FactPower: Facts, figures, and talking points for Resistance activists.
Don't panic! The healthcare news is bad, not catastrophic.
Two recent developments from the Trump administration have set everyone on edge, and visions of catastrophic failure of the healthcare markets are swirling. In its various Calls to Action, FactPower has declared healthcare emergencies several times when nobody else thought there was any credible threat. We have been right every time. This article will now do the opposite: At a time when most people are panicking, including lawmakers, journalists, activists, and even some analysts, we again find our voices in the minority, but we've got some good company, including the Congressional Budget Office and now Larry Levitt of the Kaiser Family Foundation. We hope to assuage the fears of of many Americans who may be needlessly panicking over these two developments:
On October 12, the president signed an executive order that, among other things, would allow the creation of association health plans that could be sold across state lines.
Both are bad, certainly, but they are probably not as bad as many are saying. Let's examine both of them, starting with the second (and simpler) of the two:
DEFAULT ON CSR SUBSIDY PAYMENTS:
Even since the days of the Obama Administration, the GOP has interfered with CSR subsidy payments. We have been weighing the prospect of default by the current administration for several months, and the CBO even did a full analysis of it in August, concluding that the impact on insurance policy holders would be minimal. And now, according to Larry Levitt of the Kaiser Foundation, "Terminating the CSR payments is producing a lot of confusion, but the market will operate reasonably fine and the effect on consumers will be modest. If this was intended to end Obamacare, it's probably not going to work. The real question at this point is the longer term effect of the administration's overall strategy to undermine the marketplaces." The issue has more twists than a pretzel, but let's try to untwist it:
First, let's be clear about what is impacted: This default only affects policies on the individual market, not employer-sponsored health plans (which are not "Obamacare" policies). This default does not eliminate premium subsidies, which reduce premiums for people earning between 100% and 400% of the Federal Poverty Level (roughly $12,000 to 48,000 per year per individual living in the lower 48 states). It applies only to Cost Sharing Reduction (CSR) subsidies, which not well understood by most people. CSR subsidies are paid by the government to insurance companies to allow those companies to reduce deductibles, copayments, coinsurance, and out-of-pocket maximums for low-income individuals (from 100% to 250% of the Federal Poverty Level). Premium reduction subsidies, which are applied to any marketplace plan, make the premiums cheaper, while CSRs, which are applied only to "silver" plans, lower the out-of-pocket expenses.
The GOP cannot interrupt premium reduction subsidies without changing the law, and that is beyond the scope of an Executive Order. However, the language of the ACA (Obamacare) was not carefully drafted with regard to the CSR subsidy payments, leaving this part of the law open to court challenge. Making the long story short, the president may choose whether to make the payments, and he has elected to default on them. Congress could fix this problem by approving a mandatory, continually renewing appropriation, and the Senate HELP Committee is negotiating exactly that.
Insurers have anticipated the president's default and have responded by raising insurance premiums for 2018 an average of about 19%. (Don't panic! We'll explain how most people won't even feel this rate increase.) The increase in premiums will already more than offset the dead-beat policies of the president, even when no further payments are made. Regardless, this default gives insurers a technical "out" in their contracts. Although their contracts are already in, they now have the option of withdrawing from the markets. Will they do this? It seems doubtful in the vast majority of markets, because insurers have already priced this contingency into their rates. (Note, however, that not all states, allowed insurers to set rates in anticipation of default. A few states are currently working with insurers to resolve this issue. Rate increases in most of these states are being successfully negotiated between states and insurers. In three states -- ND, MD, and VT -- the outcome is more uncertain. In ND, insurers are not allowed to raise their rates, but Blue Cross Blue Shield says it will still sell plans there. In MD negotiations with insurers are ongoing. FactPower has found no information for Vermont, which did not allow insurers to raise rates preemptively.)
