Friday, October 13, 2017

Trump is stiffing health insurers for three months in 2017. States can make Treasury eat the cost.

Oregon's last-minute adjustment to enable insurers to cover the cost of Cost Sharing Reduction (CSR) subsidies for ACA marketplace enrollees in 2018 after Trump abruptly cut off federal reimbursement for those subsidies gave me an idea for how states could also make insurers whole for the last quarter of this year.

Trump is cutting off federal reimbursement for the subsidies, which insurers are obliged to provide but until now have not been able to price into their premiums, later this month.  In most states, insurers have been able to or will be able to adjust premiums to cover CSR in 2018. But they have  to eat the cost for the rest of the year. Unless....

Here's how Oregon will make insurers whole in 2018:
In order to ensure carriers can continue to offer coverage in Oregon, DCBS is ordering health insurance companies offering plans on HealthCare.gov to increase their already approved silver metal tier 2018 plan rates by 7.1 percent.
The increase is to silver plans only, because CSR is available only with silver plans. Without CSR, a silver plan is designed to cover 70% of the average enrollee's medical costs; with CSR,  it covers 94%, 87% or 73%, depending on the enrollee's income. Silver is priced as if it covers 70% for everyone; until now, federal reimbursements have covered the cost of enriched coverage for CSR-eligible buyers. Oregon's 7% silver premium hike, announced today, is meant to cover that extra value.

California has an even better solution: concentrate the premium boost only in silver plans sold to subsidy-eligible buyers. That way, silver is not overpriced for subsidy-ineligible buyers, for whom it's generally the most popular option  (or in some cases, as premiums rise, second favorite to bronze, the cheapest level).

Moreover, since premium subsidies are keyed to silver plans (the second-cheapest silver in each region is the benchmark against which income-based subsidies are calculated), the more inflated the price of silver, the better the bargains on offer for other metal levels. In California and other states sharing this pricing solution, subsidized buyers who earn too much to qualify for strong CSR are actually better off than before, since their subsidy is an enhanced currency for bronze plans (which can be almost free) and gold plans (for which premiums are comparable to, and sometimes lower than, silver, while covering 80% of costs instead of silver's 70%). The only loser is the federal Treasury, whose funds Trump is squandering to sabotage the marketplace.

States could make the Treasury eat a bit more of the extra cost by concentrating the premium CSR surcharge in silver plans only -- and then boosting the surcharge enough to cover the CSR cutoff for the last three months of 2017 (for states that were in the exchange this year, that is). For all I know, California or other states have quietly done this.* If not, what if California's CSR surcharge were 15.4% instead of 12.4%? Boosting the subsidized silver premium still further boosts the subsidy still further, and so the windfall if spent on metal levels other than silver.  Again, the only "victim" would be the federal Treasury -- and that's on deadbeat Trump's head. States have every right to keep their insurers relatively happy, and so keep them in the marketplace.

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*Oregon, the only state so far to add a CSR surcharge after Trump announced the payment cutoff, is apparently not using the surcharge to cover the 2017:
This increase will affect plans both on and off HealthCare.gov, and will compensate for the $49 million worth of cost-sharing reduction payments that the federal government will no longer be making to Oregon insurance companies in 2018. 

2 comments:

  1. How does MLR interact with this? Are no/few insurers near the MLR anyway?

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    Replies
    1. That's a good point -- but though loss ratios have been improving, I don't think many are anywhere near 80% in the marketplace. If any are close, though, adding a couple of extra points to silver premiums could be problematic.

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