The President’s Executive Order: Less Than Meets The Eye?

http://healthaffairs.org/blog/2017/10/20/the-presidents-executive-order-less-than-meets-the-eye/

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The executive order (EO) signed by President Donald Trump on October 12 directs the Departments of Health and Human Services (HHS), Labor, and Treasury to develop federal regulations that could allow new and less expensive health insurance options for employers and consumers.

The EO marks a shift in the administration’s strategy on health care. After failing to get legislation through Congress to repeal and replace the Affordable Care Act (ACA), the administration is now attempting to move away from the ACA’s heavily-regulated markets through changes that can be implemented without a change in the law.

The executive order does not itself change any federal regulations. Instead, it sets into motion a policy development process that could lead to new regulations or regulatory guidance within the confines of current law. Although the EO gives general policy direction, the specific content of future regulations depends on legal and technical analysis to be conducted by the agencies.

The policy themes are familiar: expand access to lower-cost insurance outside of the ACA’s exchange mechanism and enhance the use of financing vehicles to help workers pay for their care. The extent of possible changes is limited. For example, the EO seeks to allow the sale of insurance across state lines, but relies on potentially expanding the ability of employers to form Association Health Plans (AHPs) under the Employee Retirement Income Security Act (ERISA). Individuals purchasing their own insurance would continue to be subject to federal and state insurance market rules.

An Uncertain And Potentially Lengthy Timeline

The timeline for producing rule changes is uncertain. The EO gives the agencies 60 days to “consider proposing regulations or revising guidance” without specifying the date when a proposed rule would be released. It typically takes months, and sometimes years, to put a new federal regulation into effect.

The Administrative Procedures Act specifies that agencies must follow an open public process when they issue regulations. Following an often-lengthy internal clearance process, a proposed rule is issued that invites public comments. The final rule taking those comments into consideration must be developed and cleared before publication. Less time is required if an agency determines that it can issue an interim final rule without first publishing a proposed rule. Interim final rules generally take effect immediately.

Even if the federal agencies move expeditiously, it is unlikely that new regulations could affect the marketplace for health insurance in 2018. ACA exchange plans have been finalized in time for this year’s open enrollment period, starting November 1. Most employers will have signed contracts for their insurance plans for next year well before the end of 2017 as well. Most Americans will be required to select next year’s coverage before the end of this year. Realistically, any new rules are likely to be effective starting in 2019 or later.

Major Policy Areas

The EO targets three policy areas for change.

Association Health Plans (AHPs)

Republicans have long supported the use of AHPs to give small employers some of the advantages that large employers have in purchasing insurance for their workers. AHPs potentially could allow small firms to operate as one large employer plan, giving them scale economies and greater market power than they have purchasing insurance as separate companies. In addition, AHPs could be exempted from some of the ACA’s requirements (including essential health benefits and community-rated premiums). However, as the law is now interpreted, AHPs are subject to the same state and federal regulations that apply to the small group and individual insurance markets, largely eliminating their usefulness.

The EO directs the Labor Department, which oversees the regulation of employer plans, to look for ways to make it easier for small businesses to join AHPs. The existing rules for multi-employer insurance plans are complex, but it may be possible that ERISA could be reinterpreted to make AHPs more effective and attractive than they are today. The EO raises the possibility that AHPs could be formed among employers operating in the same geographic area or industry. Details may not be available for some time.

Whatever changes are pursued will be heavily scrutinized and likely challenged in court. Insurers selling in ACA-regulated markets might oppose the new regulations if they expect AHPs to attract healthier individuals from more comprehensive (and more expensive) exchange plans.

It is not clear that AHPs would be a better option for small employers than they have today. Forming larger groups can help spread insurance risk and administrative costs. Larger plans can also use their leverage to push better managed care protocols into their insurance plans, and thus cut costs. However, the voluntary nature of AHPs could result in plans competing for healthier groups of workers rather than investing the resources necessary to make health care more efficient and effective.

Small employers may have the option of joining more than one AHP or staying in the regulated market. Competing AHPs might structure their coverage to attract firms with younger, healthier workers. The press statement accompanying the EO states that employers would not be allowed to discriminate among workers based on their health status. But small employers would not be forced to join AHPs, and the rules for joining might be written in ways that implicitly and subtly target firms with healthier workers.

