The billion dollar counterfactual

New York and Minnesota both run Section 1331 Basic Health Plans for people who make between 138% and 200% Federal Poverty Level (FPL) ($16588-24,040 for a single individual). This is an option from the ACA. The states filed a waiver that passes through 95% of the combined Advanced Premium Tax Credit (APTC) and Cost Sharing Reduction (CSR) that individuals would otherwise be entitled to. These states use this money to basically create an enhanced Medicaid program for this cohort. It provides lower premiums and lower deductibles than Exchange plans because these plans pay doctors and hospitals less.

New York and Minnesota approved rates for 2018 ACA plans on the basis of the actual risk pool. This means their ACA markets have a very small component of people who qualified for Silver plans with CSR. The weak Silver CSR bumps Silver plans from 70% nominal value to 73% actuarial value. Silver loading in these two states added an extra point or two to the rates. Similar states without BHPs added twenty or more points to their rates to cover the cost of CSR in the index rates.

The Trump Administration stopped paying CSR in October. The Trump Administration contends that the BHP payments should be reduced to the proportion of the BHP funding that could be directly attributed to APTC. This is leading to a billion dollar short fall in 2018 for the New York Essential Plan and a $100 million dollar or more gap for Minnesota.

And then the one thing that I am sure about the ACA occurred: There will be lots of lawyers. New York and Minnesota sued.

The New York and Minnesota #BHP lawsuit is herehttps://t.co/hC9kk4yTKN

Going to be a big fight on Actual vs. Counterfactual (I think counterfactual wins) pic.twitter.com/lsaEsTP1ws

— David Anderson (@bjdickmayhew) January 26, 2018

New York and Minnesota tried to file revised, Silver loaded rates as if their entire population was on the Exchange instead of in the BHP. They believe that the BHP calculation is based on the counterfactual of what would happen if the entire population was on Exchange. And from here, they estimate that if CSR had to be built into the rates, they would Silver Load and see a 20%-25% increase which would bring them even on net.

The Center for Medicare and Medicaid Services (CMS) did not respond to this argument. Instead they are acting as if BHP funding is based on the actual and thus there is a billion dollar hole in the New York budget. From 2014-2017, the counterfactual and the factual are very close to each other and not worth fighting about.

I think BHP funding is based on the counterfactual. Here is the 2018 regulation for BHP funding:

Section 1331(d)(3)(A)(ii) of the
Affordable Care Act specifies that the payment determination shall take into account all relevant factors necessary to determine the value of the premium tax credits and CSRs that would have been provided to eligible individuals, including the age and income of the enrollee, whether the enrollment is for self-only or family coverage, geographic differences in average spending for health care across rating areas, the health status of the enrollee for purposes of determining risk adjustment payments and reinsurance payments that would have been made if the enrollee had enrolled in a qualified health plan through an Exchange, and whether any reconciliation of PTC and CSR would have occurred if the enrollee had been so enrolled. This payment methodology takes each of these factors into account. [my dual emphasis]

“Would have been provided” implies a counterfactual. We are supposed to imagine the New York and Minnesota markets as if there was no BHP. From here,a projection of premiums is made. And from that premium projection, the number of people who earn between 138% and 200% FPL is calculated. That number is then discounted by 5% to act as the maximum pass-through to the state for their BHP.

“individuals” is the second key word. Everyone agrees that the individual is entitled to CSR benefits. The federal government has argued in court that Silver loading is an acceptable practice if insurers are not to be reimbursed for CSR benefits to individuals.

New York and Minnesota are arguing that they were not treated fairly by CMS compared to all other states that Silver Loaded. CMS is paying on the factual instead of the counterfactual for no good reason despite their own regulations saying that the BHP payment is a counterfactual payment.

There will be a lot of lawyers involved, but I think the counterfactual will eventually win.