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10 reasons cost-sharing reductions are YUGE news

Almost 6 million exchange buyers receive CSRs, but Trump just said he'll halt funding. Why it's a big deal to the health insurance market.

Why are CSRs in the headlines in 2017?

  1. Cost-sharing reduction subsidies affect 57 percent of marketplace plan buyers.
  2. CSRs provide assistance to consumers with incomes between 100% and 250% of the federal poverty level.
  3. Carriers use CSR funding to adjust the cost of Silver plans. (It’s not a “carrier bailout.”).
  4. Republicans have been trying to defund or eliminate CSRs for years.
  5. CSRs won’t go away this year.
  6. Just the threat of defunding has created instability that will affect premiums this fall.
  7. States and insurers took varying approaches to CSR funding uncertainty.
  8. Silver plan rates are spiking in many states due to lack of CSR funding.
  9. Some insurers have exited the exchanges over the CSR funding issue.
  10. Comparison shopping during open enrollment is more important than ever.

When it comes to health reform discussions, there’s hardly been a hotter health policy topic in 2017 than cost-sharing reductions (CSR) – and what it means now that the Trump Administration has officially cut off funding for them, after threatening to do so all year.

But if you’re like the vast majority of consumers, you may be hearing about CSRs for the first time and wondering why these subsidies are so important, and whether they actually affect your own coverage.

The most important thing to understand is that CSRs will still be available for eligible enrollees in 2018, as will premium subsidies. The fact that the Trump Administration has cut off funding for CSR does not in any way change the actual CSR benefits available to enrollees.

Here’s what you need to know about CSR and the impacts of the elimination of their funding:

1. CSRs lower costs for 5.9 million Americans.

Cost-sharing reductions – or cost-sharing subsidies – are available to just a fraction of the American health insurance-buying population. But CSR recipients make up a significant portion of the population that buys individual health insurance in the ACA exchanges. So the future of these subsidies stands to impact the stability of the entire individual health insurance market.

Of exchange enrollees in 2017, 57 percent – almost 5.9 million people – are receiving CSR. Yet prior to 2017, there wasn’t widespread awareness of CSRs, despite the fact that the federal government spent $7 billion on them in 2016.

This is partly because they don’t show up among the available plans for people who aren’t eligible for them, and also because people who enroll in cost-sharing reduction plans don’t always realize that the plan they’re getting is in fact heavily subsidized by the federal government in order to make the coverage better.

While premium subsidies help pay the cost of the health insurance itself, CSRs do just what their name implies: they reduce the amount of cost-sharing that the policyholder has to pay. (Cost-sharing refers to the portion of a medical claim that the insured must pay, usually in the form of a deductible, coinsurance or copay. It does not include premiums, balance billing or expenses that are not covered by the insured’s policy).

CSRs aren’t as widespread as premium subsidies, because the income cap is lower for CSR, and CSR only applies if you get a Silver plan — so not as many people qualify when compared with premium subsidies.

2. CSRs help exchange enrollees with low incomes.

The Affordable Care Act makes cost-sharing subsidies available to enrollees with incomes between 100 percent and 250 percent of the federal poverty level. (In states that have expanded Medicaid, enrollees are eligible for Medicaid with incomes up to 138 percent of the poverty level. Cost-sharing subsidy eligibility starts above that point.)

For 2018, the upper income limit for CSR eligibility is $30,150 for a single person, or $61,500 for a family of four. (Higher limits apply in Alaska and Hawaii.)

Although premium subsidies can be applied to any of the “metal” plans within the exchange, cost-sharing subsidies are only available on Silver plans. So if your income is under 250 percent of the federal poverty level, you should pay particular attention to the Silver plans in the exchange. Any cost-sharing subsidies for which you’re eligible will be automatically built into the Silver plans that are available to you.

3. Trump keeps calling CSRs a ‘bailout.’ They’re not.

HHS reimburses insurance carriers directly to reduce the insured’s cost-sharing, and unlike the premium subsidies, cost-sharing subsidies do not have to be reconciled when insureds file their taxes. Cost-sharing subsidies are automatically incorporated into Silver plans when eligible enrollees shop for plans through the exchanges.

President Trump has repeatedly referred to CSR funding as a “bailout” for insurers. The day after Senate Republicans failed to pass their ACA repeal bill in July, Trump tweeted “If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!”

To clarify, Trump’s reference to bailouts for insurance companies pertains to CSR funding, while his reference to bailouts for members of Congress refered to the arrangement that the federal government established so that members of Congress and their staffers could still receive employer contributions to their health insurance premiums, while also following ACA rules that require them to obtain coverage in the exchange.

