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Market Stabilization Update

Market Stabilization Update

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

Reinsurance, Reinsurance, Reinsurance

  • Last week, a reporter asked me:  What changes are needed to lower premiums now that the “individual mandate” has been repealed?
    • Analysis:  My response:
      • First and foremost, Federal funds for States to set up a reinsurance program or “invisible high risk pool.”  The funds have to be enough to have a material impact on premiums.  If enough money, then a material impact for sure.
      • Second, some regulatory changes like codifying the pre-verification for “special enrollment periods” (SEPs), modifying the “grace period” for unpaid premiums from 90 days to 30 days, modifying the Medical Loss Ratio (MLR) rules, and other things like prohibiting third-party premium payments on behalf of Exchange plan-holders and changing the premium rating age bands to 5-to-1.
      • Third, do NOT fund the cost-sharing subsidies.  Yes, carriers want it to happen, but the premium subsidy amounts are now higher as a result of the cancellation of the cost-sharing payments.  This means that Exchange plan-holders’ subsidy dollars can now go a lot further than before.  So in this case, you are not reducing premiums by NOT funding the cost-sharing subsidies, you are making subsidized Exchange plans more affordable (which arguably has the same effect as lowering premiums), and people are benefiting from that.  In my opinion, a significant driver behind the better than expected Exchange enrollment numbers is the higher premium subsidy amounts.  After all, the California Exchange reported new enrollees are up 7%, and enrollment through the Federal Exchange has more new enrollees this time around.  Funding the cost-sharing subsidies will reduce the premiums subsidies, and I think consumers will be pissed once they realize what happened.

Let me start by talking about my first and second responses in the below bullet points, and then I will discuss my third response in the following post:

      • Federal Funds for Reinsurance/“Invisible High-Risk Pool”:  When it comes to Federal funds for States to set up a reinsurance program or “invisible high-risk pool,” I continue to be bullish (about 90%) on funds being made available.  I expect the Federal funds will be made available in (1) the upcoming Feb. 8th spending bill (should that bill include more than just funding for the government) or (2) an “omnibus” spending bill that most analysts believe will follow the Feb. 8th spending bill (because the Feb. 8th bill is only expected to include funding for the government). Now that we have established that Federal funds for reinsurance or an “invisible high-risk pool” are likely, the BIG question is how to get the money to the States.  Sen. Collins (R-ME) and her reinsurance legislation seems to envision States accessing the Federal funds through a waiver process – most likely through a Section 1332 Waiver.  To me, accessing reinsurance/“invisible high-risk pool” funds through a 1332 Waiver makes sense because States can include “other” changes to the ACA through a 1332 Waiver.  BUT, if States are ONLY going to request reinsurance/“invisible high-risk pool” funds through a 1332 Waiver (and no “other” changes to the ACA), then to me, it is almost a “waste” to run the money through a 1332 Waiver.  Why?  Because the 1332 Waiver process takes times, and the bureaucratic red-tape will only slow-down receipt of the Federal funds. Which seems to be why House Republicans are suggesting that the Federal funds for reinsurance/“invisible high-risk pool” should be provided through a “direct appropriation,” which would arguably get the money into the States’ hands much quicker.  Only time will tell whether the 1332 Waiver approach – or the direct appropriation approach – will carry the day.  Again, I see merit in both approaches, although I favor the 1332 Waiver approach because I would hope that States would try to do more than just request the reinsurance/“invisible high-risk pool” funds.  Stay tuned.
      • ACA Regulatory Changes:  As you may recall, dating all the way back to Jan. 2017, I was suggesting that Republicans should take steps to improve the current regulatory environment in the ACA’s “individual” market (see my 2nd post in the attached update).  The Trump Administration actually took small steps toward improving the regulatory requirement through regulations issued back in the 1st Quarter of 2017 (see the other attached update where I talk about these regulations in the HHS Update).  In short, those regulations included, among other things, pre-verification of SEPs, a “continuous coverage”-like rule for consumers losing coverage on account of non-payment of premiums, and allowing the “actuarial value” (AV) of a plan to vary by 4% below the specified AV level (instead of 2%). In my opinion, Congress can and should codify the pre-verification for SEPs requirement, and this codification should be included in any “market stabilization” legislation.  Other changes that can only be accomplished through legislation – like changing the premium rating age band to 5-to-1, changing the “grace period” for unpaid premiums from 90 days to 30 days, and prohibiting premium payments from third-parties – could and should also be included in a “market stabilization” package.  In my opinion, it might be difficult to get Congressional Democrats to agree to these changes.  But, Republicans could “trade” substantial funding for a reinsurance program or “invisible high-risk pool” in exchange for some or all of these changes.  That is because even Democrats know that these changes will reduce some of the “gaming of the system,” which should produce some premium reductions.  Democrats also know that changing the premium rating age band to 5-to-1 produces a more actuarially fair premium.  But, because outside groups like the AARP and other have “poisoned the well” by unfairly characterizing this change as an “age tax,” it may be difficult to get Democrats to agree to this change.

