Monday, May 21, 2018

Four ways states can leverage ACA sabotage

Sabotage of the ACA by the Trump administration and the Republican Congress will partially reverse the ACA's coverage gains, causing hardship to millions. But it differs from Republicans' failed legislative repeal in a fundamental way: The ACA's funding streams and mechanisms remain in place.

Not only can states that retain the will to make the ACA work continue to tap federal funding -- if they're willing to be creative, they can tap revenue streams created and inflated by the sabotage. Each form of sabotage has created new opportunities. There are at least four ways that states can not only fight off sabotage, but leverage funding opportunities that sabotage has created.

1. Silver loading CSR costs. It's well understood by now that when Trump cut off federal reimbursement to insurers for Cost Sharing Reduction, forcing them to price the benefit into premiums, he created large discounts in bronze and gold plans in states that allowed insurers to concentrate CSR costs in silver plans only* (an effect forecast back in January 2016). The gold discounts in particular created a kind of back-door CSR for enrollees in the 200-400% FPL range, who are otherwise under-subsidized. Some two million current enrollees in the ACA marketplace have benefited from the cutoff of direct federal reimbursement for CSR.

2. Reinsurance pass-throughs. Following Trump's election, it became increasingly evident that the ACA's uncertain fate, spiked by Trump's repeatedly confessed will to destroy the law's core programs, was going to trigger massive premium hikes. The threat of CSR cutoff loomed for nine months before Trump pulled the trigger; passage of repeal legislation seemed likely through July; and Trump's promises to open the floodgates to short-term and association health plans boded (and bode) ill for the ACA-compliant risk pool.  The looming damage to markets -- and cost to the federal Treasury stemming  from inflated premiums -- was enough to spur even Tom Price to put out a lifeline to states in the form of an invitation to submit ACA innovation waivers seeking federal funding for reinsurance. HHS offered to share savings generated from premiums reduced via reinsurance with states. Three states have so far had reinsurance waivers approved, with at least ten more proposals in the pipeline.

3. Individual mandate adoption. The Republican Congress's effective repeal of the federal "individual mandate", requiring those for whom health insurance is deemed affordable to obtain it or pay a penalty, created an opportunity for states willing to implement their own equivalent mandate to capture the mandate revenue and use it to strengthen their own individual markets. So far, only New Jersey is poised to do so (Massachusetts has a state mandate that pre-dates the ACA). The New Jersey legislature has passed bills that would establish a mandate and use the revenue to partially fund reinsurance, while also seeking federal funding for a reinsurance program via an ACA waiver proposal. Those bills await the governor's signature.  Together,they should reduce premiums by 20-30%, compared to where they would be if the bills are not signed or a reinsurance program doesn't get off the ground.

4. BHP arbitrage. David Anderson highlighted this possibility today. Like Nos. 1 and 2 above, it leverages federal funding inflated by sabotage-induced premium hikes. That includes the damage wrought by short-term plans as well as mandate repeal.

The ACA gave states the option to create a Basic Health Program (BHP) for enrollees with incomes at the lower end of eligibility for subsidized coverage in the ACA marketplace. So far, only Minnesota and New York have created BHPs -- Medicaid-like programs for people with incomes in the 138-200% FPL range, with premiums and copays lower than enrollees would pay in the private plan marketplace. Since the funding is based on ACA marketplace subsidies, inflated marketplace premiums means increased BHP funding. Anderson explains:
The BHP is a program where states take a per enrollee block grant that is equal to 95% of what the Federal government would have spent on that individual in the ACA market.  This pool of money is then used to pay for enhanced benefits and lower premiums for people who earn under 200% Federal Poverty Level (FPL)...

Note the important words: per enrollee block grant.  Let’s assume a a state had a ACA group of 100,000 BHP eligible buyers at an average federal subsidy of $3,000 per enrollee for $300 million in ACA funds for the enrolled population.  Now let’s assume the state signs up 200,000 people to their new BHP, the state gets $570 million dollars for their BHP (.95*$3,000*200,000).

As the relative morbidity increases, the BHP arbitrage increases.  The baseline from which the BHP per enrollee grant is calculated from is the far more expensive and morbid ACA enrollee.  The healthier not enrolled individuals who would sign up for the BHP will cost significantly less on a per capita basis than the benchmark.  States could tap into a significant pool of federal funds that will continue to grow as the ACA risk pool is intentionally made more morbid and expensive
Sabotage is not a force for improving policy.  Cutoff of CSR funding, mandate repeal, and stimulating an underwritten, lightly regulated parallel market to the ACA-compliant one will together cut the ranks of the insured by millions, rendering comprehensive unaffordable to millions who don't qualify for subsidies and reducing insurer competition and viable choices for the subsidy-eligible.  A BHP is a double-edged sword -- great for low income enrollees, but further weakening the private plan risk pool.** Work requirements in Medicaid, coupled with mandate repeal, will reduce the reach of the ACA's most successful program, the Medicaid expansion.

Still, the failure to cut off ACA funding, coupled with policy measures that inflated (and will continue to inflate premiums) has created multiple opportunities for states and individuals to access increased federal funding (or, in the case of the individual mandate, revenue that would otherwise have gone to the feds). A sabotaged ACA will insure, on net, fewer people at greater cost. But some people will obtain benefits more richly subsidized than they would have been absent sabotage.

*Note on Effects of CSR funding cut-off 

When Trump cut off federal reimbursement of insurers for the Cost Sharing Reduction subsidies they're legally required to provide to lower income ACA marketplace enrollees who select silver plans (57% of marketplace enrollees in 2017), most states allowed or required insurers to concentrate the cost of CSR in premiums for silver plans only. States in which 70% of individual market enrollees live concentrated the cost of CSR in on-exchange silver plans only, allowing for cheaper silver plans to be sold off exchange.

Since ACA premium subsidies are keyed to the price of the benchmark (second cheapest) silver plan in each rating area, subsidies rose to cover inflated silver premiums, generating often dramatic discounts in non-silver plans, i.e. gold and bronze (platinum availability and purchase is negligible). In many states, steep increases in silver plan premiums resulted in zero-premium bronze plans becoming available to many buyers (or nominal $1-3/month premiums), and gold plans that were either cheaper than silver or close in price.

Cheap gold plans were a particular boon to enrollees with incomes between 200% and 400% of the Federal Poverty Level (FPL). These buyers are not eligible for strong CSR, which makes silver plans roughly equivalent to platinum plans for buyers up to the 200% FPL threshold. Normally,  enrollees in the 200-400% FPL range would pay between 6% and 10% of their income (percentage rising with income) for a benchmark silver plan with an actuarial value of 70%, i.e. with an average deductible of around $3600). With CSR priced into silver plans in 2018, gold plans  (80% AV, with an average deductible of around $1100) came within reach of many in this income range.  Gold plan selection quadrupled in Maryland in 2018.

** Added after prompting by Wesley Sanders below. I was going to point this out at first go, but was too lazy -- or too unwilling to inflate the paragraph.

1 comment:

  1. As you point out, the entire story of the CSR's is rather pathetic.

    The goal of CSR's was to give poor people lower deductibles. We could have accomplished this by tying ACA subsidies to gold plans. We could have accomplished this by allowing a Medicaid buy in. We could have accomplished this by having a firm national fee schedule in the manner of France and Germany. These countries and many others have low deductibles for everyone, not just the poor.

    But all we could get past Congress was to smuggle money to insurance companies, and on a rather ludicrous income related scale, and the final ACA bill not efficiently smuggle the money because it required an annual appropriation.

    It does not give one great faith in ad hoc incremental price relief.