AHPs could add value to the health system if they moved people out of expensive, unmanaged fee-for-service insurance with high administrative costs into better-run managed care plans that cut expenses through economies of scale and elimination of unnecessary use of services. The Trump administration might find a way within current law to make these kinds of AHPs available without shifting higher premiums onto less healthy workers. But the history of AHPs and related types of organizations is not promising. Many previous multi-employer plans have suffered from undercapitalization, and have gone insolvent. It will not be easy to secure the necessary capital to build a viable AHP in a market in which small employers may have several insurance options.

Short-Term, Limited Duration Insurance (STLDI)

Short-term health insurance policies offer coverage to individuals who are unable to obtain other forms of health insurance but want to be protected for a specific period of time. STDLI plans are not subject to the ACA’s insurance rules. They do not have to cover the ACA’s essential health benefits, they do not cover pre-existing conditions, and they are not required to cover people in poor health. One study found that STDLI plans are one-third the price of exchange plans. These plans have generally been viewed as niche products, sold primarily to people who are between jobs.

The EO calls on HHS, Labor, and Treasury to reverse decisions of the Obama administration that restricted the availability of STLDI plans. A regulation issued on October 31, 2016 limits their duration to no more than three months, and the plans are not renewable. Moreover, enrollment in an STLDI plan does not constitute coverage under the ACA’s individual mandate. It seems likely that the agencies have the authority under current law to allow STLDI plans to cover an individual for up to one year and to be renewable.

STLDI plans are clearly not for everyone but could prove attractive to some customers. Low-cost coverage should be made available to individuals who change jobs and those who are unable to buy exchange coverage after the open season has ended. Consumers enrolled in STLDI plans who develop a serious medical condition would probably not be able to renew their coverage but would have access to higher-premium plans offered on the ACA-regulated marketplace.

An open question is whether the Trump administration will also attempt to exempt STLDI enrollees from the individual mandate’s tax penalties. That would make short-term plans more attractive for healthy people and thus exacerbate the adverse selection that is already driving up premiums for ACA-compliant plans.

Health Reimbursement Arrangements (HRAs)

HRAs allow employers to reimburse workers for their families’ medical expenses, including deductibles and other cost-sharing payments and health items not covered by insurance. Unlike health savings accounts, workers do not contribute to HRAs. Payments made by an employer through an HRA are not treated as taxable income for the worker. The Obama administration required HRAs to be used solely in conjunction with ACA-compliant health plans.

The EO directs the agencies to propose ways to expand the availability and use of HRAs. The EO specifically states an intention to allow HRAs to be used for workers purchasing their own non-group coverage. The administration may be planning to allow HRA funds to be used to pay premiums and cost-sharing in the individual insurance market, including plans that are not ACA-compliant. Those plans might include AHP plans and STDLI, depending on other regulatory changes that might result from the EO.

For some small employers, an expanded role for HRAs may be an attractive way to help pay insurance premiums for their workers without sponsoring an insurance plan themselves. But it is far from clear how much authority there is under current law to make this kind of change. Moreover, even if the administration were able to create a larger role for HRAs, workers in small firms may not be eager to get their insurance through the ACA exchanges instead of through their place of work.

Premature Predictions

Several commentators have said that the Trump administration’s EO would result in risk segmentation that would drive up premiums and could eventually lead to dismantling the ACA exchanges. That prediction seems premature. AHPs as they exist today do not pose a threat to the ACA. It remains to be seen if the administration can make room for a viable AHP option, and whether or not that option will adversely affect the ACA exchanges. The STLDI plans are a niche market today. While it is possible their role could expand, their value is limited and attractive to only a small segment of the market. The administration’s vision for HRAs is not clear enough to predict how any changes would affect the existing ACA markets.

Each of the changes contemplated by the Trump EO would take time to put into effect. Once the rules are changed, the private sector would need to make investments to change their business practices. It is doubtful there would be a rapid transition.