What About the Cost-Sharing Subsidies?

  • Let me emphasize that my suggestion that Congress should NOT fund the cost-sharing subsidies is based on my concern about “coverage.”  My suggestion has NOTHING to do with the Republican talking point that the cost-sharing subsidies should not be funded because they are a “bail-out.”  I know that you know that I do NOT believe that the cost-sharing subsidies are a “bail-out” (because I have said it multiple times in prior updates).  And, I also know that you know where I stand on the fact that the premium subsidies are now higher because the cost-sharing subsidy payments were cancelled (because I have talked about this result ever since August of last year).
    • Analysis:  So again, my comment that Congress should NOT fund the cost-sharing subsidies is based on my belief that funding the payments would cause a lot of disruption for current Exchange plan-holders.  And also due to this:  Most States “loaded” the unfunded cost-sharing liabilities onto the “silver” Exchange plans, which meant that most consumers OUTSIDE of the Exchanges did NOT see a premium increase.  On this latter point, many policymakers continue to argue that the cost-sharing subsidies should be funded because this will lower the premiums for these non-subsidized consumers.  This argument has merit, but only if the premiums for non-subsidized consumers indeed went up.  In most cases, that did NOT happen.  Rather, even in the wake of cancelling the cost-sharing subsidy payments, these non-subsidized consumers were  held harmless. So, Congress would NOT be helping many people in the non-subsidized market by funding the cost-sharing subsidies.  Actually, what Congress would be doing is disadvantaging subsidized Exchange plan-holders who – for 2018 – found free “bronze” health plans in most of the country, and more comprehensive “gold” plans for the same cost they paid for a “silver” plan the year before in certain parts of the country. Interestingly, Axios reporter – Caitlin Owens – attempted to quantify the “winners” and “losers” if the cost-sharing subsidies were indeed funded.  While certainly a rough estimate, what Caitlin found was that for every 1 non-subsidized consumer that may see their premiums go down if the cost-sharing subsidies were funded, roughly 5 Exchange plan-holders (actually 4.7 of them) would be disadvantaged because their premium subsidy amounts would go down. How I would try to quantify things is to first look at what States did NOT “silver load.”  I know there are some States that did NOT “silver load,” but I believe that number can be counted on 1 hand.  So to me, if only a very few number of States did NOT “silver load,” that means that almost all of the non-subsidized consumers out there did NOT see their premiums go up (and therefore, they do NOT need to be helped by funding the cost-sharing subsidies).  Conversely, if most States “silver loaded,” then most of the existing 9.2 million Exchange plan-holders would be disadvantaged by funding the cost-sharing subsidies.  In summary, I feel that the number of “losers” relative to “winners” – should the cost-sharing subsides actually be funded – would be far greater than a 5 to 1 ratio.  BUT, unfortunately, I have not gone through the exercise to quantify the numbers of “winners” and “losers,” and I commend Caitlin for taking up the task. So what could all of this mean?  Well, as I have said in past updates, Democrats could come to the realization that funding the cost-sharing subsidies would be a bad deal from a “coverage” perspective.  Which may further erode support for including funds for the cost-sharing subsidies in the upcoming funding bill(s) among Democrats – and even Republicans – because if right before the mid-term elections, Exchange plan-holders find out that for 2019, free “bronze” plans and no-cost “gold” plans are NO LONGER available, they are going to be none-too-happy.  Maybe these plan-holders wouldn’t vote for Republicans anyway, but it is likely that Republicans would get the blame.  Something Republicans would NOT want on the eve of what could turn out to be a “wave” election. Last comment:  There is a wild-card here.  And that wild-card is the Congressional Budget Office (CBO).  CBO will be releasing updated “budget” numbers soon.  And there is a chance that based on CBO’s new assumptions, CBO may find that funding the cost-sharing subsidies actually produces “savings” to the government.  This is plausible because CBO concluded that the increased premium subsidy spending – due to the cancellation of the cost-sharing subsidies – would cost the government $194 billion over 10 years.  Soooo, if the cost-sharing subsidies are funded, then this $194 billion should be reduced, thus producing budgetary savings that Congress can “use” for other things like…wait for it…Federal funds for reinsurance or an “invisible high-risk pool.” If the savings are substantial (e.g., $194 billion), Republicans and Democrats may opt to pump all of that money back into the individual market in the form of reinsurance/“invisible high-risk pool” funds, despite the disruption to Exchange plan-holders.  Or, Republicans and Democrats may use say $100 billion for reinsurance/“invisible high-risk pool” funds, and use the remaining balance to pay for other priorities (e.g., retroactive relief for employer mandate penalties, Exchange enrollment outreach, making Medicare extenders permanent).  So, depending on what CBO says, Congress may choose to fund the cost-sharing subsidies after all.

