The Bipartisan Policy Center’s introductory blog concerning cost sharing reduction (CSR) subsidies provided important background details on how CSRs and CSR subsidies are designed to work, and how legal and political challenges have created uncertainty around continued payment of CSR subsidies. At BPC’s recent forum concerning challenges for stability in the individual market, several panelists stressed the need for certainty surrounding federal payments of CSR subsidies. This blog examines the likely consequences of a failure to pay CSR subsidies and next steps in the process of premium rate setting and Health Insurance Marketplace participation for insurers who currently lack certainty on CSR subsidy payments.
What are the Implications for Government Non-payment?
While the ongoing payment of CSR subsidies is in doubt, health insurers are legally obligated to continue to apply CSRs in the form of reduced deductibles and out-of-pocket expenses of CSR-eligible enrollees—even if the insurers are not reimbursed by the government. As a result, the uncertainty regarding CSR subsidy payments has caused many health insurers to reconsider their individual insurance market offerings for 2018.
To avert the prospect of significant financial losses resulting from providing mandatory CSR financial assistance to consumers but not receiving CSR subsidy payments from the government, some health insurers are seeking substantially higher increases in non-group market premiums.
For example, because Blue Cross Blue Shield of North Carolina (BCBS NC) is operating under the assumption that CSR subsidy payments will not be made in 2018, the insurer is requesting approval for 2018 premiums that are 14% higher than the premiums that the company would have sought if CSR subsidy payments were certain to occur.
BCBS NC is not alone. The Pennsylvania Insurance Department recently released information on insurer-requested individual and small group market premium increases for the state, which showed that average requests for individual market premium increases would be more than 11% higher if CSR subsidies are not paid.
Recent estimates suggest that a failure to pay CSR subsidies would result in an expected 19% increase in premiums for Silver-level plans in 2018. Because the Affordable Care Act’s tax credits for the purchase of health insurance coverage rise correspondingly with increasing premiums, current projections suggest that eliminating CSR subsidy payments would actually increase federal spending by about $2.3 billion, on net, as the corresponding additional cost of premium tax credits would more than offset the savings generated through non-payment of CSR subsidies.
Equally important, uncertainty surrounding CSR subsidies may impact health insurers’ decisions to continue to offer non-group market coverage. Officials from both Molina Healthcare and Anthem Inc. indicated that the companies would either need to exit the non-group market in various states or dramatically raise premiums unless certainty regarding CSR subsidies was provided. Together these insurers provided coverage to roughly 2.6 million non-group health insurance market enrollees in 2016. Earlier this week, Anthem announced that the company will cease to offer individual market coverage in Ohio next year—due to lack of certainty on the continuation of CSR subsidy payments, among other policy concerns.
What’s Next for the CSR Debate?
Although the Court of Appeals proceedings on the CSR subsidy litigation are expected to be delayed until at least late August, health insurer decisions regarding 2018 premium pricing and non-group market participation require action now. To offer coverage on Health Insurance Marketplaces in 2018, health insurers must submit Marketplace applications to the Centers for Medicare and Medicaid Services (CMS) by June 21, 2017—although they can make changes to their applications through August 16, 2017.1 Throughout July and August, State Insurance Commissioners and other regulators will approve and/or require modifications to 2018 premium rates requested by the health insurers. Finally, health insurers must sign final Marketplace participation contracts by September 27, 2017.
Given this time frame, without additional clarity from the Trump Administration and/or intervening congressional action around CSR subsidies, it is likely that health insurers will need to substantially increase premiums or exit the Marketplaces.
1See Centers for Medicare and Medicaid Services, “Qualified Health Plan Certification,” Available here.