But a bailout generally refers to giving unearned money to an organization in order to prevent its financial collapse. CSR funding, on the other hand, is simply the federal government paying insurers for the services they’re providing. That is, the insurers provide more robust coverage to low-income enrollees, and the federal government reimburses them for the cost of doing so. The specifics of what insurers have to provide in terms of CSR are clearly outlined each year by HHS – insurers don’t have an option to not offer plans that include cost-sharing subsidies.

The ACA established the parameters of the program, but didn’t specifically allocate funding for it. (Read more on that below, in the discussion about the ongoing lawsuit.) And therein lies the problem. Trump has been trying to paint the CSR funding as if it’s somehow money that insurers haven’t earned, or that they’re going to use for their own gains. In reality, the money simply reimburses insurers for a cost that they’re required to incur.

4. GOP’s been trying to defund or eliminate CSRs for years.

There has been legal uncertainty surrounding the cost-sharing subsidies for the last few years, but it’s taken on a new importance under the Trump Administration. In 2014, House Republicans (including Tom Price, former the Secretary of HHS, but who was then a U.S. Representative from Georgia) brought a lawsuit against the Obama Administration, alleging that billions of dollars in funding for the cost-sharing subsidies had never been allocated by Congress, and was thus being distributed illegally by HHS. (Nicholas Bagley, University of Michigan Law School professor, explains that the lawsuit was not without merit.)

The lawsuit was originally called House v. Burwell (Sylvia Matthews Burwell was the Secretary of HHS at the time) but was ironically renamed House v. Price.

In 2016, a district court judge sided with House Republicans, ruling that the cost-sharing subsidies were illegal and could not continue. The ruling was stayed, however, to allow the Obama Administration to appeal, which they did. Throughout that process, cost-sharing reduction money continued to flow from HHS to health insurers across the country.

Once Trump won the election, the issue took on a new urgency, given the GOP’s efforts to eliminate the ACA. Throughout 2017, the lawsuit over cost-sharing subsidies has been put on pause, at the request of both parties involved in the lawsuit (both of which are now Republican-led). The next update to the court is due on October 30, but the Trump Administration announced on October 12 that they would immediately discontinue CSR payments to insurers.

It’s unclear exactly what will happen next. In August, a DC Appeals Court granted a motion from 18 attorneys general to intervene in the case, and those states might be able to block the Administration’s action. There are also attorneys general who have said they will bring lawsuits against the Trump Administration to challenge the decision to cut off CSR funding. It’s also possible that Congress might simply appropriate funding for CSR, which would solve the problem (this could have been done at any time since the lawsuit was filed, and would have solved the problem) and prevent the Trump Administration from cutting off funding.

But legislation to fund CSR would require bipartisan support. And throughout the year, Republican lawmakers have tried — unsuccessfully, so far — to eliminate CSR altogether via legislation. The American Health Care Act (AHCA), an ACA-repeal bill that passed the House in May, would have eliminated CSR after 2019. The Senate’s version of the bill, the Better Care Reconciliation Act (BCRA) would have done the same thing, but it failed to pass.

5. Eliminating CSRs would take an act of Congress.

Unless Congress acts to appropriate funding for CSR, or unless the states are able to successfully block the Trump Administration’s decision to cut off CSR funding, insurers will no longer receive federal reimbursement for CSR.

But eliminating the CSRs themselves – as opposed to their funding – would (literally) require an act of Congress. CSRs will continue to be available in every area that continues to have insurers offering coverage in the exchange. When the Trump Administration announced that they would cut off CSR funding, every county in the U.S. had at least one insurer slated to offer exchange plans for 2018. That could change, however, due to the funding cut.

In more than half of the states, insurers assumed that CSR funding would be eliminated, and have already added the cost of it to their premiums for 2018 — those states should be able to weather this latest storm without much upheaval. But in states where the rates for 2018 were based on the assumption that CSR funding would continue, some insurers might opt to exit the market.

We don’t yet know whether there will be counties without insurers for 2018. But most areas are likely to have at least one insurer, and CSR will continue to be available to eligible enrollees in all of those areas.

So exchange enrollees who buy Silver plans and have income up to 250 percent of the poverty level will continue to have access to health plans with much lower out-of-pocket costs than they would face without CSRs. This is true despite the Trump Administration’s decision to end CSR funding.

