California Moves to Protect ACA Consumer Cost-sharing Reductions (CSRs)
On May 18, 2017, California and New York led 13 other states and the District of Columbia in filing a motion to intervene in the federal lawsuit affecting payments that reduce out-of-pocket costs for low income individuals enrolled in Affordable Care Act (ACA) marketplaces.
Under ACA, individuals and families with incomes below 250 percent of the federal poverty level (FPL) are eligible to enroll in silver-level benefit plans with lower deductibles, copayments or coinsurance than the standard silver plan. Health plans must provide the reductions at the point of care for enrolled consumers and the federal government then reimburses health plans for the costs.
While silver-level benefit plans cover 70 percent of the medical expenses under the policy (70 percent actuarial value), the Cost-Sharing Reductions (CSRs) increase the actuarial value up to 73 percent, 87 percent or 94 percent, depending on the income of the individual enrolled. CSRs help low-income consumers afford to use their health care coverage and access services. For example, in California, in 2016, an individual in a silver-level benefit plan with standard cost-sharing would pay $45 for a primary care visit, while an individual in the most generous CSR plan would pay only $5.
Kaiser Family Foundation estimates that, nationally, insurers would raise premiums for silver-level benefit plans by about 19 percent on average to compensate for the loss of CSR payments.
The Centers for Medicare and Medicaid Services (CMS) estimates that in 2016 more than 6 million Americans (56 percent of total enrollees in ACA marketplaces) enrolled in CSR plans. Covered California reports that 50 percent of enrollees in the state marketplace selected CSR benefit plans.
The Lawsuit and the States
The U.S. House of Representatives brought the original lawsuit (House v. Burwell) challenging the CSR payments being made by the Obama administration, arguing that Congress had not appropriated the funds for the payments. The House won in the lower court but the judge stayed the order pending appeal. The Obama administration appealed but the House requested additional time, including a second request for more time after the Presidential election of 2016. The Trump Administration has yet to take a formal position on whether the payments are legal, but the President has threatened on multiple occasions to stop making the payments. On May 22, the House and the Trump Administration requested an additional 90-day delay in the lawsuit.
In the motion, the states assert that they have a unique, sovereign interest in ensuring stable insurance markets, sufficient competition in state exchanges and protection for consumers from increasing premiums. The states contend that the loss of CSRs would result in higher insurance premium costs for consumers because, absent a change in federal law, health plans would have to provide the CSRs but would not be reimbursed. The motion also recognizes that increased premiums would have the greatest impact on those not eligible for federal premium subsidies and points out that additional individuals might become uninsured if the higher premiums end up relieving them from the federal coverage requirement should their share of premium exceed 8 percent of household income.
The motion argues that continued uncertainty year-to-year as to whether the federal government will provide the CSR payments would make state regulation of health insurance “more complex, unpredictable, and expensive.” In addition, the states argue that President Trump’s numerous statements that he does not intend to make the payments demonstrate that the administration cannot adequately represent the states’ interests in defending the payments. For these and other reasons, the states assert that they have a legally protected interest in the litigation and should be allowed to intervene. (For more on the legal case and the states’ arguments see Health Affairs Blog.)
Covered California commissioned an analysis on the potential consequences of ending CSR payments. The study modeled the impact on consumer benefit plan choices should premiums rise. The analysis found that premiums for consumers in silver benefit plans would increase by 16.6 percent in 2018. The increased premiums would result in a parallel increase in the advanced premium tax credits, an average of $60 per month for each subsidy-eligible individual. However, for unsubsidized individuals, premium increases are not accompanied by increases in premium tax credits. These individuals might switch to other coverage levels, primarily to bronze. The model showed that the loss of CSRs would increase federal costs by 29 percent in premium tax credits to cover the increase.
The loss of CSRs would lead to higher premiums in California and increased federal costs for premium subsidies. Moderate income individuals and families experiencing large premium increases might decide to drop coverage or choose lower priced plans that increase their out-of-pocket costs at the point of care. The number of uninsured could increase if individuals cannot afford higher premiums or are relieved of the federal requirement to maintain coverage if higher premiums exceed 8 percent of premium.
Ending CSR payments does not appear to accomplish any of the stated policy goals of the Trump Administration and Congressional Republicans – cutting federal expenditures, lowering deductibles or decreasing premiums. However, the continuing uncertainty on whether the federal government will make the payments does threaten to de-stabilize ACA markets. Given the potential increase in federal costs, canceling CSR payments seems to be more about political leverage than about improving health care and health coverage.