GOP Senators are worried about Trumpcare's premium rate shock right before the midterm elections. See, they do care.https://t.co/EkCx4MC5QZ
— Topher Spiro (@TopherSpiro) July 5, 2017
This article is highlighting a potential Republican political concern. The Congresisonal Budget Office (CBO) projects that if the Senate’s Better Care Reconciliation Act (BCRA) or the House’s American Health Care Act (AHCA) was to pass and get signed into law this afternoon, rates for the individual market would increase by 20% in 2018. This is because the CBO believes that the lack of a strong individual mandate will lead to many healthy people leaving the risk pool. Almost the same number and value of claims will be borne by a much smaller payment pool.
The Republican political fear is that rates are proposed in the late spring, negotiated over the summer, and then announced as final in early fall. This year, rates and plan participation are to be finalized by the end of September. And then open enrollment starts on November 1st. And given the subsidy structure, likely voters are highly likely to be facing 20% higher premiums in addition to normal trend increases. And those voters will be pissed off and take out their anger on Republican incumbents.
This is a reasonable theory of change. I think it is wrong because I think it misreads a key CBO assumption.
The CBO evaluates proposals against current law as a baseline. Current law and current practice includes payment of Cost Sharing Reduction (CSR) subsidies. CBO therefore assumes in their rate structure calculation that CSR will be paid and more importantly, will be assumed by the carriers to be paid. However the combination of the House vs. Price lawsuit plus strategic ambiguity by the Trump Administration has led to insurers to price as if CSR will not be paid. In Pennsylvania, this is a 20% bump.
This is a powerful political wedge. If the BCRA was to be passed, it funds 2018 and 2019 CSR through normal appropriations. If that was the case, almost every plan in the country would be 20% overpriced for 2018. That means insurers would be faced with a 20% premium reduction because they are no longer pricing in uncertainty over the payment of CSR. At the same time they would be faced with a 20% increase on the baseline because of a sicker population due to the lack of a mandate.
That leads to a net wash. 20% less due to CSR funding becoming certain while a 20% increase because of a sicker risk pool.
There will be premium increases just because of trend but this is not a political or policy bludgeon.