After 900 failed attempts to repeal the Affordable Care Act (that number may be a little off, it's been a long year), US President Trump took two actions yesterday that could destroy insurance markets. US citizens will still be able to buy an "Obamacare" plan for next year and their current insurance will still work. But this portends some very bad news.
Here are the two specific things that happened:
- The US President signed an executive order instructing agencies to allow "association health plans" on the market. These are skimpy insurance plans that provide very little insurance.
- The White House announced the government will stop paying the subsidies that keep deductibles low for low and middle-income people on certain plans.
These actions, along with things the White House has done earlier this year, weaken the ACA enough that some health policy experts are calling the situation "synthetic repeal." Here's just some of what has happened so far, according to analyst Topher Spiro:
- In January, an executive order instructed agencies to weaken the requirement that everybody buy health insurance. (Everybody buying insurance keeps rates low.)
- The IRS stopped enforcing the tax penalty for not buying insurance.
- Government web pages dropped much of their information about health insurance and how to get it.
- In January (geez, this is still just January), Trump cancelled much of the advertising that gets people to sign up in the last days of open enrolment. By some accounts half a million fewer people enrolled than expected.
- Trump began threatening to not pay cost-sharing reduction payments, and some insurers have already decided to hike premiums for 2018 because of the uncertainty (yes, that's by more than they otherwise would have).
- The House passed a version of what is supposed to be ACA repeal, confusing people about whether the ACA is still in effect. (It is.)
- Insurers are no longer required to cover birth control for plans sponsored by an employer with religious or moral objections to birth control.
- The open enrollment period this year will be half as long as in previous years, with downtime every Sunday morning. And its advertising budget was cut by 90 per cent.
- And now this.
Why CSR Payments Are a Big Deal
By revoking CSR payments, the government is shooting itself in the foot -- this will actually cost them more in the long run -- and it could make the insurance market "death spiral," previously a myth, come true.
Here's how. Part of the ACA deal is that insurers are supposed to offer plans with lower deductibles and copays for low and middle income people who buy a silver plan on the marketplace. A family of four could get this deal if their income is between $US24,600 ($31,423) and $US61,500 ($78,557).
These are called "cost sharing reduction" payments because deductibles and copays are how you "share" costs with your insurance company. Under the ACA, the government picks up part of your bill, paying it directly to the insurance company so they can offer you this plan without raising your premiums.
(This is separate from the premium tax credit, which goes to you to lower your premiums.)
If the government stops paying the CSRs, insurers have to raise their premiums. The Kaiser Family Foundation calculates that silver plan premiums need to be 19 per cent higher to cover the difference. If a US customer qualifies for premium tax credits, their premium payments don't change; the other subsidy, the premium tax credit, soaks up the difference.
And, yes, this all costs the government money. They will save $US7 ($9) billion this year, but if the no-CSRs situation continues for a decade, the cost to the government (in premium subsidies) will be $US194 ($248) billion. The Congressional Budget Office also previously estimated that one million people will lose insurance in 2018 if CSRs stop in 2017.
? Insurers in **14** states assumed CSRs would continue, per @charles_gaba. So they're screwed—expect insurers to exit.
— Topher Spiro (@TopherSpiro) October 13, 2017
This Was the Worst Possible Time to Stop Paying CSRs
Here's an odd thing about the timing: the decision comes before open enrollment begins on November 1, but after insurance companies have already locked in their rates for 2018. Insurance companies, and states, both had to guess whether the CSRs would keep coming. Some guessed correctly, and some did not.
9/ The timing makes it challenging for state actions & legal actions 2 take effect. It forces a decision over whether plans should withdraw.
— Andy Slavitt (@ASlavitt) October 13, 2017
That means insurers probably won't be able to raise premiums to cover their costs; instead they could decide they can't offer insurance at the promised price and instead pull out of the market. That plan people were going to sign up for? Gone.
There's a weird legal puzzle here: the law says that the government "shall" pay the CSRs, but Congress never appropriated the money to do so. There's a court battle over this, currently at a sort of stalemate that lets the CSRs continue to be paid. The White House cited it in their decision, saying the payments weren't lawful. However, the government's deal with insurance companies was that they would pay the CSRs, and the insurance companies are getting stiffed. That means they can sue.
Q ≠ *whether* fed govt will make payments but *when*. If Trump admin won’t pay, insurers can sue fed govt in Ct of Fed Claims—& will win 2/9
— Daniel Hemel (@DanielJHemel) October 13, 2017
So what happens to the insurance plans currently available? Who knows! Maybe insurers can get an emergency price hike approved, or maybe they will pull out of the market altogether before anyone can sign up. If they pull out of the government-run exchanges after you've signed up, you'll lose the premium subsidy, which could make your premiums skyrocket. We really have to wait and see on this one.
Sarah Kliff sums up the damage if everything goes as planned:
To recap: Trump is enacting a policy where the government spends billions more to insure fewer people.
Ending these payments raises premiums for anyone who uses Obamacare: older people, younger people, sicker people, and healthy people. And it puts an already fragile Obamacare marketplace at greater risk of a last-minute exodus by health plans who assumed that the government would pay these subsidies -- and don't think they can weather the financial hit.
One possible escape hatch here: Congress could appropriate the funds for CSRs to allow them to continue.
GOP Rep. Tom Reed calls for Congress to fund CSRs. "If Congress doesn't get it done the people who suffer are the people back home"
— Peter Sullivan (@PeterSullivan4) October 13, 2017
Association Health Plans Are Also Bad News
Earlier in the day, before the CSR bombshell, President Trump signed an executive order that aims to legalise "association health plans" that don't follow the ACA's rules on essential benefits (goodbye, maternity care) or on keeping premiums low for people with pre-existing conditions.
These plans prey on people who are young, healthy, and stupid. (Sorry, most of us are stupider than we think.) They are cheap, but offer very little protection. If someone on one of these plans breaks their leg or has a baby, they'll be on the hook for massive hospital bills.
There's another big downside: since only healthy, short-sighted people will sign up, that means comprehensive insurance plans -- the kind we (almost) all have now -- won't have a balanced pool of sick and healthy people anymore. If you're in an insurance plan with a bunch of sick people, your premiums will go up. Which, in turn, might make you say, hmm, maybe I'd be better off with the cheap plan, or none at all.
This all results in higher premiums for real health insurance, and screws over the people who choose association plans. This isn't speculation; these plans have been legal in Tennessee through a weird loophole. Tennessee has some of the highest premiums in the country, and struggles to keep insurers in the market at all.
The executive order is also supposed to make the "buying insurance across state lines" fantasy happen. The only problem is that if you live in Pennsylvania and buy a Montana plan, that plan isn't going to include any Pennsylvania doctors or hospitals in their network. Insurers have been allowed to sell plans across state lines already; they just aren't interested.
The newly allowed plans don't exist yet; the executive order just directs agencies to figure out what kind of regulations they could create to allow them to exist.
Open enrollment begins November 1. People in the US can still sign up for insurance. Prices are locked in, at least in theory.