Friday, February 15, 2019

What if the Obama administration had ended direct CSR reimbursement in 2016?

Trump's bid to fund his wall with money not appropriated by Congress has set me thinking about the Obama administration's far better grounded, but still dubious, determination to fund the ACA's Cost Sharing Reduction (CSR) subsidies without an explicit appropriation from Congress.

That decision was challenged in court by the Republican Congress in 2014 and, with the suit still pending, countermanded by Trump in October 2017, with disruptive but far from catastrophic consequences.

I'm thinking not of tendentious comparisons between Obama's executive actions and Trump's, but rather about a counterfactual: What if the Obama administration had taken the likely Congressional refusal to appropriate funds at face value, and declined to directly fund CSR?

The effects of a failure to reimburse insurers directly for the CSR they're obligated to provide to qualifying enrollees may have appeared catastrophic to administration planners in 2013, before the ACA marketplace launched. But with the Republican House suit pending, the way to cope with a cutoff of direct CSR funding was mapped out by Urban Institute scholars Linda Blumberg and Matthew Buttguens in January 2016.

To review as briefly as possible: The ACA provides qualifying enrollees in the private plan marketplace with two types of subsidies: premium subsidies, available to enrollees with incomes up to 400% of the Federal Poverty Level (FPL), and CSR, which reduces deductibles, co-pays and out-of-pocket maximums  for enrollees with incomes up to 250% FPL -- but only if they select silver plans. In one of many drafting flaws, the ACA instructed the treasury to reimburse insurers for their CSR costs, which were not to be priced into premiums, but did not explicitly make that reimbursement mandatory.

The Obama administration reimbursed CSR costs from 2014 through 2016 (and under legal challenge, 2015-16*). As soon as Trump was elected, speculation began that his administration would not defend the suit and would cut the payments off. In October 2017, weeks before open enrollment began for 2018, he pulled the trigger -- stiffing insurers for the remainder of 2017, but enabling them to price CSR into premiums for 2018. Insurers and state insurance departments were in varying degrees prepared.

As noted above, the likely effects of a CSR cutoff, and the way to minimize damage and in fact reap a windfall of sorts, had been gamed out in January 2016 by Urban's  Blumberg and Buttguens. Since CSR is available only with silver plans, insurers would price the benefit into silver plans only. Since ACA premium subsidies are set against a silver benchmark, and designed so that enrollees pay a fixed percentage of income for that benchmark plan, subsidies would rise with silver premiums -- creating discounts in other metal levels. The Congressional Budget Office echoed this forecast in August 2017 -- estimating the 10-year cost of the inflated subsidies at a cool $194 billion over ten years.

The event proved the theory.  Some state insurance departments had allowed insurers to prepare for a CSR cutoff in advance. Others authorized last-minute premium adjustments when Trump pulled the trigger in October 2017. Almost every state allowed "silver loading" -- concentrating CSR costs in silver plans.  Some allowed or encouraged silver loading in plans offered on the exchange only, with ACA-compliant silver plans free of the silver load available to the unsubsidized off-exchange. In 2019, more states switched to silver loading or moved further to on-exchange-only silver loading.

The results were double-edged. Insurers, spooked by the CSR threat, the ACA repeal threat, and other adverse administration actions and threats -- and using the general uncertainty to their advantage -- raised premiums massively in 2018 -- 34% on average for benchmark silver plans. Enrollment among the unsubsidized dropped sharply.  At the same time, the bounty from "silver loading" provided bronze and gold plan discounts taken up by almost two million subsidized enrollees. Those gains partly offset losses triggered by high base premiums, general confusion, and the administration's gutting of funds for enrollment assistance and outreach, which hurt enrollment at lower income levels.

