Wednesday, October 24, 2018

CMS guidance on ACA innovation waivers requires an ACA-compliant benchmark

The Trump administration has opened a new front in its assault on the ACA marketplace's protections for people with pre-existing conditions. This time the vehicle is the ACA's Section 1332 innovation waivers, which enable states to propose alternatives to the ACA's basic marketplace architecture to get their residents covered with affordable, comprehensive insurance.

In guidance issued this week, CMS relaxed strict standards that states have until now had to meet to get waiver proposals approved. Most radically, the new guidelines are designed to enable states to offer subsidies for ACA non-compliant plans, including short-term plans that are medically underwritten and don't have to cover the ACA's Essential Health Benefits.

Subsidizing noncompliant, medically underwritten health plans would seem to be a route to undermine the ACA-compliant market completely -- and potentially render comprehensive coverage unaffordable for subsidized as well as unsubsidized enrollees, especially those with pre-existing conditions.  But I suspect the guidance doesn't go quite as far as it seems to in this regard.  Some constraints on rendering comprehensive insurance unaffordable remain, I'll suggest below -- at least for subsidized enrollees.

Statutorily, Section 1332 theoretically enables states to alter or eliminate core features of the ACA marketplace -- including the individual and employer mandates, EHBs, Cost Sharing Reduction subsidies (CSR), and metal levels with fixed actuarial values. But there's a catch, which (mostly Republican) critics have derided as a Catch-22.   The coverage offered under the state alternative has to
  • be at least as comprehensive as that stipulated in the ACA; 
  • provide coverage and cost sharing protections that are at least as affordable; 
  • cover a comparable number of residents; and 
  • not increase the federal deficit. 
At the end of 2015, HHS issued guidance that raised the bar further, specifying that waiver proposals could not disadvantage "vulnerable residents" -- that is, could not reduce coverage for groups including "low-income individuals, elderly individuals, and those with serious health issues or who have a greater risk of developing serious health issues."

The new guidance deals three ax blows to these guardrails. First, with breathtaking sophistry, it decouples the requirement to cover a comparable number of residents from the requirements to provide coverage as comprehensive and affordable as would be obtained without the waiver. The coverage and affordability provisons, asserts the Trump CMS,  "merely state that the state's plan will provide coverage that is as comprehensive and affordable as would occur without a waiver, but do not specify to whom such coverage must be provided." Not as many people have to obtain coverage as comprehensive and affordable as under the statutory ACA design.

Second, a corollary: the waiver proposal must make coverage as comprehensive and affordable as under the default ACA design available but needn't ensure that as many people obtain it.

Finally, the new guidance voids the 2015 guidance principle that vulnerable populations not be harmed by the waiver proposal:
the revised guardrails will give states more flexibility to decide that improvements in comprehensiveness and affordability for state residents as a whole offset any small detrimental effects for particular residents.
Whew. The guidance also explicitly states that a waiver proposal "should foster health coverage through competitive private coverage, including AHPs [Association Health Plans] and STLDI [short-term plans, which are medically underwritten and now can offer 364 days of coverage, renewable twice], over public programs."  CMS administrator Seema Verma has affirmed that she envisions proposals that will allow ACA premium subsidies to attach to such plans. The guidance affirms that HealthCare.gov, the federal exchange, will be put to work to accommodate state changes and to "enable states to work with private industry partners to create their own Web sites."

The creation of a parallel market offering lightly regulated, medically underwritten plans poses two levels of threat to the ACA-compliant market, where plans must be offered on equal terms without regard to the applicant's health or medical history and must offer the ACA's Essential Health Benefits at fixed actuarial values.

The first threat is already here, courtesy of the administration's fostering of the STLDI and AHP markets: lightly regulated, medically underwritten plans are now being deployed to compete for unsubsidized enrollees' business. That will drive up premiums for ACA-compliant plans. But ACA premium subsidies, which are income-adjusted, insulate subsidized enrollees from those premium hikes. The question is whether the new guidance will destroy the ACA-compliant market for subsidized buyers --  and so its protections for subsidized buyers with pre-existing conditions. Could that happen in states that allow subsidies to be applied to STLDI and other ACA-noncompliant plans?

