Monday, December 05, 2016

Cutting off CSR subsidies will hit red state enrollees especially hard

As Republicans gear up to repeal the ACA,  the Kaiser Family Foundation has helpfully broken out how many of the 9.4 million subsidized enrollees in the ACA marketplace (as of March 31) live in each state, and what share of an estimated $32.8 billion to be paid out in premium tax credits this year will be paid out for enrollees in each state.

Greg Sargent, assessing the potential political fallout of cutting off those subsidies, notes:
Some of the states with the highest populations of people getting subsidies are represented by GOP Senators. This includes Florida (more than 1.4 million); Texas (more than 913,000); North Carolina (more than 499,000); Georgia (more than 427,000); and Pennsylvania (more than 321,000). Many other states with GOP senators also have sizable populations getting subsidies.
Today also happens to be the day when a federal appeals court delayed further proceedings in House Republicans' suit to stop the executive branch from funding the Cost Sharing Reduction (CSR) subsidies that reduce out-of-pocket costs for 57% of marketplace enrollees. Since a lower court upheld the suit in May, but stayed any action to cut off the payments, the delay effectively leaves it up to the Trump administration whether to drop the Obama administration's appeal and thus cut off those subsidies, effectively crippling the marketplace instantly* (and disrupting Congressional Republicans' alleged "repeal-and-delay" plans, which would keep the marketplace functioning until a replacement plan is enacted).

It therefore seems appropriate to note that CSR subsidies are particularly prevalent in the 19 states that have refused to enact the ACA's Medicaid expansion -- most of which are Trump country. That's because in those states, a subset of those whom the ACA intended to make eligible for Medicaid, people with incomes between 100% and 138% of the Federal Poverty Level (FPL), are instead eligible for subsidized marketplace coverage.   And since they are in the lowest income bracket eligible for subsidized marketplace coverage, they get the highest level of CSR support for the lowest price.

Subsidized marketplace enrollees with incomes below 138% FPL (who "should have" been Medicaid-eligible) pay just 2% of their income for a CSR-enhanced silver plan, which has an actuarial value of 94%, meaning that it's designed to cover 94% of the average enrollee's yearly medical costs. In states that expanded Medicaid, marketplace eligibility begins at 138% FPL, and a much smaller percentage of enrollees, those with incomes from 138-150% FPL, get AV 94%  silver. And they have to pay more for it -- 3-4% of income.

Of the five states spotlighted by Sargent, four -- Florida, Texas, North Carolina and Georgia -- have refused to expand Medicaid. In those states, the percentage of enrollees who obtain CSR subsidies is high -- 73% in Florida, 59% in Texas, 66% in North Carolina, and 67% in Georgia.

The percentage of enrollees in those states who get the highest level of CSR, raising the AV of a silver plan to 94% (and usually keeping the deductible in the $0-250 range), is also high.. Among enrollees with CSR-eligible incomes  65% in Florida are eligible for AV 94% silver, as are 65% in Georgia, 58% in Texas and 57% in North Carolina.

CSR remains strong for those in the next highest income bracket, 150-200% FPL, raising the actuarial value of a silver plan to 87% from its baseline of 70%. It fades to near-insignificance in the next bracket, 200-250% FPL, and phases out entirely at 251% FPL. In states that refused the Medicaid expansion in particular, the vast majority of CSR recipients, about 90%, get "strong" CSR, with AV 94% or 87%.  In Florida, Texas, North Carolina and Georgia, well over half of all marketplace enrollees obtain strong CSR, AV 94% or 87% -- that is, coverage with a higher actuarial value than the average employer-sponsored plan.

Republican "replacement" plans such as Tom Price's not only offer smaller premium subsidies than the ACA, generally not adjusted for income -- they also offer those subsidies in a deregulated market, in which most plans sold are likely to have actuarial values below 70%, the level of the ACA's benchmark silver plans un-enhanced by CSR.   The majority of current red-state marketplace enrollees will likely have to pay higher premiums for plans that cover far lower percentages of their out-of-pocket costs. If that's how events play out, CSR will deserve an important chapter in ACA enrollees' Remembrance of Things Past.