As triggered by Trump, the effects of a CSR direct funding cutoff have probably been a net loss so far. The Kaiser Family Foundation estimated that off-exchange enrollment dropped by 2 million (38%) from the first quarter of 2017 to the first quarter of 2018; unsubsidized on-exchange enrollment dropped by about 300,000 (17%). Not all of that loss is due to the CSR cutoff, but the cutoff turbo-charged it, and the 2018 increases doubtless had a cumulative effect on top of sharp premium increases in 2017. As an offset, silver loading has probably boosted enrollment among people in the 200-400% FPL income range by several hundred thousand (enrollees with incomes up to 200% FPL mostly stuck with CSR-enhanced silver plans, as the value of CSR in that income range outstrips the value of bronze and gold discounts generated by silver loading).

Now for the counterfactual. Suppose that CMS, confronted with the Republican lawsuit in November 2014 challenging CSR reimbursement, announced that CSR would no longer be directly reimbursed in 2016 -- unless Congress appropriated funds. Suppose too that CMS then did what it in fact did in August 2018: actively encourage silver loading, including the offering of CSR-free silver plans off-exchange**. Suppose insurers adopted silver loading methodically, in a stable environment, rather than under pending threat of CSR cutoff -- not to mention ACA repeal, the gutting of advertising and outreach, and looming individual mandate repeal. Unsubsidized premiums, which rose modestly in 2016, should not have been affected, except for on-exchange silver.

The resulting silver loading discounts would not then have been pushing against the fierce headwinds faced by the marketplace in 2018 -- the massive cuts in enrollment assistance and advertising, compounding confusion over efforts to repeal the core ACA programs or the individual mandate alone. State marketplaces would have booked enrollment gains at the 200-400% FPL income level, probably improving the risk pool (about 60% of enrollment to that point was at incomes below 201% FPL) and perhaps mitigating the 2017 rate spike. The de facto subsidy hike, in the neighborhood of $15-20 billion annually over ten years, would have more clearly ameliorated the ACA's original underfunding.

Under any circumstances, silver loading generates haphazard and confusing benefits -- gold plans that cost less than silver, free bronze plans with $7000 deductibles competing (for low income enrollees) with silver plans with deductibles under $1000 but premiums as high as $125/month. Handed this somewhat ambiguous bounty, CMS could have encouraged states to get creative and improve offerings via ACA innovation waiver proposals (as a Democratic CMS might yet do  in 2021, absent more radical changes at the federal level).

With innovation waiver, states can propose changes to the design of their marketplaces, changing almost any element. Proposals have to demonstrate that the changes will cover as many people as comprehensively as the default design (or did before the Trump administration rewrote the rules in violation of the statute) -- and they have to be deficit-neutral. As the precedent of successful waiver requests to implement reinsurance programs demonstrates, states can seek a pass-through of any savings the proposed plan generates.

States could therefore seek to have CMS pass through the subsidy increases generated by silver loading and use those dollars to boost subsidies on a more rational basis.  As it is, CSR makes something of a mess of income-adjusted benefit levels even without silver loading -- rendering silver plans more valuable than gold for enrollees with incomes up to 200% FPL, and creating a disproportionate benefit difference between bronze and silver for low income enrollees.  A waiver proposal could end the separate CSR benefit -- currently a fiction in any case, as CSR is priced directly if imprecisely into premiums -- and grade the actuarial value offered at different metal levels and incomes more evenly, while using the silver lode to offer subsidies more generous than the original ACA design.

Thus the counterfactual could become future fact -- albeit at much higher price points than in 2016. A state could even propose a rationalized benefit design leveraging the silver load to the Trump administration.  But I won't vouch for the outcome.

* The Republican Congress, determined  to sabotage the ACA in any way possible, signalled that it would not appropriate the funds in advance of  the ACA's kickoff 2014. The Obama administration determined in effect that the appropriation was implicitly mandatory, and that it could make the CSR payments under a prior open-ended Congressional appropriation for tax refunds. The Republican House sued to stop the payments in November 2014. In May 2016, a judge ruled in favor of the plaintiffs but stayed her order pending appeal.

** To encourage off-exchange CSR-free silver, CMS may had to waive or amend its "meaningful difference" requirement -- later repealed by the Trump administration -- that plans offered at different prices be "meaningfully different" from each other.

*** The Trump administration has in fact encouraged states to get creative with innovation waivers, albeit destructively and illegally.

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