I want to highlight a story that I think reports a fundamental mis-analysis of the individual health insurance policy world where there are no more Cost Sharing Reduction subsidies being paid.
Now the piece that has me scratching my head is from the Washington Examiner and a story about Senator Johnson’s (R-WI) willingness to appropriate CSR in exchange for policy concessions from Democrats:
Johnson told the Washington Examiner Friday he hopes to put out legislative text sometime next week on a proposal that funds insurer payments in exchange for reforms to Obamacare. His proposal includes expanding the duration of short-term plans and expanding health savings accounts….
Johnson said he is talking with some House Republicans to get their support for a deal. This is key because Republicans have derided the CSR payments as “bailouts.”…”I hope this would inform them what type of deal the Senate would have to come to with any hope of passing the House,” he said. “People need to realize there is a strong resistance to doing this among conservatives.”
Johnson also wants to let all Americans buy catastrophic plans, not just those under 30 years old as is the practice now.
He seems to think that Democrats need to offer policy concessions to protect the individual market. I think he is wrong.
At least forty states have taken steps to protect all on-Exchange buyers from CSR costs in 2018. The Congressional Budget Office predicts that all states will converge to local regulations that shift the entire cost of CSR to only Silver plans thus lifting the relative price point of the subsidized Benchmark plan. This higher premium for the Benchmark plan means that Bronze and Gold plans are significantly cheaper for subsidized buyers. Insurers will also quickly figure out that they need to offer unique Off-Exchange only Silver plans to protect the non-subsidized buyers.
The CBO also projects that not paying CSRs and having insurers cover their CSR costs through higher premiums will lead the federal government to spend an additional $194 billion dollars over a decade. Some of this increased cost is due to higher enrollment but most of the increased costs is not tied to increased claims costs. It is a shift from a narrowly structured, tightly means tested subsidy to a more broadly structured, loosely means tested subsidy. This gives states a lot of flexibility. Steven Chen at Health Affairs outlined how California could use CSR uncertainty to fund aggressive 1332 waivers.
These are acceptable long term outcomes for Democrats and liberals. More people get covered. If there are no 1332 waivers, the coverage expansion is expensive and inefficient. If states use 1332 waivers to subsidize off-Exchange individuals with a reinsurance program, more people will get covered and the spending will be more efficient. The transitional year of 2018 will be a scramble but from a political perspective, this is acceptable for Democrats as the public believes that the Republican party should be responsible for health care.
Inaction means, over the long run, more people will get low(er) out of pocket expenses/lower deductible insurance for lower premiums through structured, subsidized exchanges. I think that after a year or two, the expected social contract of what “acceptable” publicly subsidized insurance will move to Gold instead of Silver plans. Lower cost Gold plans and very affordable Bronze plans will increase long run uptake of PPACA insurance among people who earn between 200 percent and 400 percent FPL. This is a group with more political power than Medicaid recipients and Medicaid recipients were able to successfully mobilize to defend their interest this year. Appropriating CSR and thus maintaining the status quo is closer to conservative policy and ideological preferences than resetting the effective benchmark to Gold.
So as I argued in August, CSR inertia favors Democratic policy preferences. Senator Johnson does not realize that the ground has shifted.
All of this CSR stuff is convoluted, complex, unneccessary and weird in its implications and end results.
NB: Finally, I don’t understand the mechanical impact of expanding Catastrophic plans to everyone. Catastrophic plans are 57% AV plans that can be sold to people under the age of 30 or who otherwise cannot buy an ACA plan.
Catastrophic plans are part of the shared risk adjustment process but they are not part of the common index rate. Catastrophic plans have their own risk adjustment but interact with the common index rate. Most counties will have a less expensive Catastrophic plan than the least expensive Bronze plan because the Catastrophic plan is covering a healthier group of people right now. However if Catastrophic is opened up to everyone, it is just a slightly funkily designed Bronze plan with no pricing advantage. If the conservative goal is to offer a lower premium but higher out of pocket plan, then they should really go to the Copper design at 50% actuarial value. This is a minor piece of mechanical confusion on my part.