Thursday, December 14, 2017

Sabotage judo: States can turn individual mandate repeal to their advantage

With repeal of the ACA's individual mandate apparently imminent, health law scholar Nicholas Bagley urges states to mitigate the damage by...getting their own damn mandate:
Adopting mandates at the state level would help stabilize insurance markets, thereby keeping premiums in check and forestalling coverage losses. It would also provide a welcome source of revenue: Some people will still prefer to pay a penalty than buy insurance. Plus, the states don’t need to stick with the precise terms of the federal mandate, which has been reviled (from different quarters) both for heavy-handedness and its ineffectuality. Stiffer state-level penalties would still be unpopular, but at least they’d work better.
I'd like to suggest that states take this a step further. Why not use the revenue collected from the state mandate to partially fund a reinsurance program?  Reinsurance has repeatedly proven  to sharply reduce premiums  (leading Susan Collins to propose an underfunded federal program to offset the effects of mandate repeal).

CBO projects that mandate repeal will cost the federal government $5 billion per year in forgone penalty payments by 2020 and $6 billion per year by 2025 (while saving the government more than 10 times as much in premium subsidies). States can capture that revenue for themselves by implementing their own mandates. California, with 12% of the nation's population, might collect $600 million per year in 2020 (to the extent that mandate revenue is proportionate to population). New York, with 6% of the population, might pull in $300 million. Jersey might manage $135 million; Minnesota, $85 million. These are crude calculations, but they give some idea of scope.

The state can further subsidize its reinsurance program by taking up HHS's explicit invitation to seek federal reinsurance funding via an ACA innovation waiver. The federal funding may be granted, HHS suggested, as a "pass-through" of savings derived from lower premiums -- since lower premiums mean lower subsidies, which are paid by the federal government. While HHS has proved an unreliable partner to states seeking to establish such programs -- sandbagging proposals from Minnesota and Oklahoma this fall -- it did provide funding for Alaska's successful reinsurance program, and with a longer time horizon, may approve more proposals submitted for 2019.

Between dedicated mandate penalty funds and federal pass-through funding, a state could conceivably cover the full cost of a reinsurance program, or most of it. The feds are covering over 80% of the Alaska program's costs. Minnesota proposed a federal pass-through contribution of $139-167 million, a bit more than half the $271 million the state committed to reinsurance for 2018 (and roughly twice my crude estimate of how much the state might gain via an individual mandate).

Alternatively, a state could dedicate mandate funds to provide relief to individual market enrollees who earn too much to qualify for ACA premium tax credits -- perhaps by making premiums tax deductible for all who don't qualify for the tax credits. That would in turn clip some of the mandate revenue -- but improve the risk pool. As many as half of unsubsidized individual market enrollees already access this break, in the form of the self-employed health insurance tax deduction. Giving it to the other half is a matter of equity as well as prudence: unsubsidized individual market enrollees are basically the only insured people in the country who get no government help to pay their premiums.

More broadly, by adopting an individual mandate, a state could protect against the 10% yearly increase in premiums and 28% shrinkage in individual market coverage over ten years projected by CBO for the country as a whole under mandate repeal -- as well as shrinkage of Medicaid enrollment by about 8%.*  Reinsurance would further shrink premiums and boost enrollment -- and so also boost federal support for healthcare access in the state.  To the extent that Medicaid enrollment losses stemming from mandate repeal are concentrated in the ACA Medicaid expansion population, a substitute mandate also means preserving a 90% federal match for more enrollees.

Repealing the federal mandate is an act of sabotage -- but states can leverage it by co-opting revenues the federal government is foregoing. In this way, mandate repeal potentially resembles the paradoxical effects of this year's prior major act of sabotage -- cutoff of federal funding for Cost Sharing Reduction subsidies. Since insurers participating in the ACA marketplace are required by law to provide those subsidies, the cutoff forced them to price in the cost of CSR -- and Trump's timing enabled them to do so. Higher premiums means higher subsidies. Nimble states, by instructing insurers to concentrate those price hikes in silver plans sold on-exchange only (since CSR is only available in silver plans sold on-exchange), created large discounts in bronze and gold plans, as income-based premium subsidies are set against a silver benchmark.  In states that allowed cheaper silver plans to be sold off-exchange (where no CSR is available, and so not priced in), unsubsidized buyers were theoretically held harmless -- though the 9-month uncertainty about CSR, and about the fate of the marketplace in general, took its toll and doubtless drove up premiums beyond the calculable cost of CSR.

By thus reducing confidence, sabotage takes its toll Nonetheless, a state that acts aggressively on all possible fronts to preserve the viability of its ACA marketplace can actually come through the Trump/Republican sabotage assault with enhanced federal funding on multiple fronts. If the ACA's core funding sources and programs structures remain intact, and insurers stay the course at least in states that want to make their markets work, the ironies will provide some consolation -- as the federal funds provide some compensation.

* CBO forecasts that the individual market for health insurance will have 5 million fewer enrollees by 2027 if the mandate is repealed than it would under current law. Its most recent projection for 2027 enrollment under current law is 18 million. For Medicaid, CBO projects a current-law enrollment of 73 million by 2027, 17 million of those a result of the ACA expansion. It projects 5 million fewer enrolled under mandate repeal.

1 comment:

  1. the current rule is that no one owes a penalty if the price of an ACA plan exceeds 8% of their income. On that basis, the mandate has been actually repealing itself. In many states you need an income over $100,000 just to owe a penalty.

    When the ACA began, I thought that the mandate would raise significant amounts of money. But in 2015 the mandate raised $3 billion in penalty dollars. Yet the number of uninsured was at least 20 million. that comes to $167 per uninsured.

    What happened? Apparently many of the uninsured were illegals, or children, or otherwise not filing tax returns.

    The other question is how effective reinsurance programs will be in lowering premiums. In MN and Alaska, the reinsurance programs were relatively well funded, but all they did was to prevent huge increases. (with a few 7 and 10 per cent reductions). I have struggled to find an actuarial explanation for this.