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 and Larry Levitt of the Kaiser Foundation), 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 their maximum outlay (for the second-cheapest silver plan) is calculated under the ACA as a fixed percentage of income, irrespective of cost of the unsubsidized insurance. For instance, someone earning $12,000 per year will have to pay no more than 2.04% of their income (or $244.80 per year), regardless of whether the unsubsidized policy costs $300 per year or $300,000 per year. The government pays the rest of the policy above this maximum amount. This does operate on a sliding scale, so someone earning $48,000 per year would have to pay no more than 9.69% of their income for the second cheapest silver plan (or $4,651.20 per year). The point is that the actual cost of insurance doesn't work into this determination. For this reason, the government shoulders the full impact of the rate increase of any premium- subsidized policy. And remember, we'll still receive the premium subsidies.
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). That is because insurance commissioners have mostly approved rate increases only to plans which are impacted by CSR subsidy payment default, namely the silver plans. (However, a few states have chosen to spread the burden across all plan types - CO, IN, KY, OK.*) In most states, silver and gold plans are expected to have a similar full-ride price tag. And here's the wrinkle: If the increase in subsidies from 2017 is greater than the increase in rates for a gold plan, a subsidized gold plan will actually become cheaper in 2018. The same is true of bronze plans. Some bronze plans might even be free. The CBO estimates that these subsidized rate decreases may eventually boost enrollment numbers, just not in 2018.
For people who would qualify for the CSR subsidy (earning from 100 - 250% of the FPL), silver plans would still be the better value, because the CSRs (which are applied only to silver plans) are appreciable -- worth thousands. However, many people may opt to leave the CSR subsidies on the table, opting instead for the cheaper bronze plans, even though the deductibles and out of pocket limits would be much higher.
Even subsidized silver plan buyers could experience rate decreases between 2017 and 2018. 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 nicer 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 the reason is that they have a subsidized policy and are benefiting from all the marketplace chaos created by the president. You might remind them that their lower premium comes at the cost of enormous waste of taxpayer funds (see below) and that the president should make the CSR payments for the good of all society.
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) in most states. This is again because rate increases will be applied mostly to the silver plans, which are the ones impacted by CSR default. 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.
None of this is to say there won't be an impact. The CBO estimates one million people will lose their individual market insurance as a result of premium changes or market disruptions next year, but this is far less than the devastating losses in excess of 20 million that we have weighed with GOP healthcare bills. Furthermore, as markets stabilize to the "new normal" in 2019, enrollment losses will heal. And by 2021, the new policy will even result in fewer uninsured because of more-generous subsidies making bronze and gold plans more affordable..
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 them 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 by 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:
Nothing will happen to anyone with employer-sponsored insurance.
Americans buying insurance on the individual market, whose incomes fall between $12,000 and $48,000 per year (individual, lower 48), will experience no net rate increases (the amount they have to pay after premium subsidies have been applied). Their premium subsidies will compensate for every dollar of premium increase.
Some Americans with subsidized individual market insurance may see their premiums drop, as a weird consequence of there being fewer choices in the market.
Americans buying insurance on the individual market whose income is less than $12,000 or greater than $48,000 (about 15% of the market) will see silver plan prices rise to the level of gold plan prices, so silver plans will become bad deals. Instead, they will want to buy either bronze or gold plans, which might rise somewhat in price, but not nearly as much. In a few states, however, premiums will go up uniformly for all plan types.
There will be small short term fluctuations in the number of Americans insured. Initially, 2018, there will be an 1 million increase in the number of uninsured, but this will actually reverse, so that there are fewer uninsured in later years.
CSR subsidy default will continue to be used as an excuse/justification by the insurance industry to charge excessive premiums and reap excessive profits.
Insurers now have a contractual "out" (because of default by our government), should they choose to take it. We feel they will not, except perhaps in a few states where insurers were not allowed to set premiums in anticipation of default.
Markets will continue to be squirrely until the GOP stops actively undermining them by this and other means.
Taxpayers will pay a high price for this stunt -- about $194 billion by 2026.
ASSOCIATION HEALTH PLANS:
The other major prong of the president's attack on the ACA is the establishment of association health plans, which will lack the protections of ACA plans and will more resemble employer-sponsored insurance. These plans may be sold across state lines, possibly becoming national plans. We don't know yet whether such plans would be subject to state regulations, but it is likely these would be "skinny" or "junk" plans offering scaled-down benefits, high deductibles, no out of pocket limits, annual or lifetime benefits caps and no preexisting conditions protections. They might be popular with younger, healthier people who are uneducated consumers and wouldn't recognize the policies as poor values (which they would likely be). They might also be purchased by people who want to game the system, realizing that they must be accepted into an individual market plan if they become ill. These people would be gambling that they would not get caught with extraordinary medical expenses before commencement of the next year's insurance cycle.