* As Ken Kelly reminds me, insurers are obligated to provide CSR to qualifying plan holders even if the federal government doesn't fund the benefit. But without funding, they also can arguably withdraw from the marketplace in 2017. If they don't, some may be driven into insolvency -- basically none could cover CSR without huge losses. Timothy Jost lays out the various chaos scenarios here.

The Tom Price Slice: Cutting the government's share of healthcare costs
The ACA's uncertain shield against underinsurance: A CSR compendium


  1. You have done a great job chronicling the CSR program.

    I am struck by the bizarre way the program has been funded. (Health care has numerous convoluted funding schemes, this may not be the worst.)

    Let me try and describe it.

    The tax credits are tiered to silver plans, which have $3,500 deductibles. I assume this was done so that the total ACA projected cost would meet CBO scoring targets.

    However, this means that poor people would have a policy they could not afford to use. So the next goal was to give poor people a platinum or at least gold policy.

    The simple solution would be to tier the tax credits to gold policies.

    But mo. The ACA's solution was to require insurance companies to make extra non-contractual payments on silver plans, but then reimburse the insurance companies every year out of general revenue.

    Compare this to what might happen in a major flood. People lose their homes, but their insurance contracts with Allstate have a $5.000 deductible. The government orders Allstate to waive the deductible for poor people, but promises to send $5,000 to Allstate to make up their losses.

    I can see doing this once. I cannot see doing this every single year!

  2. @bob.hertz

    The design and structure of the CSR does indeed feel bizarre.

    I however think it was deliberate design choice for political economy, consumer/behavior economics and federal budget reasons.

    Let me explain.

    1. Political Economy:

    The premium tax credits and CSR work together to indirectly create a system in which the consumer's insurance deductible increases with income ( over a certain range of the FPL).

    The fact that this occurs in a indirect way is important politically.

    A system that directly links deductibles to income would have faced significant opposition from congress and from middle/ high income consumers.

    A direct and transparent link between deductibles and income is also undesirable as it will make it politically difficult for government to update or change the link to reflect medical inflation or general economic conditions. This is illustrated by the frequent political grand standing in Congress on changes to medicare premiums for high income seniors.

    2. Consumer/Behavior economics

    There are several good health policy reasons for linking ( directly or indirectly) insurance deductibles to income. Those good reasons however conflict with the valid concern that low deductibles may encourage consumer over consumption ( or provider induced over-utilization) of health care.

    Since CSR is only attached to silver plans and consumers can choose either a bronze plan or a silver plan:
    (a) some consumers can choose high deductible bronze plans; and
    (b) some low income consumers ,that are willing to pay a slightly higher monthly premium, can choose silver plans with CSR.

    The above fact;

    (a) provides choice and allow consumers to demonstrate their utility/ preference for low or high deductible plans;

    (b) reduces the moral hazard of low deductible plans; and

    (c) somewhat blunts the political opposition to individual mandate.

    3. Federal Budget

    CSR is voluntarily and not refundable.

    The government expenditures is therefore reduced by an extent linked to the number of CSR eligible low income consumers that choose a bronze plan.

    I will love to hear @bob.hertz or Andrew's thoughts on all of the above.

    1. Thanks for your good observations.

      CSR's are another attempt to bridge the gap between private insurance policies (which in themselves pay no attention to income) and the desire of Democrats to help the poor.

      In the absence of schemes like the CSR's, and in the absence of social insurance, then people with no money will choose the cheapest insurance policies. They will then pay the highest deductibles.
      This happened all the time before the ACA.

      The other plan for poor people is of course Medicaid. But like so many means-tested programs, Medicaid has this awful cliff, where at $11,000 of income you get free insurance, but at $12,000 in many states you get tossed into a high-deductible disaster. The CSR's are a way of softening this cliff.

      I do disagree somewhat with two of your points.

      The bronze vs silver issue was not really a laboratory of consumer choice, because the CSR feature was VERY hard to find out about for the early years of the ACA.

      I also do not see that CSR's reduce federal spending at all. It does not matter to me anyways if we spend money on larger subsidies to help the poor buy gold plans, versus spending the same amount in back door payments to insurance companies to subsidize them for secretly converting their silver plans to gold plans.