EDITOR'S NOTE: Our Washington DC source has shared a lot of information about the president's cessation of CSR subsidy payments to insurance companies. We are getting into some rather complicated territory here, and that is when health policy experts often disagree sharply. FactPower has studied this situation thoroughly, ad we respectfully disagree with the picture being painted by our Washington DC source. As a service to our readers, we provide our alternative point of view at the bottom of this briefing, drawing from the conclusions of the Congressional Budget Office and other health care analysts we follow. For now, we urge readers not to panic. We'll explain why at the bottom.
Last night's series of announcements was like a 1-2 sucker punch in the gut. I'm going to do my best to break it down for you.
In addition to the Executive Order signed yesterday, the Administration announced late last night that it will "immediately" end ACA CSR subsidy payments.
Not only will this hurt the poor who buy heavily subsidized health insurance, but it will also hurt middle-income folks, and health insurance will become virtually impossible to own.
We've gotten some preliminary CBO numbers: ending subsidies will increase premiums by 20% by 2018, 25% by 2020, and will increase the deficit by $6 billion by next year and $21 billion by 2020.
Some background on these CSR payments:
- A DC district judge ruled that they were illegal in 2014 after a Congressional GOP lawsuit was filed, finding that Congress hadn't appropriated funds for the subsidies. The Obama administration appealed the ruling, and the current Administration was continuing payments on a month-to-month basis.
- The Administration claims that they can't "lawfully" make these payments. This decision was made after the Sessions Department of Justice declared CSR payments unlawful without Congressional appropriation.
- A coalition of states, including New York and California stand ready to take legal action against cutting off CSR payments.
- This move also puts incredible pressure on Congress to appropriate money to fund the ACA subsidies. The sticking point is this: Democrats see ACA subsidy money as an entitlement, like Medicaid or Social Security, and Republicans have seen it as unappropriated, illegal government money. The problem is, and this is a problem facing both chambers of Congress, that there is just so little time left in the calendar for extra things, and this issue being one that Republicans and Democrats just don't agree on will mean an extremely difficult fight throughout the rest of the year.
- Minor comfort can be taken in the fact that the changes implemented through the executive order yesterday won't occur until federal agencies write rules and adopt regulations to implement them. This process, which includes a long period of public comments, could take months. The NYT suggests that the regulations won't go into effect until 2019. What consumers are likely to feel immediately is the insurance industry's reaction to these changes: higher premiums, potential pulling out of markets.
Some of the political consequences of this I see happening are as follows:
- Democrats are furious. While bipartisan negotiations in the HELP Committee for stabilization were slow-moving, they were still progress to be seen. This act by the Administration is seen by Democrats as a spiteful move to sabotage the ACA. I anticipate that on everything else for the rest of the year, they're going to hold their ground on negotiations. This could either halt negotiations altogether, or force the Republicans to give in and deal to fund CSRs and stabilize the market, and in a really ideal world, this would cement the ACA firmly into law.
- This will probably kill any hopes of tax reform the GOP had. You can't have an administration make a unilateral deficit-increasing decision that will hurt so many people and then expect to pass MORE deficit-increasing tax cuts. It's just not realistic, and Senators like Corker, McCain, and Paul will not go along with it. As much as these guys hated the ACA, they would have rather seen CSRs funded so they could get tax cuts through.
- There's some strange stuff going on in the Senate GOP caucus right now. Susan Collins announced today that she's going to stay in the Senate rather than run for Governor of Maine, which is really good for us. McCain is still sick, but right at this moment seems to be doing fine. The wild card now is Thad Cochran. Remember when Trump said that a Senator was in the hospital? Well, Cochran has been recovering from a urological surgery, and has said that he'll be back in town next Monday when we go back into session. There was an article out today though that suggests that things aren't as rosy as that in Cochran-land. The man is 79 years old, and folks close to him and his situation are saying that he may not be back next week, or maybe not for weeks to come because his condition isn't improving.
- This could be very interesting going into the rest of the fall. With Menendez more or less out because he's on trial, McCain's health unstable, Cochran out indefinitely... it could make for some interesting negotiation dynamics in the coming weeks.
- At this point, there is nothing stopping the Democrats from shutting the entire government down this December until they get the deals they want on the ACA and DACA. They're so full of rage that there's very little political risk in this. Congress NEEDS democratic votes to get funding passed, and I don't think democratic leadership is inclined to help if they don't get some concessions.
I'm going to keep my ear to the ground on this today, but my feeling is that we'll hear more strategy on how we're going to tackle this on Monday after the leaders have a chance to regroup.
HEALTHCARE UPDATE: The first lawsuit has been filed to challenge the president's default on CSR subsidy payments.
In other news, last night the Administration says it will extend the DACA deadline of March 5th if Congress fails to act. It seems like there's some good bipartisan movement on this, despite the wishlist the Administration sent down last week. Right now, that list seems to be being largely ignored.
The House sent us over a big funding package yesterday that includes Puerto Rico, flood insurance, and wildfire money. It remains to be seen what the Senate will do with this legislation, and how dramatically it will be changed, but I hope to see some quick work done here.
There are going to be a lot of scary stories about the ACA over the next couple of weeks, and I admit, this is a very scary situation we're in. I recommend you tell folks to call THEIR Representatives and THEIR Senators to urge action to re-fund ACA subsidies and stabilize markets. If you're calling GOP members, urge them to buck the spiteful administration and think about all the people who are going to be hurt by this. If you're calling Democrats, urge them to stand strong to fight this, and thank them for all they've done so far.