Millions of consumers are enrolled in ACA-compliant plans today. The ACA exchanges face an elevated level of adverse selection. But those markets remain the only real game in town primarily because the ACA’s generous premium subsidies are only available through the exchanges. The President’s EO cannot change this reality. Whatever is done in response to the EO is likely to have a less dramatic effect on the market than some in the administration now hope, and others now fear.

 

ACA Alterations Will Jolt Health Exchanges for 2018

http://www.healthleadersmedia.com/health-plans/aca-alterations-will-jolt-health-exchanges-2018?spMailingID=12171449&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1261586415&spReportId=MTI2MTU4NjQxNQS2#

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The end of cost sharing reductions has insurers trying to raise premiums even higher than planned. Those high premiums and other changes to the Affordable Care Act may drive consumers away from the exchanges.

The loss of cost sharing reductions (CSR) and the presidential executive order altering the Affordable Care Act will combine to significantly shake up the insurance market for 2018, one analyst says.

The effect is likely to include raising rates so high that the number of healthcare consumers who do not purchase coverage will skyrocket.

Health plans are scrambling to raise their rates even higher than already planned, responding to President Donald Trump’s announcement that insurers will no longer receive the subsidies.

Insurers were forced to submit rates for next year while the fate of CSRs was still uncertain—one set of rates is for if the subsidies continued and the second is for a higher rate to be used if they did not.

Some insurers are asking for a chance to revise the rates already submitted, says Julius W. Hobson Jr., an attorney and healthcare analyst with the Polsinelli law firm in Washington, D.C.

The CSR termination comes right after President Trump issued a new executive order he says is designed to increase competition and choice. Critics say it would seriously weaken the ACA, and some say that’s intentional.

President Trump says the order will give millions of Americans more access to affordable coverage and make it easier for people to obtain large-group coverage. Others worry that it could lure healthy young Americans away from the ACA exchanges, leaving those who remain to pay higher premiums.

“The combination of the executive order and the CSR termination wreaks havoc on the health insurance market for all of 2018,” Hobson says. “This also comes just before the open enrollment and with cutting back money for the patient navigators who help people sign up, and with reduced access to the website. That all means there are going to be fewer people who sign up.”

Higher premiums and deductibles already were driving some consumers away from purchasing individual healthcare plans, Hobson notes, and more will follow when the CSR loss forces insurers to raise rates even higher.

If the Trump administration stops enforcing the individual mandate, as it has said it might, that would make even more consumers forgo coverage, he says.

Fewer consumers buying insurance on the ACA exchanges intensifies their existing problems, Hobson says.

Premiums and deductibles will continue to rise as insurers struggle to remain profitable with a smaller pool of older, sicker patients driving high utilization costs. More and more consumers will leave the exchanges if they can, he says.

“People are going to be looking at premium increases they just can’t afford,” Hobson says. “The individual market will take a big hit, but the impact on the group market is harder to predict. We don’t know yet whether the increases in the individual market will bleed over into the group market.”

The recent changes are intended to weaken the ACA, Hobson says.

“The administration has said the ACA is imploding, but also that they’re going to do everything they can to wreck it. It’s not imploding on its own, it’s being shoved down the trash chute,” Hobson says.

“Losing the CSR payments is critical and, at this point, it’s unlikely that even if Congress acted they could do anything in time to affect 2018. There’s no way of looking at this other than it having a negative outcome,” he says.

No rush to stabilize ACA markets

 

President Trump’s decision to cut off the Affordable Care Act’s cost-sharing reduction subsidies doesn’t seem to have added much new urgency to the push to stabilize states’ insurance markets — which would likely include a guarantee to keep the subsidy payments flowing.

  • Bad sign: GOP Senate leadership didn’t talk about the CSR issue at all last night in their weekly meeting, at least while staff was in the room, a senior aide told Axios’ Caitlin Owens. To them, it’s still all about tax reform.
  • “They’re focused on tax reform,” Alexander, who’s been spearheading the stabilization effort, said of GOP leaders. “What I’ve asked the Republican leadership to do is to give us a chance to see if we can develop consensus among Republicans as well as Democrats.”
  • “The sooner the better,” Alexander said. “We want whatever agreement we have to benefit people in 2018 by holding down increasing premiums and to lower them in 2019.”

