find some savings in the agency’s updated numbers. But to me, here is a new twist: Republicans will say that they want to use the “savings” to pay for reinsurance/“invisible high-risk pool” funds. BUT, Democrats will likely say that they want to use the “savings” to increase the premium subsidy amounts (which now seems to be a Democratic priority). Soooo, expect a BIG fight over how to use the “savings” produced from funding the cost-sharing subsidies. However, this fight will only ensue if CBO assumes that there will be “savings” (which is not a guarantee at this point because it is likely that Republicans will have to direct CBO to assume the “savings,” and such a direction is already being cast as a “budget gimmick” to “bailout” the insurance carriers). Stay tuned.

ACA Exchange Update

Independent Studies Find that Close to 11.8 Million Americans “Signed Up” for an Exchange Plan Through BOTH the Federal Exchange and State-Based Exchanges

Independent studies are claiming that there were about 11.8 million Exchange “sign ups” during the 2018 “open enrollment” period. That is down 3% compared to 2017 when 12.2 million people “signed up.”
- Analysis: Larry Levitt – the head of Kaiser Family Foundation – was quoted as saying: “If you had asked me a year ago whether enrollment for 2018 would be almost equal to 2017, I would have laughed at you.” But WHY?? You do not need to be an economist or a policy expert like Larry Levitt to understand that as long as the premium subsidies are flowing, people are going to sign up for coverage. And, for 2018, the premium subsidies were uninterrupted. Actually, the premium subsidy amounts were higher than year’s past. I also think that this whole claim that the Administration “sabotaged” the Exchange markets is over-blown. Why? As I mentioned in the past, the Obama Administration first decided to shorten the “open enrollment” period effective for the 2019 “open enrollment” period. The Trump Administration merely moved that policy change up to 2018. And, it was the insurance carriers who were asking for the shortened “open enrollment” (because the carriers were concerned about adverse selection due to a longer “open enrollment” period, and there was interest in aligning the Exchange “open enrollment” period with Medicare’s “open enrollment” period). So, it was not a political decision per se. Interestingly, I would NOT be surprised if in the next Notice of Benefit and Payment Parameters, the Trump HHS extends the “open enrollment” period to say Jan. 15^th. I could see this change being made considering the majority of the State-based Exchanges extended their “open enrollment” deadline past Dec. 15^th, and “sign ups” for the majority of the State-based Exchanges exceeded the level of “sign ups” for the Federal Exchange. We’ll keep a look out for this change. When it comes to funding for marketing and enrollment outreach, you know where I stand on this. To me, there was no “bang-for-your-buck” on the dollars spent – and the volume of enrollment produced – during the previous Administration. When you see statistics like $200,000 of “outreach enrollment” dollars were spent to enroll 1 consumer, you know there is a problem. Also, there was a desire among Trump Administration officials to re-allocate marketing and outreach funds to enrollment efforts performed by “agents and brokers.” For example, there is a desire within the Trump HHS to get the “enhanced direct enrollment” pathway up-and-running for the 2019 “open enrollment” period. From what I think I know, HHS is still on track to put the “enhanced direct enrollment” system in place by Nov. 1, 2018 (the start of the 2019 “open enrollment” period). We’ll also keep watching for this. Yes, I get that President Trump called the ACA “a disaster” – and the President claimed that the ACA was “dead” – and I get that this type of rhetoric led many experts (like Larry Levitt) to believe that Exchange enrollment would lackluster this year. But, the irony is that more consumers learned about the ACA over the past year than they learned about the ACA in prior years. This “learning” phenomenon was also driven by Congressional Republican “repeal and replace” efforts. And yes, I get that the continued controversy over funding the cost-sharing subsidies – along with the ultimate decision to cancel the cost-sharing subsidies – called into question the stability of the markets, and by extension the level of Exchange enrollment this year. BUT, because the premium subsidies were higher for 2018 – due to the decision to cancel the cost-sharing subsidies – I truly believe that this phenomenon drove a good chunk of Exchange “sign ups” this year, especially among “new enrollees,” which was higher this year relative to last year. As stated previously, once people hear that there is a “good deal” out there, people are going to vote-with-their-feet (because it is in their economic best interest to do so). We’ll just have to wait and see how next year plays out if and when the cost-sharing subsidies are actually funded (because the premium subsidies will be lower for 2019). Last comment: These independent reports indicate that State-based Exchange enrollment remained flat, or even increased, while “sign ups” through the Federal Exchange fell by about 5%. I fully expect critics of the Trump Administration to argue that the 5% drop was due in large part to the significant reduction in funds for marketing and enrollment outreach. And, these critics may similarly argue that the reason the State-based Exchanges did so well is because they spent time and resources on marketing and outreach efforts. Maybe these are accurate claims. But I will note, California – which spent the most out of any State (and the Federal Exchange) on marketing and outreach – saw about a 2% decline in their enrollment this year. Yes, this 2% decline may be due to existing Exchange plan-holders getting a job, but it also shows that marketing and outreach is not the “special sauce” for getting people to “sign up.”

