The Center for Medicare and Medicaid Services (CMS) released four Section 1332 waiver concepts yesterday. One is non-problematic, the other three are likely to result in a lot of lawyers billing a lot of time as soon as a waiver similar to these concepts is filed or approved. We’ll start with the non-problematic concept first.
- Split Risk Pool for tail cost smoothing
CMS is encouraging states to split their risk pools. Most people will stay in the general pool while some likely to be high cost people are split off to the side. This sounds nefarious but it is not. This is how reinsurance actually works on the already approved 1332 reinsurance waivers. There are a dozen different flavors on how the actual details can be implemented: visible or invisible risk pools, claims cost triggers, diagnosis triggers, or hybrid triggers. All of those details can then vary at attachment points. But those are fundamentally minor details.
I think a waiver that is just a reinsurance program of whatever flavor will and should go through the approval process with only actuarial challenges and not legal challenges.
That is the simple and straightforward concept. It does not have legal risk.
The next three concepts are ambitious and legally suspect on rule making administrative procedure grounds as outlined by Christen Linke Young of the Brookings Institute. These concepts all split the market and shift significant resources away from highly likely to be high cost to likely to be low cost populations.
The three concepts can be short-handed as:
- Defined Contribution
- Subsidy re-allocation (Iowa Stopgap Measure Version 1.0)
- Subsidize anything
a state can direct public subsidies into a defined contribution, consumer directed account that an individual uses to pay for health insurance premiums or other health care expenses. The account could be funded with pass through funding made available by waiving the Premium Tax Credit (PTC)under section 36B of the Internal Revenue Code (IRC) or the small business healthcare tax credit under section 45R of the IRC. The account could also allow individuals to aggregate funding from additional sources, including individual and employer contributions. An account based approach could give beneficiaries more choices and require them to take responsibility for managing their health care spending.
This is a de facto 401(K)-ization of the Health Savings Account idea taken to an extreme. Eligible individuals would get a lump sum that may or may not be age, income or health status adjusted and told “good luck.” This is probably good to very good for healthy people as the bottom 50% of the spending curve drives 3% of the annual medical spend so any distribution that is not risk adjusted is great for the retrospectively healthiest 50% of the population. It makes older and sicker individuals far worse off as either the guaranteed issue market is turned off or the premiums are extremely high as the market will be severely and adversely selected against.
States can use the State Specific Premium Assistance waiver concept to create a new, state administered subsidy program. A state may design a subsidy structure that meets the unique needs of its population in order to provide more affordable health care options to a wider range of individuals, attract more young and healthy consumers into their market, or to address structural issues that create perverse incentives, such as the subsidy cliff
In the summer of 2017, Iowa advanced the Iowa Stopgap Measure as a possible 1332 waiver. It created age and income subsidy blocks as well as a single plan with a 70% actuarial value that would be offered to all individuals.
As I noted at the time, this would be great for people earning over 400% FPL and for the relatively healthy and a disaster for people with expensive conditions earning under 200% FPL:
It is a transfer of resources from poor and sick individuals to healthier and higher income individuals. Currently, a 40 year old who makes $17,000 a year can buy the benchmark 94% Actuarial Value Silver plan for $52 a month. This is $624 a year. That plan in Des Moines (zip code 50047) has a out of pocket maximum of $825 for the year. The maximum cost for healthcare for this person is $1,449. Now the new Iowa plan has lower premiums at $12 per month for a total of $144 per year. This individual is better off if they are perfectly healthy. However the Iowa plan takes away the cost sharing reduction subsidy that bumped actuarial value from 70% to 94%. The Iowa plan has a $7,350 deductible that primarily applies to inpatient overnight stays. So if this person has a single mid-level chronic disease with multiple monthly specialty drug prescriptions or an acute event that involves a single night in a hospital, they are paying thousands of dollars more in total medical costs under the Iowa plan than under the current state of the ACA….
The hypothetical 40 year old who has an expensive chronic condition will see a dramatic change in his total out of pocket spending from 8.52% of income under the ACA to 44% of income under the new Iowa proposal. That is, in my mind, a meaningful difference in aggregate affordability of care for this individual.
The Iowa Stopgap Measure was modified several times over the course of 2017 to somewhat amerliorate this concern. However under current guidance, this waiver concept could be approved and could lead to individuals spending forty percent of their income for one or two nights in the hospital.
Under this waiver concept, states would be able to provide financial assistance for different types of health insurance plans, including non-Qualified Health Plans, [my emphasis added ] potentially increasing consumer choice and making coverage more affordable for individuals. For example, states could choose to expand the availability of catastrophic plans beyond the current eligibility limitations by waiving section 1302(e)(2) of the ACA.
This is a simple waiver — throw money at anything and everything. Subsidies could be applied to anything. The Catastrophic plan option only produces lower premiums than Bronze plans if their risk adjustment remains segregated.
The covered population and risk-adjustment difference drive a significant increment of current premium differentials. Within a state, total catastrophic premiums only need to be sufficient to cover the claims costs of a young population that is self-selected to be reasonably healthy because of the high cost sharing.
Bronze plans are part of the larger metal risk-adjustment pool and typically are net payers into the risk-adjustment pool. Bronze premiums must be sufficient to cover all claims from the bronze plan buyers as well as an additional increment that is used to cover some of the claims incurred by the more morbid silver, gold, and platinum buyers.
Colorado has considered a waiver that would open up Catastrophic plans for everyone conditional on the state not losing APTC dollars. Their actuarial analysis by Wakely showed that opening up Catastrophic plans would increase premiums and increase APTC for the people who remain in the metal pool. Total federal costs would increase which violates the budget neutrality guardrail:
Wakely estimates that APTC costs would increase between 0% and 6.6% for the first year of the waiver. Consequently, it is likely that allowing greater enrollment in Catastrophic plans would not meet the Federal deficit requirement as part of a 1332 waiver.
This waiver concept only works by significantly reducing the subsidies available to currently APTC eligible individuals. Funds are shifted out of the metal plans as very low cost individuals would migrate to Catastrophic plans or to underwritten plans with low premiums. The cross-subsidization of the sick by the healthy is greatly reduced which means that the premiums for the remaining people in the metal plans has to go up.
All of these concepts can be mixed and matched. It is possible under this new guidance for a reinsurance program to be part of an Iowa Stopgap Measure like subsidy re-allocation which is then tied into opening up funding for non-community rated non-guaranteed issued short term limited duration plans.