The U.S. Senate Committee on Health, Education, Labor and Pensions held two hearings last week on stabilizing premiums and strengthening the individual insurance market for 2018. Several Governors and State Insurance Commissioners testified on market stabilization proposals they believed would strengthen the individual market in the short-term. The testimony exhibited broad bipartisan support for proposals to address the uncertainty related to cost-sharing reduction (CSR) subsidies and the establishment of a reinsurance mechanism. These proposals were identified as key, even critical, to stabilizing the individual market in the short-term. Additional state flexibility with §1332 waivers was another often mentioned proposal in the two days of testimony.
The committee hopes to develop bipartisan legislation on short-term, market stabilization by mid-September. Although most of the testimony and subsequent comments from governors, state insurance commissioners, as well as the Senators participating in the hearings, affirmed that CSR subsidies, reinsurance and §1332 waiver proposals should be part of a short-term, market stabilization response, the discussion reflected notable differences that will need to be addressed. If not reconciled or if compromise on discrepancies proves elusive, a bipartisan initiative to stabilize the individual market may meet the same fate as recent efforts to “repeal and replace” the Affordable Care Act (ACA).
This blog summarizes key testimony from last week’s hearings on CSR subsidies, reinsurance and §1332 waivers highlighting areas of general agreement and some of the areas of possible disagreement.
Cost Sharing Reduction Subsidies
CSR subsidies lower deductibles, co-pays and coinsurance for marketplace enrollees under 250 percent of the federal poverty level (FPL). Almost half of Covered California consumers benefit from CSR subsidies, which reduce out-of-pocket costs on average $1,000/year, according to Covered California. Payments for CSR subsidies go directly to insurers, who are obligated under the ACA to reduce the out-of-pocket costs for their eligible enrollees – whether they receive CSR payments or not. The Trump Administration has chosen to fund CSR payments to insurers month-by-month and repeatedly threatened to unilaterally stop this funding – creating significant uncertainty in the market.
Testimony at the U.S. Senate Hearings on Cost Sharing Reduction Subsidies
Virtually all witnesses testified on the importance of funding CSR subsidies, with some differences on the length of time payments should be guaranteed. In his testimony, Governor John Hickenlooper (Colorado) provided the recently released, bipartisan blueprint on market stabilization, developed with seven other Governors. The blueprint urges Congress to “put to rest any uncertainty about the future of CSR payments by explicitly appropriating federal funding for these payments at least through 2019. This guarantee would protect the assistance working Americans need to afford their insurance, give carriers the confidence they need to stay in the market, increase competition, and create more options for consumers.”
Utah Governor, Gary Herbert, testified that he did not believe CSR payments are “the most transparent and effective way to assist low income individuals. Nevertheless, in the near team, (Utah’s) individual insurance markets need predictability in order to price their products adequately. The sudden demise of CSR support would destabilize Utah’s individual insurance market.”
Insurance Commissioner Teresa Miller (Pennsylvania) testified, “When rates were initially filed (in Pennsylvania), (she) asked … insurers to provide information on what they would need to request if cost-sharing reduction payments were not made …. If cost-sharing reductions are not paid, [insurers] estimated that they would need to request a statewide average increase of 20.3 percent. …… Failing to make payments for cost-sharing reductions does not serve any goal aside from trying to make markets fail.”
Insurance Commissioner Miller continued to make the argument in favor of funding CSR subsidies by highlighting findings from the Congressional Budget Office. “According to the Congressional Budget Office’s analysis on the matter, (eliminating CSR payments) would result in higher premiums, more counties without individual market coverage options for 2018, and would increase the federal deficit by $194 billion through 2026 due to the payment of additional premium subsidies because of higher premiums. The Congressional Budget Office further estimates that premiums would rise an additional 20 percent in 2018. This will undoubtedly create more problems, especially for individual market consumers who are not eligible for financial assistance.”
Mike Kreidler, Washington State’s Insurance Commissioner, testified that, “Here and around the nation, states have been spending countless hours during the last several months trying to find an approach to rate setting in 2018 that does the least harm to consumers if cost-sharing reduction payments are suddenly curtailed. I can assure you there is no solution that doesn’t hurt consumers, especially those who do not receive advance premium tax credits.”
