To make health care truly affordable, the Affordable Care Act (ACA) reduces both the cost of insurance premiums, and the out-of-pocket costs that lower-income enrollees pay for health care. People who purchase their own health plans through the marketplaces benefit not just from tax credits that lower the cost of their plans, they also benefit from reduced out-of-pocket costs (in the form of lower deductibles and copayments) if they earn 250 percent or less of the federal poverty level, or $29,700 for a single person. The cost reductions increase the closer people get to the poverty level, resulting in the lowest-income enrollees receiving what is essentially “platinum-plus” coverage for the same cost as a silver-level plan (see box). Over half of marketplace enrollees receive these cost-sharing reductions, and in some states the proportion is considerably higher.
Cost Exposure in Marketplace Plans
Insurance companies that sell plans inside or outside the marketplaces must offer them at four different levels of cost exposure, also known as actuarial values:
- Bronze, covering an average 60% of medical costs
- Silver, covering 70%
- Gold, covering 80%
- Platinum, covering 90%.
Insurers also are required to provide silver-level marketplace plans with reduced cost-sharing for people who have incomes between 100 percent and 250 percent of the federal poverty level. The lower one’s income, the higher the proportion of health care costs covered:
- 100%–<150% of poverty: eligible for plans with 94% actuarial value
- 150%–<200% of poverty: eligible for plans with 87% actuarial value
- 200%–<250% of poverty: eligible for plans with 73% actuarial value.
Thus, as Congress considers whether to repeal, replace, or repair the ACA, one of the looming issues is whether to continue funding this critical component. The ACA authorizes the federal government to reimburse insurers for these reductions in patient cost-sharing. However, a Republican-led Congress has never appropriated the funds needed to make these cost-sharing reduction (CSR) payments to insurers.
In order to keep insurers from leaving the marketplaces, the federal government has used other, nonearmarked funding sources for the past three years to make these CSR payments. Some members of Congress, however, believe that it is unlawful to make these payments without an official appropriation, and so have sued to stop the payments. A federal district court initially ruled in their favor, but has stayed the ruling, pending a decision by the Court of Appeals. So far, the Trump Administration and current congressional leaders have not declared whether they favor continuing or discontinuing these payments, so both sides have asked the court to pause the court case while they determine what they want to do.
If the current administration wanted to discontinue CSR payments immediately, it could simply stop defending the prior administration’s position in the pending lawsuit, essentially admitting defeat and allowing the district court’s decision to take effect. But Congress would then need to decide whether to appropriate the necessary funds. Therefore, it is critical to understand what the consequences would be if CSR payments were discontinued.
To do so, we analyzed federal rate filings by the 217 health insurers selling coverage through the ACA’s marketplaces in 2017 who projected their expected CSR payments.1 For the current year, insurers set their rates with the expectation that they would receive $7.35 billion in CSR payments from the federal government, a figure similar to what the Congressional Budget Office has estimated for 2016.2 This expected payment amounts to $64.79 per member per month, which is 14 percent of insurers’ total premium amount. Insurers set their premiums for 2017 with the expectation that they would earn a 7 percent profit overall (weighted by enrollment) (Exhibit 1). Thus, if the CSR payments cease and insurers are not allowed to adjust their premiums, they project a loss of 7 percent overall.
HENRY KOTULA 