Yes, but: Affecting 2018 premiums will be a tough task — the window to begin signing up for 2018 coverage begins in two weeks.

  • Pennsylvania regulators announced yesterday that they’ve approved new premium hikes, more than 20% higher than the increases that were already on the books, because of the loss of CSR subsidies.
  • If Congress reaches a deal in time, one senior GOP aide told Caitlin, states and insurers could look to options such as rate re-filings and rebates to help consumers next year.
  • But the Kaiser Family Foundation’s Larry Levitt said turbulence for 2018 will likely be minimal. Most insurers had already planned for the payments to end, and therefore don’t need to make any changes.
  • The Trump administration appears to be allowing new increases by insurers that didn’t plan for CSR payments to disappear, Levitt said.
  • “Terminating the CSR payments is producing a lot of confusion, but the market will operate reasonably fine and the effect on consumers will be modest,” Levitt said. “If this was intended to end Obamacare, it’s probably not going to work. The real question at this point is the longer term effect of the administration’s overall strategy to undermine the marketplaces.”
One more problem: Even if a deal is struck, and it could muster 60 votes in the Senate, there’s a very real question of how it passes. Voting on the bill by itself, without being part of a larger package, would be difficult for Republicans. Most legislation that needs to get passed before the end of the year is expected to be clumped into one big bill in early December.

Healthcare Triage: Is Medicaid Coverage Better or Worse than Private Insurance?

https://theincidentaleconomist.com/wordpress/healthcare-triage-is-medicaid-coverage-better-or-worse-than-private-insurance/

As we have discussed repeatedly here on HCT, it’s better for patients to have Medicaid than to be uninsured, contrary to critics of the program. But is having Medicaid, as those critics also say, much worse than having private insurance?

This episode was adapted from a column  Austin and I wrote for the Upshot. Links to further reading and sources can be found there.

In New Test for Obamacare, Iowa Seeks to Abandon Marketplace

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With efforts to repeal the Affordable Care Act dead in Congress for now, a critical test for the law’s future is playing out in one small, conservative-leaning state.

Iowa is anxiously waiting for the Trump administration to rule on a request that is loaded with implications for the law’s survival. If approved by the federal Centers for Medicare and Medicaid Services, it would allow the state to jettison some of Obamacare’s main features next year — its federally run insurance marketplace, its system for providing subsidies, its focus on helping poorer people afford insurance and medical care — and could open the door for other states to do the same.

Iowa’s Republican leaders think their plan would save the state’s individual insurance market by making premiums cheaper for everyone. But critics say the lower prices come at the expense of much higher deductibles for many with modest incomes, and that approval of the plan would amount to another way of undermining the law. Already the administration has slashed funding for advertising and outreach to help people sign up for insurance, and President Trump is preparing to issue an executive order allowing more access to plans that don’t meet the law’s standards.

Adding to the uncertainty, the Washington Post reported last week that Mr. Trump in August asked Seema Verma, the federal official in charge of reviewing Iowa’s plan, to reject it. Some supporters of the law saw that as a deliberate effort to keep premiums high; Mr. Trump frequently cites sharply rising premiums as proof that the health law is failing.

Neither C.M.S. nor the White House would comment on whether Mr. Trump had pushed for the application to be denied. A spokeswoman for C.M.S. said only that the plan remains under review.

In Des Moines on Tuesday, Gov. Kim Reynolds told reporters that her team was in constant contact with the White House and C.M.S. about the plan, including a call with Ms. Verma this week, trying “to get to yes.” She said the administration has been “very receptive” to the plan as a solution to the “unaffordable,” “unworkable” health law until it can be repealed.

Iowa calls its request a stopgap plan that would allow the state to opt out of the federal health insurance marketplace, HealthCare.gov, for 2018 and create a state-run system that its insurance commissioner says would lower premiums for the 72,000 Iowans who currently have Obamacare health plans, including 28,000 who earn too much to get subsidies to help with the cost.

But the cheaper premiums would come with a big trade-off: higher out-of-pocket costs. The only option for customers would be a plan with deductibles of $7,350 for a single person and $14,700 for a family. The proposal would also reallocate millions of federal dollars that the health law dedicates to lowering costs for people with modest incomes and use the money for premium assistance to those with higher incomes, no matter how much money they make.