The effect of this maneuver could be complicated and nuanced. According to Andy Slavitt, one of this country's premier analysts, this could result in the abandonment of individual ACA markets by healthy people, leaving mostly sick people. That, in turn, would cause insurance premiums to spiral upwards and insurers to leave the market. Many other analysts and journalists resonate with this message.
Although we agree somewhat with Slavitt on this point and acknowledge it will have a harmful impact, we question how consequential the impact will be. There is no question healthy people will leave the market to buy cheap junk plans. As he indicates, individual markets could become "high risk pools" of sorts, except with ACA consumer protections. Sicker people will be concentrated in these markets, and insurance premiums will rise accordingly -- perhaps by quite a lot.
That said, not every healthy person would leave the individual markets. Remember how policy holders receiving premium subsidies would be insulated from premium increases, with the government picking up all of the cost increases? That would still happen under this scenario. So let's consider a healthy young man earning $12,000 per year and considering two plans: Plan A, which has a $200 deductible and $600 out of pocket maximum, covering a comprehensive range of benefits, is actually free. (When there are at least two silver plans available, the cheapest is often free.) Plan B with a $10,000 deductible, a skinny list of benefits, high copayments, and no out of pocket maximum, costs $2,000 per year. Unless he has moral objections to accepting an "Obamacare" plan, he's probably going to go with Plan A and remain in the individual market. That same young man, earning $27,000 per year, could get both policies at about the same cost, $2,000 per year. At an even higher income, the choice might be a bit tougher. However, the point is that the cheap junk policy is still going to be a bad deal (even ignoring its coverage shortcomings) for a large number of individual marketplace enrollees. Those individuals will represent the core element that stabilizes premiums, albeit at substantially higher levels than they are now.
In practice, we probably already know what the result of the association health plans would be, from the example of Tennessee. In this state, there is actually a major Farm Bureau association health plan created for farmers, but open to all citizens of Tennessee -- an example of the sort of health plan the president wishes to create. It currently has an enrollment of 23,000, including young, healthy Tennesseans who are not farmers. In this state, Tennessee's individual health plans are among the most expensive in the nation, averaging $5,664 per year for a silver plan (full, unsubsidized rate). Furthermore, the state has had ongoing difficulty keeping insurers in their regional marketplaces. Although Sarah Kliff of Vox draws the glass-half-empty conclusion that association health plans appear to do measurable damage to individual markets, we at FactPower draw the glass-half-full conclusion that (1) the individual market still functions, even in the current political climate, (2) every county is covered, even if only by one insurer, (3) Tennessee is still not the most expensive state for buying insurance, and (4) there appears to be no market death spiral. And again, the high premiums would not be felt by the vast majority of Tennesseans, due to premium assistance subsidies.
How can Tennessee's Farm Bureau plans not create death spirals in their ACA individual markets? At the core of any stable risk pool is an adaptive source of funding to back it, such that supplemental funding increases whenever medical costs increase. Most analysts are forgetting that this adaptive funding is already structured into the individual markets in the form of premium assistance subsidies. As premiums rise, they are offset by subsidies, dollar for dollar. Therefore, although there would certainly be some exodus from the individual market, it would not impact net premiums (the amount paid after subsidies are applied) for the vast majority of subscribers. Pre-subsidy premiums would rise somewhat (perhaps a lot) and then stabilize. However, there would be no added incentive for anyone else to leave the pool after the initial exodus, and thus the now-familiar "death spiral" dynamic could not occur.
As a result of healthy people bailing from the individual market, there would be an adverse impact on taxpayers. Under our current system, younger, healthier people pay into the system to offset the medical expenses of older and sicker people. As these healthier people leave the individual market for association health plans, they would no longer be paying into the individual market system, so taxpayers would shoulder the extra burden of paying for the medical expenses of older, sicker subscribers, in the form of higher premium assistance subsidies, which are drained directly off of revenue streams via the Internal Revenue Code. Because the president's Executive Order is not a legislative action, it will probably never be analyzed by the CBO, so we may never know the full impact.