The temporary ACA reinsurance program was in place from 2014 to 2016. The program transfered funds to individual market plans, subject to guaranteed issue, who enroll high-cost enrollees. Reinsurance is based on actual health care expenses rather than estimated risk or predicted costs. In this way, reinsurance accounts for low-risk individuals who have unexpected health care costs, as well as those with high risk and high costs. Under the ACA, all health insurers and self-funded group plans made contributions to a reinsurance pool in 2014 – 2016, but the reinsurance payments were made only to ACA-compliant individual market plans, inside and outside the exchange. Most states, including California, opted to participate in the federally-administered reinsurance program. Health plans received reinsurance payments if they had enrollees whose health care expenses reach a specified threshold (attachment point), which was $45,000 in 2014 and 2015 and $90,000 in 2016. Payments are subject to a dollar limit (reinsurance cap) of $250,000. The U.S. Department of Health and Human Services reimbursed health plans a percentage of the costs between the attachment point and the reinsurance cap (coinsurance).
Testimony at the U.S. Senate Hearings on Reinsurance
Alaska’s Director of the Division of Insurance, Lori Wing-Heier, testified that Alaska’s recently implemented reinsurance program (secured with a §1332 waiver) helped stabilize Alaska’s volatile individual market. She testified:
As anticipated, the (Alaska Reinsurance) (P)rogram (ARP) had an immediate impact on the rates in the individual market. Prior to the enactment of the ARP, indications were that the rate filing from the single insurer in Alaska’s individual market would include an increase of close to 40 percent. After the enactment of the ARP, however, the 2017 individual rates had a moderate average increase of just over seven percent….
Actuarial modeling indicates that the ARP will continue to help reduce the rates necessary for insurers in the Alaska individual market and thus the premium amounts charged to Alaskans. The slowing of the growth of rate increases (and potential for rate decreases) due to the ARP may also draw additional Alaskans into the market. Independent analysis estimates the ARP will increase enrollment in the individual market by nearly 1,650 individuals relative to what enrollment would be absent the program. Modeling also indicates that the ARP may attract healthier members to the individual market, further reducing premium rates.
Additionally, there is potential that the ARP will encourage competition in the state’s insurance market. … In 2016, the insurer covering approximately two‐thirds of those enrolled in the individual market … exited the market, leaving only one insurer to serve Alaska’s individual market in 2017. There is optimism that in subsequent years there may be interest from other insurers to provide health care plans if the market remains stabilized.
Governor Steve Bullock of Montana testified, “Although no longer in place, in 2014, the reinsurance program under the ACA reduced premiums in the individual marketplace by 10-15 percent. With several more years of experience now behind us, it is a mechanism that will add to the stability of the market. Certainly, some states have been taking steps to do the same. However, Congress should create a reinsurance program or a fund that states can use to create reinsurance programs or similar efforts that reduce premiums and limit losses for providing coverage. This safety net will allow insurers to manage their risk and bring down premiums. As recommended in the bipartisan Governors’ letter, it should be provided for at least two years and that a funding source be identified to offset the cost so it does not add to the deficit.”
Testimony supporting the development of a reinsurance mechanism highlighted several areas of potential conflict that will need to be resolved. If a reinsurance program is to be included in a final bipartisan proposal, committee members will need to agree on whether a reinsurance program should be run at the federal level or if funds should be available for state-run reinsurance programs, the amount of federal resources to allocate to a reinsurance program, the length of time the program should be in place, and whether a state contribution or match should be required for participation in a federally-funded reinsurance program.
Section 1332 Waivers
Section 1332 waivers allow states to waive specific requirements of the ACA with the stated goal of developing new and innovative models to improve and expand health coverage. A §1332 waiver can waive:
- The individual mandate to have health coverage,
- The employer mandate to offer coverage,
- The health benefit exchanges and the essential health benefits requirement, and
- The premium and cost-sharing subsidies available through the exchanges.