The individual insurance market is particularly fragile in Iowa, partly because the state has allowed tens of thousands of people to keep old plans that do not meet the health law’s standards. Aetna and Wellmark Blue Cross & Blue Shield, the state’s most popular insurer, are both withdrawing at the end of the year. The only insurer planning to remain, Medica, is seeking premium increases that average 56 percent, blaming Mr. Trump’s ongoing threats to stop paying subsidies known as cost-sharing reductions that lower many people’s deductibles and other out-of-pocket costs. Wellmark has said it will stay if the stopgap plan is approved.

“What we are trying to address is a really large number of people being priced out,” said Doug Ommen, the state’s Republican insurance commissioner.

Two other states, Alaska and Minnesota, have already won permission to shore up their Obamacare markets with waivers allowed under the law; they will use federal money to help insurers cover the claims of their most expensive customers next year. But Oklahoma abruptly withdrew a similar request in late September — one that state officials said would have reduced premiums by an average of 30 percent — saying that the Trump administration had reneged on a promise to approve it by Sept. 25 and they were out of time. (A C.M.S. spokeswoman said, “At no time was an approval package or an approval date ever agreed upon.”)

Iowa’s waiver request is more far-reaching, providing what Timothy S. Jost, an emeritus professor of health law at Washington and Lee University, has called a “watershed moment” for Obamacare.

“It’s a decision to abandon a number of key principles of the Affordable Care Act,” he said.

Under the law, people who don’t get insurance through work can buy it through the online marketplace. They get federal subsidies to help with the cost if their income is below 400 percent of the poverty level, or about $65,000 a year for a couple. Those whose incomes are below 250 percent of the poverty level — $40,600 a year for a couple — also get cost-sharing reductions.

Iowa’s plan would reallocate much of that federal assistance, using it to provide premium subsidies based on age and income for even the wealthiest individual market customers. It would also be used to create a “reinsurance” program, like Alaska’s and Minnesota’s, to help insurers cover their sickest customers. The law’s essential health benefits and protections for people with pre-existing conditions would remain in place, but every individual market customer would get the same standardized high-deductible plan.

Mr. Jost and other supporters of the law say Iowa’s proposal does not meet the requirements for so-called innovation waivers, including that the coverage they provide must be at least as comprehensive and affordable as Obamacare plans, because poorer people would face higher deductibles and other out-of-pocket costs. That, they say, leaves the plan open to almost-certain legal challenges.

Seemingly acknowledging that problem, Mr. Ommen has tweaked Iowa’s proposal — including with a supplemental filing to the Trump administration on Thursday — to preserve subsidies that reduce out-of-pocket costs for roughly 21,000 low-income Iowans.

But those at slightly higher income levels would lose cost-sharing assistance completely, facing the $7,350 deductible and other out-of-pocket expenses.

“You still have some real problems from the perspective of making sure low-income people can afford coverage,” said Joel Ario, a managing director at Manatt Health who worked on the Affordable Care Act at the Department of Health and Human Services during the Obama administration.

But for the roughly 28,000 Iowans who have Obamacare coverage but earn too much to get subsidies, the need for a shake-up is urgent. And with open enrollment starting in about three weeks, time is of the essence.

Dozens of them, including many farmers, submitted comments to Mr. Ommen or testified at public hearings in favor of the stopgap plan, with many saying they would be forced to drop their insurance next year if it were not approved.

“Fortunately both my husband and I have already prepaid our funeral expenses,” write a woman identified as Nancy K., of Bellevue, who said she could no longer afford her coverage. “Every single item, even our cemetery marker, is paid for or covered for my death in the event that we cannot afford insurance to pay for any so-called catastrophic health care.”

Landi Livingston, whose family raises beef cattle in rural southern Iowa, said she was paying almost $500 a month for a Wellmark plan and dreaded having to switch to Medica next year, with what she assumed would be significantly higher prices.

If the Trump administration approves the state’s request, Ms. Livingston’s premium would likely drop to around $350 a month, according to estimates from the state, saving her $1,800 next year. But her $3,000 deductible would more than double, meaning that if she had high medical expenses she could end up paying more toward those bills.

