Loss of Cost-Sharing Reductions in the ACA Marketplace: Impact on Consumers and Insurer Participation
While Congress’s plans to repeal and replace the Affordable Care Act (ACA) seem to be on pause after the vote on the American Health Care Act was cancelled last week, there is another threat to millions of Americans that could materialize without legislative action. Under the ACA, insurers must reduce the cost-sharing obligations of low-income enrollees, such as their copayments and deductibles. At any time, the Trump administration can pull the plug on government payments that support these cost-sharing reductions (CSRs), a move that could throw the individual health insurance market into chaos, especially given that insurers will still be legally required to offer this subsidy to eligible enrollees.
Why Are Cost-Sharing Reductions at Risk?
The CSR subsidy is a critical part of the ACA’s package of financial assistance to help individuals afford coverage. People with incomes between 100 percent and 250 percent of the federal poverty level ($11,880 to $29,700 for individuals) are eligible to enroll in plans with CSRs that lower deductibles, copayments, or coinsurance, thus reducing their out-of-pocket costs for health care services. Currently, insurers participating in the ACA marketplaces must provide CSRs to eligible enrollees and the federal government reimburses them for those costs. In 2016, the cost of that CSR assistance is estimated to be $7 billion, covering nearly 6 million people. If those payments cease mid-year, insurers will face billions of dollars of unexpected liability.
Why would payments stop mid-year? A lawsuit filed by the U.S. House of Representatives, House v. Price (originally House v. Burwell) challenges the manner in which the executive branch has funded the payments. The House won in the lower court; the Obama administration appealed the decision, but the case has been delayed until May—at the request of the House and the administration—"to allow time for a resolution." The current administration, which inherited the case from the Obama administration, now has the power to stop defending the case—letting the lower Court ruling stand and causing funding to dry up—or else may unilaterally attempt to discontinue the payments.
The Impact of Losing CSR Funding on Plan Participation
If federal reimbursements cease, insurers have four potential options:
- Absorb the cost
- Request a midyear premium rate increase
- Exit the ACA marketplace, or
- Exit the entire individual market and no longer sell plans to individuals on or off the marketplace.
Given the magnitude of the potential losses, it’s doubtful that many insurers will be willing to absorb them. Midyear premium increases—which would affect all enrollees, not just those receiving CSRs—are unlikely too; federal law currently requires insurers to set premiums for a full year and, historically, states have not allowed midyear increases in the individual market.
Insurers may try to reduce their exposure by leaving the marketplaces—or the entire individual market—but these paths are complicated. For starters, these insurers have signed contracts with federal and state regulators obligating them to sell on the marketplaces, and are bound under those contracts to continue to provide coverage to enrollees. If insurers are able to terminate these agreements mid-year, state and federal law requirements will govern when and under what circumstances insurers can jump ship. For example, an insurer that decides to withdraw completely from the individual market must, under federal law, give 180 days’ advance notice, during which time they likely will face growing financial losses. Insurers that make only a partial withdrawal (i.e., continue to sell some products) must provide 90 days’ notice, or more, under some state rules. Different states may apply these and similar state requirements differently—or may grant insurers greater flexibility under the law in the unprecedented circumstances raised by this case—leading to further confusion.
Impact of Losing CSR Funding on Consumers
How insurers actually respond to this funding and regulatory environment is difficult to predict, but considering all of the available options, they may be most likely to attempt to either withdraw from the marketplaces or leave the individual market entirely.
Consumers who lose coverage mid-year have guaranteed options to continue coverage. In practice, those options may be illusory. If insurers discontinue marketplace plans mid-year but offer the same plan off the marketplace, consumers may enroll in that off-marketplace plan, but would lose premium assistance available only to those enrolled in marketplace plans. They might also be eligible for a special enrollment period that would allow them to enroll in another marketplace plan, if available, or another insurer’s plan off-marketplace. If an insurer drops out of the individual marketplace entirely, its enrollees will have to shop for new coverage, if available. This kind of disruption is likely to prompt many consumers, particularly those who are healthiest and those who lose eligibility for financial assistance, to drop coverage entirely and become uninsured. This would further threaten the sustainability and affordability of plans that remain by leaving mostly sicker enrollees.
It is unclear how the new administration will respond to the lawsuit. But if their actions lead to the termination of CSR plan reimbursements, there will be substantial and immediate consequences for insurers’ financial health and consumers’ access to affordable coverage—both on and off the marketplace. This likely would render meaningless the transition promised to the 22 million Americans who may lose ACA coverage under repeal efforts being considered by the new administration and Congress. Since the ACA replacement plans proposed to date rely heavily on the private individual insurance market, any action that disrupts and weakens the market also would undermine attempts by the new Congress and administration to enact a viable alternative to the Affordable Care Act.