The ACA requires that state §1332 waiver programs be comparable or exceed the ACA’s standard coverage framework in the following four ways:
- The number of people covered,
- The scope of health benefits,
- Consumer affordability, and
- Containing the cost to the federal government.
The limitations on §1332 waivers, often referred to as “guardrails,” are intended to ensure states do not waive critical ACA protections and compromise the ACA’s goal of providing comprehensive, affordable coverage.
The Congressional testimony highlighted what some consider unreasonable bureaucracy in securing a §1332 waiver. Most witnesses expressed support for expediting §1332 waiver review and allowing states to replicate approved waivers in other states, without having to secure approval for a duplicate or “copycat” waiver. Witnesses also testified on the need for greater flexibility and recommended loosening the current §1332 regulatory framework. Some felt the §1332 guardrails stifled innovation, while others testified on the continued importance of the guadrail protections. The value many participants placed on these protections foreshadows the opposition a proposal to weaken the guardrails will likely face as the committee seeks to develop its compromise legislation.
Testimony at the U.S. Senate Hearings on §1332 Waivers
Governor Charles Baker of Massachusetts emphasized the importance of increased flexibility for states seeking to innovate with §1332 waivers and provided various examples of improvements he would support. Governor Baker testified that, “Greater flexibility is … needed around benefit design. Value-Based Insurance Design (V-BID) approaches to benefit design seek to align patients’ out-of-pocket costs, such as copayments and deductibles, with the value of services. Certain technical parameters of (essential health benefits) EHB make important kinds of benefit design innovation difficult. For example, in many areas, bronze and silver plan deductibles are extremely close to the maximum out of pocket (MOOP) limits. States may want to experiment with designing plans in which there are lower MOOP levels for high-value care (like chronic illness care) in exchange for a slightly higher MOOP overall, perhaps exceeding the existing EHB MOOP limit for relatively lower-value services. This would help make sure people who opt to buy high deductible plans don’t put off care that will keep them healthy and also help make sure they don’t develop an even more costly medical condition.”
Governor Baker continued to provide examples of how the current structure of §1332 waivers stifle innovation. He added, “the current 1332 regulations require that proposals are examined on their own terms with regard to federal deficit neutrality impact. This can greatly limit creative proposals by not allowing commercial innovations to draw from savings enabled on the Medicaid program and vice versa. Opportunities for change could range from coupling savings from 1115 and 1332 waivers that are filed together or to determine savings over the course of several years. These types of common sense adjustments along with consumer protection guardrails could widen opportunities for meaningful innovation and allow for far more comprehensive waivers that integrate the ACA, Medicaid and CHIP programs into a coherent health care insurance program at the state level.”
While some witnesses emphasized the importance of the §1332 waiver requirements to protect ACA coverage standards, several witnesses discussed loosening the §1332 guardrails. For example, Tennessee Governor, Bill Haslam, testified that, “A third critical way to provide more stability is to offer flexibility to states to address their unique challenges and circumstances. The waiver approval process should be expedited, and the strict guardrails currently placed upon waiver requests should be loosened in a manner that will attract younger, healthier individuals to the marketplace. Examples of guardrail relief include more flexibility around rate bands and plan design. Simply put, without more flexibility, carriers will be left with two choices – leave the individual market or raise rates.”
The testimony and comments at the U.S. Senate hearings last week suggested potential areas for bipartisan collaboration to stabilize premiums and strengthen the individual market, but also raised significant issues that could derail a compromise. Proposals to potentially weaken ACA protections through state waivers could also be an obstacle to Congress reaching an acceptable short-term market fix. Whether the bipartisan effort begun last week will result in legislation that can garner enough support to pass out of Congress and secure the President’s signature remains unclear. What is clear is that this legislation needs to materialize quickly to impact the performance of the 2018 individual market. By the end of this month, insurers need to finalize rates and contracts with the marketplaces and many are currently proposing significant rate increases because of the uncertainty regarding CSR payments, in particular. A September compromise that guarantees insurers will receive CSR payments (to cover the costs of reducing out-of-pocket expenditures for lower income enrollees) will positively impact 2018 individual market rates. (See the ITUP blog on how Covered California is addressing the uncertainty regarding CSR payments.)