Health Care Policy Update

Idaho Decides to Allow Insurance Carriers to Sell Non-ACA-Compliant Plans

  • I know I am getting old (because I am losing my hair), but I am young enough to have never experienced States clearly defying Federal law to the degree we are currently seeing States saying NO to the Federal government.  For example, we are seeing State defiance on immigration-related matters.  And now, we are seeing it on health care – in the case of the ACA’s insurance market reforms – where the State of Idaho is explicitly refusing to follow the Federal “floor” that Congress enacted into law.
    • Analysis:  I explained the notion of a Federal “floor” in a prior update (see the attached update from mid-December, 2nd post).  The Federal “floor” concept works like this:  Congress can enact into law certain minimum standards that serve as a “floor.”  Meaning, States are prohibited from enacting State laws and/or regulations that go below the “floor.”  States are free, however, to enact laws and/or regulations that are more onerous or restrictive. When it comes to the ACA’s insurance market reforms – like, for example, the “essential health benefits” (EHB) and “actuarial value” (AV) requirements, and the adjusted community premium rating rules – these reforms serve as a Federal “floor,” meaning States cannot enact their own insurance regulations that go below the “floor” (e.g., States cannot allow non-EHB plans or a 50% AV plan or allow 5-to-1 age rating).  States can, however, “beef-up” the EHBs (although the State has to pay for covering the additional benefits) or the State can allow 2-to-1 age rating or even “pure” community rating. Well, Idaho just came out – guns-blazing – saying hey, this whole Federal “floor” thing is NOT working for us.  So, we are going to adopt rules that would allow insurance carriers to offer health plans that do NOT meet the ACA’s insurance market reforms.  For example, insurance carriers can develop premiums based on a 5-to-1 age band (instead of 3-to-1).  Also, carriers can offer plans that do NOT cover all of the Federal EHBs.  It also appears that Idaho will allow up to a 12-month exclusion for a pre-existing condition for a consumer who fails to maintain “continuous coverage.”  Specifically, if an Idahoan (that is fun to say) does NOT have evidence of having health coverage for at least 63 days prior to when new health coverage takes effect, an insurance carrier can impose a “waiting” period for coverage of the pre-existing condition.  In addition, these non-ACA-compliant plans can impose an annual dollar limit of $1 million on paid benefits.  If an Idahoan (had to say it again :]) exceeds the $1 million limit, the Idahoan must be transitioned to an ACA-compliant plan where NO annual limits may be imposed.  Lastly, the health plans can have imbedded deductibles that may differ (e.g., the out-of-pocket maximum may be greater for medical benefits and lower for prescription drug coverage).  Note, as a condition for being able to offer these types of non-compliant-ACA plans, a carrier MUST offer at least 1 ACA-compliant plan. Interestingly, it appears that Idaho maintains the “single risk pool” requirement.  I say “interesting” because back during the Senate ACA “repeal-replace” exercise, Sen. Cruz (R-TX) wanted to allow States to offer ACA-compliant plans, and also non-ACA-compliant plans.  But, the insurance carrier community went NUTS over this idea.  They contended that they could NOT include in the same risk pool consumers covered under plans that covered different benefits.  They said actuarially, we CANNOT make it work.  The insurance industry believed so strongly that they could NOT make the Cruz amendment work, they were willing to throw away over $150 billion in Federal reinsurance funds.  Ummmmm, it appears Idaho thinks carriers can make it work actuarially.  If not, Idaho is NOT going to get any carriers willing to sell these non-ACA-compliant plans.  I will be fascinated to see who ends up being right here. But in the end, we may never find out who is right on this “single risk pool” question.  And that is because – technically – Idaho is NOT permitted to do what it wants to do here, absent a 1332 Waiver.  In my opinion, the only legal pathway forward is submitting a 1332 Waiver and asking for the above described changes.  However, I do NOT think that the above changes would satisfy 1332’s “guardrails,” which is arguably why Idaho is coming out – guns-blazing – without a 1332 Waiver (…we don’t need no stinkin’ 1332 Waiver). Now what?  Well, the ACA explicitly says that if a State fails to enforce the ACA’s insurance reforms, HHS MUST go into the State and enforce these rules on the State’s behalf.  But query whether the Trump HHS is about to go into Idaho and enforce compliance with the ACA’s market reforms?  Again, according to the Federal statute, HHS MUST go in and enforce.  But what if HHS does NOT?  It is an open question that some speculate the Supreme Court may have to resolve.  Or, maybe Idaho resolves this potential conflict by pivoting and submitting a 1332 Waiver request.  Or, maybe NO carriers are willing to sell non-ACA-compliant plans.  One thing for sure:  Idaho is bucking the system.  A gutsy move.  We’ll see how long they can stay “on the run” before HHS or a court of law catches up to them.

