Sunday, August 20, 2017

If I had $194 billion...spending the federal funds that CSR cutoff would waste

The CBO report on the effects of the federal government ceasing reimbursement of insurers for the Cost Sharing Reduction subsidies they are required to provide to qualifying ACA marketplace enrollees includes two projections tantalizing to Democrats.

First, if not executed until 2018, not mishandled by states and not coupled with other forms of sabotage (a lot of ifs!), CSR defunding need not harm individual market enrollees and will in fact provide a windfall to many (by about a million as of 2020, sustained through 2026).*

Second, this means of boosting coverage is colossally inefficient, in fact outright profligate. CBO projects that ending the CSR reimbursements will cost the Treasury $194 billion over ten years, $37 billion in 2026 alone (and so imagine the 20-year cost).

That's a lot of money for Republicans to spend to spite Democrats. To review, the ACA instructs the Treasury to reimburse insurers for CSR and built the cost of reimbursement into the funding baseline, though it quaintly leaves it to Congress to appropriate the money. Doing so has no impact on the deficit; refusing swells it by said $194 billion.

This suggests to me a rather perverse deal: Republicans, pay the money budgeted, and use the $194 billion in "savings" for tax cuts. The "savings"should just about cover the ACA's surtax on investment income for the wealthy, as CBO pegged the 10-year cost of repealing that tax at $172 billion). Sure, that's deficit-funded, but as Dick Cheney told us, deficits don't matter when Republicans are in control.

Of course, those who want the ACA to work and who want to expand coverage can think of better uses for the (otherwise wasted) money. We now have $194 billion in sugarplums dancing in our heads. I canvassed a handful of healthcare scholars as to what they'd do with the money.  A few possibilities:

Reinsurance: $194 billion over ten years is not far above the tab for the various forms of "stability funding" Republicans stuffed into the BCRA to compensate for its disfigurations of the individual market (e.g., Cruzifying it with a parallel market of non-comprehensive plans). The phase-out of the ACA's three-year reinsurance program in 2017 was a primary cause of 2017's steep rate hikes. Timothy Jost of Washington and Lee University estimates that $10 billion in reinsurance in 2014 reduced premiums by 10-14%.

Gold benchmark: In August 2015, when the leveling off of ACA marketplace enrollment growth was already foreseeable, the Urban Institute's Linda Blumberg and John Holahan proposed a package of subsidy enrichments that included raising the actuarial value of the "benchmark" plan -- against which premium subsidies are calculated as a percentage of income -- from the current 70% to 80%, with higher benchmark AVs for enrollees with incomes up to 300% of the Federal Poverty Level (FPL).  They also proposed reducing the percentage of income required at every income level to buy the benchmark plan, and capping that percentage at 8.5% for all enrollees with incomes over 300% FPL.  They priced this entire package at $221 billion over ten years. The proposal also recommended increasing funds for outreach, enrollment and IT, at a 10-year cost of about $15 billion.

Asked by email how $194 billion over ten years might best be spent, Blumberg responded that reinsurance and outreach/enrollment should be the first priorities -- "but neither are terribly expensive." Beyond that, "Pegging subsidies to gold instead of silver would be an excellent start if spending real money."

Blumberg further pointed to a proposal included in the compromise package that she and Holahan published this past January: capping the rates that ACA-compliant plans pay to providers at Medicare rates or some multiple.  That would "actually save federal dollars and would likely increase insurer participation in a number of areas."  Indeed! In effect, that little (okay, giant) step would convert the individual market into something very like Medicare Advantage -- a kind of private Medicare-for-all-who-need-it.  But that is outside the realm of spending our $194 billion reverse-windfall.

Family glitch deglitch: Harold Pollack of the University of Chicago writes that fixing this ACA flaw would be his first spend. The so-call "glitch" catches those for whom an employer's offer of insurance is deemed "affordable" for the employee alone (premium under about  9.6% of income) though it may cost well more than that for his or her family. Shortly before the election, I glanced at the benefits and costs of addressing this. I would note here that the first-year cost as estimated below is close to CBO's 2018 estimate of the cost of stopping CSR payment.
 An  Urban Institute study** estimates that over 6 million people are in families subject to the family glitch, though most of them accept the employer's offer even though the premiums exceed the 9.6%-of-income threshold: Only 500,000 of those 6 million are estimated to be uninsured -- and if the glitch were fixed, it's estimated that only about 100,000 of them would take up marketplace coverage...

Nonetheless, allowing family members of those deemed to have an individually affordable ESI offer to obtain subsidized marketplace coverage would not only make coverage more affordable for many now stretched by employer-sponsored plan premiums, but would also improve the individual market risk pool -- as a relatively high percentage of those new entrants are likely to be youngish adults in two-adult households (most children in families stuck in the glitch are probably eligible for CHIP). Under the most generous change in law, allowing a whole family subject to the glitch to enroll in marketplace coverage, the Urban researchers estimate a boost of over 3.6 million in marketplace coverage. Under a more restrictive option, in which the employee with the ESI option would still be subsidy-ineligible, marketplace enrollment would grow by an estimated 1.6 million. The cost estimate ranges from $3.7 billion for the more limited fix to $6.5 billion for the more expansive  one in 2016.
So there's the wish list. And for this fantasy banquet, I'll add a few final food/wine pairings.

First, in a compromise package, fixing the family glitch might "pair" with repealing the employer mandate, which would probably induce a relative handful of employers to drop coverage. Small employers would be likeliest to drop off, and the plans they offer tend to be less generous, and the least affordable plans tend to be offered to lower-paid employees -- so these paired changes might reduce underinsurance while improving the risk pool in the individual market.

Second, CSR funding might be paired with raising benchmark AV to 80% (currently gold-level), since that is de facto what stopping CSR funding does, at higher cost (rendering AV 80% gold plans cheaper than silver).

Finally, a more natural pairing might be CSR funding and reinsurance, since Republican forays into restructuring the individual market (in the AHCA and BCRA) included generous helpings of reinsurance -- as did Republican-designed Medicare Part D.  Indeed, the Price HHS has encouraged states to seeking partial federal funding for reinsurance programs via ACA innovation waiver, acknowledging that such funding partially pays for itself via lower premiums (and so lower subsidies). Thus reinsurance is a "natural" pairing with CSR funding, since the former lowers federal spending on subsidies while the latter raises it.

P.S. If the title here puts in you in mind of Barenaked Ladies, dear reader, may I instead commend you to the great-spirited If I had a Million Dollars in The Me Nobody Knows? Starts with material wish fulfillment from very needy kids, then opens out.

* That's because the premium hikes (if handled optimally) will be concentrated in on-marketplace silver plans, because CSR is only available with silver. Since the benchmark plans that determine subsidies are also silver, subsidies will also rise, to the point where gold plans will likely be cheaper than silver and bronze plans will for many buyers be free or very cheap.

** by Urban's Matthew Buettgens, Lisa Dubay and Genevieve M. Kenney

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