“I still think it’s the best thing on the table right now,” she said of the stopgap plan. “It’s high time the people in power get this figured out.”

For Tony Ross, a retired paralegal in Des Moines who has a subsidized marketplace plan from Aetna, the stopgap plan would lower his premiums to about $85 a month, from $220, according to the state estimates. But his deductible – currently $750 because his low income qualifies him for cost-sharing reductions – would balloon by almost tenfold. That would mean paying thousands more each year for his expensive blood pressure medication, he said.

“Obviously I need a way lower deductible than $7,350,” said Mr. Ross, 63. “This doesn’t seem like a fair way of fixing things.”

 

 

Who will pay more without CSR subsidies

https://www.axios.com/vitals-2497054515.html

Good morning … Last week gave us an executive order and an end to cost-sharing payments. Can’t wait to find out what the health policy universe has in store for us this week.

Who will pay more without CSR subsidies

Data: Kaiser Family Foundation; Daily Kos Elections; Census Bureau; Chart: Chris Canipe / Axios

The Trump administration’s decision to stop paying the Affordable Care Act’s cost-sharing reduction subsidies will affect ACA customers in Republican-leaning congressional districts as well as Democratic ones. Here’s a look at how many people could feel the impact in districts that voted for President Trump, compared with those in districts that voted for Hillary Clinton.

The details: This year, 11.1 million people were enrolled in ACA marketplace plans or in a Basic Health Plan created by the law. Of those, 5.9 million live in Republican-held congressional districts and 5.2 million live in districts held by Democrats, per the Kaiser Family Foundation.

The impact: The CSR subsidies are going to 58% of the people who are enrolled in ACA marketplace plans. In all, about 7 million people don’t receive any financial assistance with their premiums, so they’d pay the full cost when health insurance companies raise their rates. But others could be affected if health insurers decided to pull out of the markets rather than deal with the instability.

The flaws in Trump’s legal rationale

There are broader implications of the Trump administration’s decision to lean so heavily on a legal rationale for cutting off the CSR subsidies: institutional divisions between the executive and legislative branches.

Between the lines: The White House said it was ending the payments in part because of a ruling last spring that said it was unconstitutional to make the payments without an explicit appropriation from Congress. As part of that process, Attorney General Jeff Sessions wrote a memo saying, in effect, there was no point appealing that ruling.

  • “Opening the door to lawsuits initiated by Congress over the specifics of how the executive branch spends tax dollars would be a marked change and a potential threat to the White House,” the New York Times’ Carl Hulse noted over the weekend.
  • Trump might particularly wish he hadn’t conceded that point if Democrats retake control of the House and/or Senate while he’s still president. Divided government is how this lawsuit started, after all.

Real talk: Former White House strategist Steve Bannon, speaking at the Values Voters Summit over the weekend, cut to the heart of Trump’s decision: “Not going to make the CSR payments, going to blow that thing up; going to blow those exchanges up, right?”

Administration’s Ending Of Cost-Sharing Reduction Payments Likely To Roil Individual Markets

http://healthaffairs.org/blog/2017/10/13/administrations-ending-of-cost-sharing-reduction-payments-likely-to-roil-individual-markets/

Yesterday, October 12, 2017, the White House press office announced that the administration will no longer be reimbursing insurers for the cost-sharing reductions they are legally required to make for low-income individuals. The Affordable Care Act requires insurers to reduce cost sharing for individuals who enroll in silver plans and have household incomes not exceeding 250 percent of the federal poverty level. These provisions reduce the out-of-pocket limit for these enrollees—particularly for those with incomes below 200 percent of poverty—and sharply reduce deductibles, coinsurance, and copayments. The reductions cost insurers around $7 billion a year currently.

The press secretary’s statement said:

Based on guidance from the Department of Justice, the Department of Health and Human Services has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare. In light of this analysis, the Government cannot lawfully make the cost-sharing reduction payments. The United States House of Representatives sued the previous administration in Federal court for making these payments without such an appropriation, and the court agreed that the payments were not lawful. The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system. Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people.