Employer Update 

Health Care Spending Among Employees With Employers Plans Went Up, While Utilization Went Down

  • Spending on health care accelerated in 2016 for Americans who get insurance through work, even as use of most health-care services declined or remained flat.
    • Analysis:  You do not need to be an economist to understand that what this tells you is that “prices” are driving health care spending, NOT “utilization.”  As you have heard me in past updates (from about 2 years ago now), I have always been concerned about increased utilization due to increased health coverage under the ACA.  Why was I concerned?  Because even if the increased utilization spiked up in the “individual” market and also Medicaid, that increased health spending could have an adverse impact on premiums for employer plans. As reported, we have indeed seen an uptick in utilization in the individual market and Medicaid – resulting in an uptick in health care spending – which has placed some pressure on employer plan premiums.  But, employer plan premiums have not increased unreasonably.  But, premiums have not increased unreasonably because employers have simply shifted more and more costs onto their employees in the form of deductibles and co-pays.  The result:  Modest premium increases year-over-year, but increased out-of-pocket costs far outpacing any growth in wages. In most if not all cases, when demand for a good or service is low, prices are lower.  But not here.  In this case, although demand for medical services is low, prices are actually higher relative to year’s past.  It makes me wonder:  Are hospitals and other providers “making up” for the realities of the ACA?  What I mean is, hospitals and providers continue to be concerned about “uncompensated care” – either in the case of high-deductible health plans or Medicaid.  And the ACA cut payments intended to reimburse hospitals for “uncompensated care” at least in the context of Medicaid (because the drafters of the ACA said hey, we are expanding Medicaid, so the “uncompensated care” problem should go away, and therefore, there is NO longer a need for government payments to make up for “uncompensated care”).  But the trouble for hospitals is that NOT all States expanded Medicaid, yet the cuts to these “uncompensated care” payments are going into effect. In addition, are hospitals and providers simply increasing costs to make up for revenue losses due to lower utilization?  Are they increasing prices due to lower reimbursement rates on account of readmissions or in anticipation of lower revenue streams that may result from MACRA’s shared risk models?  Or, is the added revenue needed to transition to, for example, electronic health records or other new advances in technology? I am not sure what the right answer is.  But what I do know is that these increased prices – for whatever reason – should lead logical people to conclude that we should be paying hospitals and providers for “outcomes,” and NOT inflated prices for “services” (which are largely driven by a “fee-for-service” model).  This is where value-based care strategies come into play.  As many know, large, self-insured employers have been adopting value-based care strategies for decades now, but more recently, more and more employers – and insurance carriers – are moving in in the direction of value-based care, shared risk, and negotiated payments.  Our nation’s public health programs – like Medicare – are also moving in this direction, but I would argue that more needs to be done to control costs and improve quality. The incoming HHS Secretary – Alex Azar – has said that he intends to focus on continuing to transition health care from “volume” to “value,” which is hopefully a positive sign for the future.  By aligning, for example, Medicare’s payment models with private-sector purchasing strategies, the employer-provided health system should see improvements in quality of care and lower health costs due in large part to the use of consistent payment models.  We will comment more on value-based care-related issues in the coming weeks and months ahead.