6. Just the threat of defunding created instability throughout 2017.

The Trump Administration’s decision to end CSR funding came at a most inopportune time: After 2018 rates had been finalized in most states – and less than three weeks before the start of open enrollment. The timing seems suspiciously like more of the same sabotage we’ve been seeing all year (and really, for the last 7.5 years), as there’s very little opportunity now for insurance regulators to make changes to rates or recruit new insurers to fill in bare spots that might crop up if some insurers decide to exit the market as a result of the CSR defunding.

Open enrollment for 2018 coverage begins on November 1, and insurers in states that use HealthCare.gov had to commit to the exchange by late September. But they had been looking for certainty on CSR funding throughout rate filing season, which began in the spring.

CMS had extended the deadline for HealthCare.gov insurers to make changes to their rate filings, in an effort to provide insurers with a little more wiggle room as they plan for the coming year. But even by late September, no progress had been made in resolving the uncertainty over CSR funding.

Congress could have addressed this situation by simply passing legislation appropriating funds for the cost-sharing reductions before rates had to be finalized for 2018 coverage. This was part of the bipartisan market stabilization bill that was being crafted in the Senate by Patty Murray (D, WA) and Lamar Alexander (R, TN).

But that bill was scuttled by Republican Senate leadership in mid-September in an effort to focus fully on ACA repeal (the Graham-Cassidy-Heller-Johnson amendment). Ultimately, the ACA repeal measure failed to garner enough support, and was pulled in late September. Alexander and Murray began again to work on their market stabilization bill at that point, but it hasn’t moved forward yet.

Senate Republicans’ ACA repeal bill, the Better Care Reconciliation Act (which failed to pass in late July), would have appropriated funding for CSR through the end of 2019, but it would have eliminated CSR altogether after 2019, which would have made health care largely unaffordable for low-income enrollees.

Because insurers didn’t know (when they were setting rates for 2018) what would happen with regards to CSR funding, premiums will be higher than they otherwise would have been, and some insurers have simply opted to exit the exchanges, or the entire individual market. Now that the Trump Administration has moved to cut off the funding, the insurers that added the cost of CSR to their premiums will be able to weather the storm, while those that didn’t will have to scramble to make last-minute adjustments, exit the exchanges, or try to absorb 2018 CSR losses.

7. States and insurers took varying approaches to CSR funding uncertainty.

In the spring of 2017, when it was still unclear whether the CSR funding situation would be resolved before 2018 rates had to be finalized, the Kaiser Family Foundation estimated that without cost-sharing reduction funding, Silver plan rates would increase by 19 percent in 2018. The Congressional Budget Office had a similar estimate, at 20 percent. That would be in addition to the normal factors that drive rate increases.

When it became apparent that the uncertainty was likely to continue into 2018, states and insurers started to make decisions about how to address the issue. There were essentially four options available:

  • Assume CSR funding will continue (no additional premium increase necessary).
  • Assume CSR funding will not continue and load the ensuing cost onto all plans. (It’s the least common choice, and the one that does the least to protect consumers; Indiana has taken this approach.)
  • Assume CSR funding will not continue and load the ensuing cost onto all Silver plans.
  • Assume CSR funding will not continue and load the ensuing cost onto on-exchange Silver plans, with separate off-exchange Silver plans available without the additional premium increase. (This is the option that provides the most protection to enrollees; California’s exchange was the first one out of the gates with this approach, but some other states have followed suit.)

These options, and the impact they each have on consumers, is addressed in more detail here. Some states opted to leave the decision to the insurers, which results in a mixed bag of approaches to CSR uncertainty within the state. But most states did provide guidance of some sort, and adding the cost of CSR to Silver plans (with or without creating new off-exchange Silver plans without the added cost) is the most common approach.

It’s important to understand that the effect on consumers will vary greatly depending on the approach that the state or insurers opted to take.

8. Silver plan rates in most states are spiking due to lack of CSR funding.

Because of the CSR funding issue and the approaches that states and insurers took to address it, it’s more important than ever for enrollees to comparison shop during open enrollment for 2018 coverage (keeping mind that open enrollment in most states will end on December 15, 2017): Here are some points to keep in mind:

  • If you’re in a state where the added cost to cover CSR has been added to Silver plans, be aware that some Silver plans will likely end up being more expensive than some Gold plans.
  • If you get a premium subsidy, your subsidy will grow to keep pace with the second-lowest-cost Silver plan. This will largely protect you from the higher premiums, regardless of what metal-level plan you have or how the additional cost to cover CSR is added to the plans.
  • But if you get a premium subsidy and you’re not eligible for CSR (ie, your income is higher than 250 percent of the poverty level but not over 400 percent), you may want to pay particular attention to Gold and Bronze plans, as those will end up being a bargain after the subsidy is applied in areas where the Silver plans include higher premiums to cover the cost of CSR (since the premium subsidy is based on the cost of a Silver plan).
  • If you have an off-exchange Silver plan and the cost of CSR is being added to all Silver plans, you’ll want to comparison shop during open enrollment. If you’re eligible for a premium subsidy, switch to the exchange. If not, switching to an off-exchange Gold or Bronze plan (or “extended Bronze” plan) might present a better value (for more on “extended Bronze” plans, see Idaho’s approach).