We Could See Regulations on Short-Term Health Plans This Week

Most were expecting final regulations expanding short-term health plans to be released this past Friday. But, that didn’t happen. So, most folks are expecting we will see these regs some time this week. We’ll see…
- Analysis: BTW, I am not a big fan of short-term health plans. But, let me put that comment into context. I support the availability of short-term health plans (e.g., plans that last more than just 3 months, but less than 12 months), because I believe people should have “choice,” and the option to find a type of health coverage that best fits their needs. BUT, I would like to see people enroll in more comprehensive coverage like, for example, “association health plan” coverage. Irrespective of where I personally come down on short-term health plans, here is something I have been wanting to write about for a while. And now seems to be a good time to start a dialogue on this:

- - Some stakeholders oppose policy changes to the ACA and/or changes to the current insurance regulatory environment, contending that making any such changes will result in the ACA Exchange markets becoming a “de-facto high-risk pool.” My response is this: Aren’t we already there? What I mean is, aren’t the Exchange markets already a de-facto high-risk pool? My answer: YES. After all, we know that the existing Exchange markets are “unbalanced.” In other words, there are many more older, less healthy people who make up the markets, and too few younger/healthier lives. We also know that the Exchange markets skew toward lower income Americans, and while I am not trying to stereotype, industry experts on both sides of the political aisle will tell you that lower income individuals tend to be high medial utilizers. Add in the fact that there are generous government subsidies available in the Exchange markets. Which means, the government is heavily subsidizing people’s coverage. Which is what a high-risk pool essentially does! So I say to those stakeholders who oppose AHPs – or more specifically short-term health plans – due to their fear that these new arrangements might “segment” the market: Personally, I think it is okay that the Exchange markets are a de-facto high-risk pool. Because – at least as of now – the Exchange markets are stable, because – as stated – as long as the generous premium subsidies are flowing, 8 to 10 million people are going to purchase a health plan through the Exchanges. To me, where we have to be concerned is if and when the government spending for the generous subsidies becomes unsustainable. An argument can be made that we aren’t quite there yet, although we are close. If the Exchange markets deteriorate for one reason or another, then we might have to worry about the fact that the Exchange markets are a de-facto high risk pool. How might the Exchange markets deteriorate? In my opinion, the Exchange markets will deteriorate if the healthy lives currently enrolled in a health plan in the UN-subsidized individual market exit the market. This is because the lives in the UN-subsidized market are currently pooled together with the lives in the subsidized market (on account of the ACA’s “single risk pool” requirement). Unfortunately, we do NOT know how many healthy lives exist in the UN-subsidized market. For all we know, there may NOT be enough healthy lives in the UN-subsidized market to have a material impact on the Exchange market if these healthy lives actually exited. My current thinking is this: I do NOT believe that there is a significant number of healthy lives in the UN-subsidized market to begin with. So – in my opinion – I do not see the Exchange markets deteriorating any time soon because even if some healthy lives exited the UN-subsidized market – because they shifted to AHP or short-term health plan coverage – their exit would NOT have a material impact on the premiums in the Exchange market (which at the end of the day, determine the amount of the premium subsidies, and thus the amount of government spending). So back to my de-facto high-risk pool point. Again, I think it is okay that the Exchange markets are more or less a de-facto high-risk pool. And, I think policy changes intended to help consumers in the UN-subsidized market – for example, the availability of AHP and short-term health plan coverage – should NOT be discarded for fear of the Exchanges becoming a de-facto high-risk pool. Because the people who REALLY need the help are the people in the UN-subsidized market.