Trump's CSR cut-off FAIL is complete*: Judge orders feds to pay up anyway

2018 MIDTERM ELECTION

Time: D H M S

*(OK, that's hyperbole...unsubsidized enrollees are still left holding the bag for thousands of dollars in unnecessary premium payments for at least another year or so, and there's still no guarantee of the final ruling...see below...)

Almost exactly a year ago, Donald Trump, after 9 months of bluster about doing so so, finally pulled the trigger on his threat to cut off Cost Sharing Reduction reimbursement payments to insurance carriers for the deductibles, co-pays and other out-of-pocket expenses which they agree to cover every month for around 7 million low-income ACA exchange policy enrollees.

Trumps stated goal in doing so was, of course, to "blow up" the ACA, to cause it to "implode" (which is actually the opposite of blowing something up, but that's a different discussion) and ultimately fail in the process.

That's not what ended up happening, however. The complex way in which the ACA's two different types of financial assistance (Advance Premium Tax Credits, or APTC, and Cost Sharing Reductions, or CSR) are connected to each other, combined with a clever workaround whipped up by the Urban Institute and implemented by the insurance carriers themselves, the state insurance commissioners and several of the state ACA exchanges, ended up resulting in a very different and seemingly counterintuitive outcome for 2018 ACA premiums instead.

There's actually two versions of the workaround, both of which I've written about many times before. The "standard" version is called "Silver Loading", in which the insurance carrier calculates how much CSR revenue they think they're going to lose out on in the coming year and simply loads that additional cost onto their Silver plans. This is what many carriers did for 2018, and it resulted in situations where Bronze, Gold and Platinum premiums only went up, say, 12% while Silver premiums might have gone up 30%.

The even more clever (and complicated) version of this is called the "Silver Switcharoo", in which the carrier loads all of the CSR cost onto on-exchange Silver plans only, while simultaneously creating an off-exchange-only "mirror" version of the same Silver plan (minus any CSR load). This resulted in cases of on-exchange Silver plans going up, say, 40%...while off-exchange Silver, along with both on- and off-exchange Bronze, Gold and Platinum premiums only went up 12% or so.

This had the odd effect of causing some Gold plans to cost less than Silver...and the even more surreal effect of lowering the net premiums paid by subsidized ACA exchange enrollees. In fact, some enrollees were able to find Bronze plans for no premium at all, while others enrolled in dirt-cheap Gold plans. On the flip side of this, unsubsidized enrollees saw their average premiums increase by a whopping 27% this year, mostly as a result of the CSR funding being cut off.

In any event, the Silver Load/Switch workaround effectively solved the CSR cut-off problem as far as the carriers were concerned...so much so that even more states are jumping onboard the Silver Switcharoo train for 2019...and in fact, the Trump Administration, which earlier this year was seriously considering trying to stop Silver Loading altogether, has instead done a complete 180 and is now actively encouraging states to do so.

There was still one problem with this from the carrier's POV, however: Silver loading/switching resolved the issue for 2018 and beyond...but CSR payments were actually cut off as of the 4th quarter of 2017. The last CSR reimbursements actually paid out were for September 2017...there were 3 months worth of reimbursements which the federal government never made, and which the carriers couldn't make up for by raising 2018 premiums.

This led...to lawsuits. Several of them, in fact. The carriers are still contractually owed that money...to the tune of a couple billion dollars collectively.

And sure enough...

CMS ORDERED TO PAY $1.2M IN MONTANA CSR SUIT

The order follows a federal judge's ruling last month that CMS was still responsible for cost-sharing payments to Montana Health Co-op, even though Congress provided no funding.

  • The $1.2 million is what CMS said it would have paid Montana Health, had the CSR payments not stopped.
  • The case is a bellwether for other stakeholders seeking CSR payments from the government.
  • The Trump Administration characterized the CSR payments as a 'bailout' for health insurance companies.
  • A federal claims court has ordered the Centers for Medicare & Medicaid Services to pay Montana Health Co-op more than $1.2 million in cost-sharing payments that the Trump Administration and Congress reneged on last fall.

Judge Elaine D. Kaplan had ruled that the federal government was statutorily obligated to make good on the CSR payments for the fourth quarter of 2017, which Kaplan said "was not vitiated by Congress’s failure to appropriate funds for that purpose."

Remember: $1.2 million is only what the federal government owes this one particular insurance carrier (ironically, the Montana Health Co-op happens to be among the few Co-ops created by the ACA itself in the first place which is still operational). Nationally, the CSR funds owed for Q4 2017 amount to something like $1.5 - $2.0 billion or so, I believe, so this could be huge if it sets the standard for other similar cases.

If this is the final ruling on the matter and the feds do end up paying the carriers what they owe, it'll likely lead to a bit of a windfall next year...for the enrollees.

Why? Because of the ACA's 80/20 Medical Loss Ratio (MLR) rule, which limits insurance carriers to no more than a 20% gross margin on insurance policy premiums on the individual and small group markets. At least 80% of their premium revenue has to be spent on actual healthcare; anything less than 80% has to be rebated to the policyholder (or, in the case of group plans, to the company which holds the contract).

Here's why: Any Q4 2017 CSR payments which are made between now and December 31st will presumably be added as a one-time special line item to the carrier's 2018 revenue. Seeing how the 2018 individual market MLR is already far below the 80% threshold for the first half of the year (it's down to 69% according to the Kaiser Family Foundation, although the second half of the year will probably bump it back up somewhat), this effectively means that the insurance carriers will likely have to pay most, if not all of that $1.5 - $2.0 billion back to the policyholders over the next three years. (The MLR rule is based on a 3-year rolling average, so the rebates would be broken out from 2019 - 2021).

How much would that be per enrollee? Well, that's hard to know, but here's some back-of-the-envelope math:

  • The ACA-compliant individual market has 13-14 million people enrolled in it at the moment (let's call it 13.5 million).
  • Let's assume there's $1.7 billion in total CSR backpay coming to the carriers, and around $1.5 billion of it ends up having to be rebated
  • That would average around $111 per enrollee.

In reality, it probably won't be that much, and of course many people aren't enrolled in their policy for the full 12-month period, but you get the idea. Also, not every carrier fell below the 80% MLR threshold, and some might not even with the CSR backpay, so some enrollees won't receive anything. On the other hand, that's in addition to whatever other MLR rebates are owed, so it could be quite a bit higher for some people.

Of course, as you probably figured, the odds of any payments actually being made anytime soon are still pretty slim, as there's still another chapter or two to the story...

Julius W. Hobson, Jr., a senior policy advisor with Washington, DC-based Polsinelli, says the claims court ruling is not the end of the fight.

"Until, and unless, the U.S. Supreme Court finally rules on this matter, we will continue to see suits filed and considered by lower federal courts," he says.

Guess who just started his new job as a SCOTUS Justice this week?