Such a scheme would drive up the base premiums of ACA-compliant plans by sucking subsidized as well as unsubsidized enrollees out of the ACA-compliant market. To really destroy that market, however, a state scheme would have to alter the benchmark against which subsidies are calculated -- that is, the second-cheapest silver plan in the ACA-compliant market. Subsidized enrollees pay a fixed percentage of income (varying by income) for that benchmark.  As long as that remains the case, subsidized premiums at the ACA's prescribed metal levels will retain more or less their current scale and structure. If subsidies are calculated on a basis that includes ACA-noncompliant plans, however, the guaranteed issue marketplace will likely become unaffordable to the subsidized as well as the unsubsidized.

I don't think the new guidance allows that -- unless its creators read it in as bad faith as they've read the 1332 statutory language (which is of course possible).  Here's why.

The new guidance affirms that coverage as comprehensive and affordable as that on offer without the proposed scheme has to be available, even if fewer people choose it. "The Departments may consider these guardrails met if access to coverage that is as affordable and comprehensive as coverage forecasted to have been available in the absence of the waiver is projected to be available to a comparable number of people under the waiver." Comprehensiveness is defined by the extent to which coverage meets the ACA's essential health benefits requirements. Affordability "may generally be measured by comparing each individual's expected out-of-pocket spending for health coverage and services to their income." If coverage meeting such standards has to be available, it pretty much has to be tied to a benchmark plan in an ACA-compliant market.

It's true that the new guidance voids the 2015 guidance banning any reduction in coverage for vulnerable groups. But this abrogation appears to be a matter of degree -- though the language leaves a lot of wiggle room:
In evaluating affordability, the Departments will take into account access to
affordable, comprehensive coverage available to all state residents, regardless of the type of coverage they would have had access to in the absence of the waiver. In addition to considering the number of state residents for whom comprehensive coverage has become more or less affordable, the Departments will take into account the magnitude of such changes. For example, a waiver that makes coverage slightly more affordable for some people but much less affordable for a comparable number of people would be less likely to be granted than a waiver that makes coverage substantially more affordable for some people without making others substantially worse off. In addition, a waiver that makes coverage much more affordable for some people and only slightly more costly for a larger number of people would likely meet this guardrail. The Departments will consider the changes in affordability for all groups, including low-income residents and those with high expected health care costs.  
That sounds pretty squishy to me. But it also sounds as if it should lead to rejection of a scheme like the one Iowa submitted in 2017, which would have wiped out the ACA's Cost Sharing Reduction (CSR) subsidies, which are accessed by more than half of enrollees nationally, and instead offered everyone a plan with a deductible and yearly out-of-pocket maximum both set at  $7,350. For approximately 5 million current ACA enrollees with incomes under 200% of the Federal Poverty Level, CSR reduces deductibles to under $1000 (generally under $500 for those with incomes up to 150% FPL) and the out-of-pocket max to $2,450 in 2018.  Coverage under that scheme would not have been "only slightly more costly" for the roughly half of enrollees who access CSR below the 200% FPL threshold (much weaker CSR is available at 200-250% FPL).

The states with the highest percentage of enrollees obtaining low-premium, high-AV coverage in the ACA marketplace are those that have refused to expand Medicaid. In those states, eligibility for ACA subsidies begins at 100% FPL rather than 138% FPL, the level below which people in expansion states are eligible for Medicaid. In the nonexpansion states, over a third of enrollees have incomes below 138% FPL. For them, a benchmark silver plan costs 2% of income (a max of about $27/month for an individual) and has an actuarial value of 94% (compared to 68-72% in the Iowa proposal and in ACA silver plans unenhanced by CSR).

Would red state governments wipe out such benefits to create an unregulated free-for-all? They could create a free-for-all for the unsubsidized, and lure some higher-income subsidized enrollees into medically underwritten plans, without destroying this low income benefit if they leave the ACA benchmark system or some near equivalent intact -- that is, if premiums remain keyed to a benchmark in the ACA-compliant market.

If red states do allow subsidies to be applied to noncompliant plans (without altering the benchmark), those plans will be free for a lot of subsidized people, while ACA-compliant premiums would likely soar as the risk pool is depleted. Would such schemes be deficit neutral? Would the CMS actuary accept arguments that they are?

All that remains to be seen. But if CMS follows the spirit of its own guidance, it seems to me it has got to leave subsidies keyed to an ACA-compliant benchmark. Otherwise, equally comprehensive and affordable insurance won't be available to low income buyers.

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