Iowa’s contradictory counterfactual

Earlier this week, Iowa asked for a “rescue” plan for their individual exchange market for 2018. There is an inherently contradictory counterfactual that underlies any waiver that can be granted. This means there will be a lot of lawyers.

Iowa basically wants to turn its 2018 ACA market into a the bastard child of the 2019 and 2020 AHCA markets. The major elements are below:

• Single plan (Silver-like) will be offered by each insurer
• Continuous enrollment requirements for special enrollment periods
• Flat age and income based credits including small credits for people earning above 400% FPL
• $80 million dollars for catastrophic claim reinsurance.
• Insurer’s exposure is capped at $535,000 for any single individual
• Healthcare.gov becomes irrelevant and everything is sold through brokers and income is verified by the state
• No Cost Sharing Reduction subsidies

Iowa is asking for additional federal funding and a massive waiver.  Tim Jost at Health Affairs has a critical summary:

 

Iowa essentially says that it has a crisis, and the only way to meet it is to establish a different program than that established by the ACA, which it wants the federal government to fund. Iowa has a real problem but so do a number of other states (although notably California and other states that have embraced the ACA and tried to make it work have often fared better). However, rewriting the ACA without congressional authority and giving federal money to a state without a congressional appropriation raises serious concerns, as does a program that would help middle-income enrollees at the cost of those with lower incomes.

It is also hard to believe that Iowa could possibly stand up what is essentially a state exchange, determining eligibility, calculating premium tax credits, and paying insurers, in less than five months.  States that had far more preparation time failed to do so in 2013 and 2014.

There are two major issues with the 1332 criteria. There are four major guide posts for a 1332 waiver. The waiver must provide at coverage at least as comprehensive as the baseline ACA, with cost sharing protections at least as good as the ACA to at least the same number of people at no more net federal costs than the ACA.

Iowa’s argument is one of choosing a favorable counterfactual. Their counterfactual will be that their plan will meet the coverage requirements of at least as good for as many people as the ACA if one assumes that the ACA will cover no one on the Exchange because there will be no insurers on the Exchange. That is a plausible counter-factual. It is one that can be defended with a straight face.

However, let’s think about the implication of that counterfactual. In this scenario, the ACA will cover no one. Covering no one means the federal government spends no money.

Yet Iowa wants to be funded as if they have normal enrollment at normal premium growth rates. This might be a problem.

Oops.

The second major issue is the disappearance of Cost Sharing Reduction subsidies. These subsidies bump up the actuarial value of policies for people who earn between 100% and 250% Federal Poverty Line (FPL) so that a Silver plan has a bump in actuarial value from a maximum of 72% to anywhere from 73% to 94% actuarial value depending on income. The single Silver plan has a lower actuarial value than the weakest CSR Silver plan. This is most notable for people earning under 150% FPL as they would transition from plans with $500 deductibles to plans with $3,500 deductibles. This is a major violation of the 1332 guidelines. It is not rational regulatory wiggle room. There are plenty of people who would have standing to sue as they will be harmed.

There is a good argument that reinsurance will help stabilize the market. The Iowa market has the case example for the benefit of a high cost risk pool or invisible risk sharing or reinsurance or whatever else you want to call it where a small cluster of people are carved out of the general pool and their care is paid for by a much larger pool including external to premiums funding. But between a contradictory counterfactual and the elimination of the CSR assistance, I don’t know how this potential waiver survives a lawsuit.