Acting HHS Secretary Hargan and CMS Administrator Verma issued a similar statement:

It has been clear for many years that Obamacare is bad policy. It is also bad law. The Obama Administration unfortunately went ahead and made CSR payments to insurance companies after requesting—but never ultimately receiving—an appropriation from Congress as required by law. In 2014, the House of Representatives was forced to sue the previous Administration to stop this unconstitutional executive action. In 2016, a federal court ruled that the Administration had circumvented the appropriations process, and was unlawfully using unappropriated money to fund reimbursements due to insurers. After a thorough legal review by HHS, Treasury, OMB, and an opinion from the Attorney General, we believe that the last Administration overstepped the legal boundaries drawn by our Constitution. Congress has not appropriated money for CSRs, and we will discontinue these payments immediately.

The Legal Background

In fact, the ACA requires the federal government to reimburse insurers for these reductions. This is not a bailout. It is rather a statutory obligation of the federal government to pay insurers for services they have provided as required by law. In 2014, the House of Representatives sued the Obama administration in House v. Burwell (now House v. Price) claiming that the cost-sharing reduction (CSR) payments to insurers had never been appropriated by Congress and were thus illegal. A district court judge accepted this argument in the spring of 2016 and enjoined their payment, as President Trump’s statement says, but stayed her order pending appeal. The Obama administration appealed, arguing that there was in fact an appropriation. Until yesterday, the Trump administration had not taken a position on whether there was an appropriation or not.

The appeal is still pending, with the House and the Trump administration having agreed to stay the appeal several times. At the end of August, the D.C. Circuit Court of Appeals allowed 19 state attorneys general to intervene to protect their citizens. For more on the CSR backstory see here and here; for more on the intervention, see here; and for Health Affairs Blog posts on cost-sharing reduction payments, see here.

The Consequences Of Ending The CSR Payments

The effect of terminating the payments has been well analyzed, including a report from the Congressional Budget Office. It will drive up premiums as insurers attempt to cover the cost of the reductions. As premiums go up, so will premium tax credits. Indeed, the government will probably pay more in premium tax credits than it saves in cost-sharing reduction payments. Individuals who earn too much to receive tax credits will be particularly hard hit by the premium increases. Some of these could decide to pursue new forms of coverage that might be made available under the measures announced in President Trump’s October 12 executive order.

Ending the CSR payments could also drive some insurers out of the exchanges. Under their contract with the federal exchange, insurers may terminate participation if cost sharing reduction payments are terminated, but they are still subject to state laws on market withdrawal, which limit their ability to do so. They may not terminate their exchange enrollees unless they fail to pay their premiums, which many likely would do once an insurer left the exchange and premium tax credits were no longer available.

The effect of CSR payment termination, however, will depend heavily on how insurers deal with the change. In several states, including California, insurers have anticipated the termination and have already loaded the lost payments into their on-exchange silver plansIn other states, however, insurers have to date been instructed to assume that the payments will be made, or have been given no instructions whatsoever. In these states, the change is likely to cause considerable confusion. Insurers will have to refile their rates and will likely not be able to do so before open enrollment begins in three weeks. For more on the different responses insurers may have take, see here.

What Might Happen Now

It is possible that the states that have intervened in the House v. Price appeal will seek to block the withdrawal of the funds. It is also very possible that the state attorneys general or a consumer or insurer will sue to block the CSR withdrawal. New York Attorney General Eric Schneiderman issued a press release yesterday threatening legal action if President Trump withdraws the payments, and the California Attorney General has also threatened suit.

It is also possible that Congress will adopt a specific appropriation to fund the CSRs, putting to rest the question of whether such an appropriation exists. The Senate Health, Education, Labor, and Pension Committee held hearings on bipartisan solutions to health reform problems in September and virtually every witness, including insurance commissioners and governors supported removing the uncertainty around the payments and making it clear that they would continue. Support for continuing CSR funding has come from insurers, consumers, the National Association of Insurance Commissioners, and virtually all other stakeholders. The President’s statement, and the likely consequent chaos in the individual marketplaces, may be enough to finally prompt action.

In any event, ending the CSR payments is another sign that President Trump is doing what he can to undermine the stability of the individual market under the ACA. This action will have a much more immediate impact than the measures Trump announced in yesterday’s executive order.