This is a really tough time, and I hope everyone can try and stay positive. Despair and dread won't do anybody any good right now, even though it's the reactive response to all of this. Keep fighting, and I'll keep you posted.
FactPower's take on the halting of CSR subsidy payments by the president:
There is no need to panic, for the most part. As mentioned above, the president has terminated Cost Sharing Reduction subsidy payments only -- and not the premium reduction subsidies which he has no authority or ability to terminate. This affects policies only on the individual market, not employer-sponsored health plans (which are not "Obamacare" policies). About 7% of all insurance policies are purchased on the individual market.
Premium reduction subsidies (which are not being eliminated) help to offset premium payments for lower income Americans. Under the ACA, people earning from 100% to 400% of the Federal poverty level are not required to pay any more than a certain percent of their income for the second cheapest silver plan available to them. Everything above that computation is paid by the federal government. Again, that is not being eliminated.
What is being eliminated is the payment to insurance companies to subsidize policies for Cost Sharing Reductions for low income Americans -- reductions in deductibles, copayments, coinsurance, and out of pocket maximums. Insurers still provide these Cost Sharing Reductions. The president is simply refusing to pay for them, as required under the terms of their contracts. Fortunately, insurers saw this coming and jacked up their rates quite a bit to compensate for the government's default. That said, they are still able to back out of their 2018 contracts because of this default. We will see whether they opt to do this. Our feeling is they will not, because the default is already more than baked into their 2018 rates, which should be very nicely profitable for them.
The $20 question on everyone's mind is whether insurance rates for 2018 will go up. In the well studied opinion of FactPower (and the Congressional Budget Office), they will not, for the vast majority of people. This is why:
For the 85% of all individual market policyholders who receive premium subsidies (those earning between 100% and 400% of the Federal Poverty Level, roughly $12,000 to $48,000 per individual in the lower 48 states), there will be no noticeable difference in the portion of the premium they are expected to pay. That is because the maximum outlay is calculated under the ACA as a percentage of income. When premiums increase, the government shoulders the full impact, in the form of increased premium subsidies, dollar for dollar.
Here's a weird wrinkle we may hear about: Many Americans with subsidized individual market policies may talk about decreases in their net premiums (what they actually pay, after subsidies). This may not be a good thing, and we cannot attribute it to any brilliance on the part of our president. In a healthy market, there are several silver plans from which to choose. Some people opt for a more expensive plan because it provides better benefits. However, they only get subsidized on the basis of the second cheapest plan, so they pay the difference out of pocket. If the 2018 market has only a single plan, for instance, then subsidies will be based on that plan. There will be no difference to pay. This might be a good thing if the lesser plans were the ones to withdraw from the market. Or it might be a bad thing if the better plans were the ones withdrawn. Either way, they will cost the same, and that amount will be less than what someone might have paid for a better plan in a more diverse market. Anyway, don't be surprised if someone says, "Wow, my premiums have dropped to a quarter of what they were last year, thanks to our beloved President Trump!" You'll know that (1) they have a heavily subsidized policy, and (2) they had spring for a somewhat "better" policy in 2017 than the second lowest priced one.
For the remaining 15% of of the individual market that doesn't receive premium assistance subsidies, silver plans will get more expensive, but bronze and gold plans will not (as much). That is because insurance commissioners are likely to approve rate increases only to plans which are impacted by CSR subsidy payment default, namely the silver plans. For unsubsidized consumers, silver and gold plans are expected to have a similar price tag, so consumers would likely either buy a (better) gold plan for the same money or buy a bronze plan for much less. These consumers will lose "choice" in the market (no longer having an affordable silver option), but they will otherwise be unaffected by the price hike. This is not to say they won't experience some rate increases due simply to the turmoil the president has created in markets. However, these increases won't be directly attributable to CSR subsidy default.
Longer term, there could be market-destabilizing impacts from CSR subsidy default. Insurance companies hate uncertainty. If they don't know whether they're going to get paid in an ACA market, they might decide not to do business in that market. That said, the pull-outs that we've seen are likely ploys to panic the public, jack up premiums (and profits), and conspire to establish regional monopolies (1-insurer markets). Insurers are set to make record profits. They're doing quite well, thank you!
The president's CSR follies are fiscally foolish, and that is a bit surprising for anyone who fancies himself a brilliant businessman (even someone of the president's intellectual prowess). Although the consumer will be protected from the brunt of the impact of premium increases, thanks to the ACA's consumer protections, the federal government will get a very raw deal. That is because insurers will be jacking up premiums far more than is necessary simply to compensate for CSR subsidy default. According to the CBO analysis of this scenario, our saving $118 billion in CSR payments by defaulting on CSR subsidy payments will cost taxpayers $194 billion by 2026. Most of this taxpayer money ($191 billion of it) will be pocketed by insurance companies in the form of higher profits, as well as medical providers in the form of higher payment for medical services. Under the design of the ACA, it should actually be refunded to policy holders, but it won't in practice, due to slick accounting tricks. FactPower has written an article about it here. (For a more technical accounting, see our paper here.)
To summarize, this is what will happen as a result of the president's CSR subsidy default:
FactPower will be releasing an article later today, offering our take on this development.