This two-tier insurance system would have adverse consequences for some insurance subscribers. First, there would be individuals who wouldn't know that the cheaper product provides lesser coverage. They might waste their money or find out that coverage is inadequate when they most need it, for instance when delivering a child. Then there would be people who would prefer the better individual market insurance but would be unable to afford it because of the high premiums. These would be the 15% of the current ACA market who are unsubsidized -- people who earn less than $12,000 annually in a state that does not provide Medicaid benefits, and people earning more than $48,000 annually.
The combination of these two measures by the president could also prove harmful in a way we've not seen discussed: Insurers might find themselves uncertain what the composition would be of the individual market risk pool, given the possibility that some healthy individuals will inevitably choose cheap junk insurance over the higher quality option. That would leave them not knowing how to set their premiums. Given this uncertainty, they could choose to bail from their 2018 marketplace contracts on the justification that the president has defaulted on CSR subsidy payments. This is a very real possibility, but it is difficult to assess at this time. There are accounting methods for recapturing losses with premium increases over subsequent years (that would rightly justify the premium increases to commissioners of insurance), so this might not be a fatal problem. Only time will tell.
SUMMARY AND CONCLUSIONS:
We're not going to paint a picture that none of these things really matter. They do. They are harmful. However, they are small cuts, and they create only measured damage in combination with other cuts. They are not fatal gashes that that will leave the markets gushing blood, going into shock, and dying.
The cessation of CSR payments will have little effect on the payments that the vast majority of Americans in the individual market will have to pay for their insurance. The larger effect is that we will suffer damage to the markets in the form of significantly higher budget deficits, for which we are accountable as a society, like it or not. And our markets will suffer another one of numerous small cuts that damage their overall viability.
The two-tier system of insurance created by the association health plans presents a bigger problem, but its impacts are more difficult to assess with any certainty. We do not believe they will crush individual markets, and we feel the larger impact will be that many Americans find themselves inadequately insured by junk policies.
In closing, we would like to leave fellow activists with an important thought: As tempting as it might be to paint these developments as dramatically as possible, we do ourselves no service by doing so. If we tell everyone their insurance rates will skyrocket, and they actually see rate decreases or no increase at all, then they will view us as being full of 100% organic fertilizer, and that will damage our credibility on other issues. Furthermore, some people may make important health decisions on the basis of erroneous information. We can't do that to them.
We urge caution, restraint, and level heads. Let's fight the many monsters that are real, and not the apparitions that haunt our sleep. Our biggest challenge is the $1 trillion proposed cut in Medicaid spending and the $473 billion cut in Medicare spending over the next 10 years. Next, CHIP needs to be renewed, but there is bipartisan support for that. We still need to push our lawmakers to support bipartisan market stabilization, as being negotiated by the Senate HELP Committee. These will include CSR payments, and perhaps they might even include regulations on the new association health plans that might make them less junky. Meanwhile, there are about 26 million Americans who are uninsured, and we should find ways to get them insured. Many of them are simply uninformed about the ACA individual market which will still be open for business. We will need to find ways to spread the word and do the enrollment outreach that Health and Human Services refuses to do. We need to inform people of the December 15 enrollment cutoff meant to trick people. There's plenty of work to be done on this multitude of more significant issues.
*This article speaks in generalities, but CSR defaults will be handled differently in different states. Please consult this spreadsheet for information specific to your state. Information may be updated as events unfold. AK and SD, so far, have permitted emergency re-filings in response to CSR default.
(October 13, 2017. ) (Updated October 14, 2017 to note a few states that do not have CSR default strategies in place or are otherwise notable exceptions.) (Updated October 15, 2017 to elaborate on market stabilizing effects of premium assistance subsidies and to note emergency re-filings in AK and SD.) (Updated October 16, 2017 to include statements from Larry Levitt of the Kaiser Family Foundation. Discussed the Tennessee Farm Bureau example.)