If you need help during open enrollment, contact a navigator or broker who can help you make sense of what’s going on. But the takeaway point is that pre-subsidy premiums in many states won’t follow the same general patterns we’ve seen in the past (ie, with gradually increasing premiums as you move up the metal-level scale from bronze to Platinum plans. Instead, you may see Silver plans that are more expensive than Gold plans, and after-subsidy Bronze plan rates that are lower than you expect.

Don’t assume that the plan you picked for 2017 will be the best option for 2018. That’s always good advice, but it’s especially pertinent as we head into 2018.

9. Some insurers have exited the exchanges over the CSR funding issue — and more may do so now

Quite a few insurers across the country have announced that they will no longer participate in the exchange (or the entire individual market, in some cases) after 2017. Most of them cited uncertainty created by the federal government — including the CSR funding issue — as a factor in their decision.

In late September, when insurers in HealthCare.gov states had to make a commitment to the exchange for 2018, Medica announced that they would leave the exchange in North Dakota, and Anthem announced that they would leave the exchange in Maine. In both cases, these decisions were directly attributed to the fact that CSR funding for 2018 still had not been committed by the time insurers had to finalize their participation in the exchange.

Medica wanted to add an additional load to their premiums to account for the cost of CSR. North Dakota regulators wouldn’t allow that, so the insurer opted to leave the exchange in order to mitigate their risk. (North Dakota opted to assume that CSR funding would continue, which means the premium increases that were approved for 2018 do not include the cost of CSR. It’s unclear whether HealthCare.gov will allow insurers to change rates at this point to account for the lack of CSR funding, as the deadline to finalize rates was in late September.)

In Maine, Anthem clearly stated in a revised rate filing in August that if CSR funding was not committed, they would exit the exchange. They had filed rates and plans to continue to participate assuming that CSR funding would be committed for 2018, and they waited until the last day to see if Congress or the Trump Administration would take action to ensure CSR funding would continue. But that didn’t happen, and the result is that more than 20,000 people in Maine will have to switch insurers during open enrollment.

Although there was considerable concern throughout the summer that some areas of the country might have no insurers offering exchange plans for 2018, all of the bare spots eventually got filled in when other insurers agreed to offer plans in the counties where current insurers were planning to exit. But there is no doubt that the uncertainty over CSR funding has reduced the number of available plan options that people will have in 2018, and the last-minute decision by the Trump Administration to cut off CSR funding could result in last-minute insurer exits from the exchanges in states where the cost of CSR wasn’t incorporated into the premiums.

10. What do consumers need to do? Comparison shop during open enrollment.

For the most part, you don’t need to do anything different, as long as you’re already accustomed to comparison shopping during open enrollment. Open enrollment will be shorter this year (November 1 to December 15), so don’t delay in logging back into the exchange and picking a plan for 2018.

If you’re eligible for cost-sharing subsidies, the Silver plans will have them already built-in. For people who are eligible for premium subsidies, any rate increases for 2018 (including additional rate hikes related to lack of CSR funding) will be mostly or fully offset by larger premium subsidies. If the additional rate hike to cover the cost of CSR has been added to Silver plans, the premium subsidies will be larger than they would otherwise have been, and can still be applied to other metal level plans that don’t include the cost of CSR in their premiums.

The CSR funding issue and the sharply higher premiums that have resulted in some areas is another reason it’s essential for people with off-exchange coverage to consider switching to a plan in the exchange for 2018. Premium subsidies will cushion the brunt of the rate increases, but only for people who are subsidy-eligible and who have coverage in the exchange. If you have off-exchange coverage, you can’t get premium subsidies even if your income would otherwise make you eligible for them.

If you have a Silver plan and you’re not eligible for premium subsidies, you may find that a Bronze or gold plan provides a better value in 2018, depending on where you live.

But in general, the advice is the same as always: Buy on-exchange unless you’re 100 percent sure that there’s no way you’re eligible for a premium subsidy. And take time to compare the available plans during open enrollment to make sure that you’re getting the plan the represents the best value – which may not be the same plan you had this year.