DC Deciphered

Welcome to Part 3 of DC Deciphered’s Obamacare Wars trifecta.  It’s been nearly a week since I posted Parts 1 and 2, so here they are again for those who missed them or need a refresher:  Obamacare Wars – Part 1 and Obamacare Wars – Part 2.

In Part 1 of this post I talked about the new “stabilization” rules (PDF) the Trump administration recently announced for the Obamacare exchanges for 2018.  But I wondered whether the administration’s goal with these new rules is truly to stabilize the Obamacare markets.  So I wanted to look at the broader context of Trump & the GOP’s behavior surrounding Obamacare for help answering that question. After explaining in Part 1 exactly what these new Obamacare rules are, in Part 2 of this post I looked at a couple of actions taken in the past by the GOP and/or Trump with respect to the implementation of Obamacare that were clearly intended to (and did, in fact) weaken Obamacare as it was being implemented during its first few years.

In today’s post, Part 3, I’ll talk about a couple decisions regarding Obamacare implementation that the GOP and Trump still have ahead of them.  These are questions about how they will handle: (1) the individual mandate; and (2) Obamacare’s “cost-sharing reductions.”  These are a couple of very significant outstanding questions, the answers to which will go a long way in determining whether many insurance companies feel they will be able to survive in the Obamacare markets.  Insurance companies are anxiously awaiting the answers to these key questions, and their decisions about whether to continue to participate in the exchanges hinge on the outcome.  Insurance companies are deciding right now whether they will remain in the exchanges for 2018.  The deadline to report their decisions to the administration is in June, but many companies are making these decisions as we speak.

So whether Trump/the GOP give the insurance companies the answers they are looking for (and how long it takes for them to give these answers, since time is of the essence) will be a – maybe the – determining factor in how successful the Obamacare markets are going forward.   Therefore, observing how Trump & the GOP handle these questions will help us figure out what their real goal is with respect to Obamacare:  Sabotage? Or a genuine attempt to stabilize Obamacare until the GOP has a viable replacement??

Will Trump/the GOP Maintain Obamacare’s Cost-sharing Reductions?

What are Cost-Sharing Reductions?

Most people are familiar with Obamacare’s premium subsidies.  These are tax credits that help low-income and moderate-income customers pay their insurance premiums.  The subsidies are generally available to people who purchase insurance on the Obamacare exchanges and have incomes between 100% (or 138% in states that expanded Medicaid) and 400% of the federal poverty level. But there is another form of financial assistance available under Obamacare that is not as well known.   These are the “cost-sharing reductions” (CSRs).

The purpose of CSRs is to assist people with the expenses associated with health care other than insurance premiums, such as deductibles and co-pays.  These are often referred to as out-of-pocket costs.  CSRs are available to customers with incomes up to 250% of the federal poverty level, and they are only available with the purchase of specific Silver plans.  The cost-sharing works differently than the premium subsidies in that it doesn’t come in the form of a tax credit.  Instead, insurance companies are required to offer certain plans to eligible customers in which these costs – deductibles, co-pays, etc – are lower than in a typical Silver plan (costs are lower because the actuarial value of the plan is higher – see Part 1 for a discussion of actuarial value).  And the amount of cost sharing ranges by income level: the lower the customer’s income, the lower their share of these costs will be.  The insurance companies are reimbursed by the federal government for the extra claim expenses ($7 billion last year) they take on for these plans.

CSRs significantly reduce out-of pocket health care costs for many lower-income Americans. About seven million people currently get assistance from cost-sharing reductions.  This is in addition to the reduced health insurance premiums that many millions of people get from the premium subsidies. Combined, these provisions make it possible for many individuals and families to get health insurance and medical care they wouldn’t otherwise be able to afford.

So What’s the Problem?

So then what’s the issue with the CSRs? Well, similar to the problem with the “risk corridors” provision I described in Part 2 of this post, the drafters of the Obamacare law overlooked a detail here, leaving an opening for the opposition to exploit.  When Obamacare was written, there was no specific appropriation made in the law to pay for the cost-sharing reductions.  So when it came time, the Obama administration asked Congress for an appropriation (i.e. specific funding) to pay the reimbursements, but the anti-Obama (and anti-Obamacare) Republican House said no.

So the Obama administration argued that it could use the money intended for premium subsidies for this similar purpose as well, and they went ahead and used it to pay the cost-sharing reductions.  But as health law expert Nicholas Bagley points out, the Obama administration argument was a stretch, since the premium subsidy payments came from an appropriation that existed before Obamacare, which gave the IRS the power to issue tax refunds. This works for the premium subsidies, because they are tax credits.  The cost-sharing payments are not tax credits but instead are payments made directly to insurance companies.  That makes it hard to argue they fit under an appropriation authorizing tax refunds.

In late 2014, the Republican-led House of Representatives filed a lawsuit against the Obama administration claiming it was illegal for them to use that money to make the reimbursement payments.  No one took this lawsuit seriously at first, because it’s extremely unusual for such a lawsuit (the House suing the Executive Branch over an issue of appropriations) to be allowed to move forward.  Normally, a court will find that the house doesn’t have “standing” to sue in a case like this.  But to everyone’s surprise, the judge in this case ruled that the House did have standing.  And, eventually, in May 2016, the judge ruled that the payments were unconstitutional and that they must be stopped.  However, to avoid chaos, the judge stayed his decision pending appeal by the Obama administration, so the payments have been allowed to continue for now, until the appeal is resolved.  And that’s where the case left off . . . (Much credit to Nicolas Bagley for his entire summary of this complicated case).

But then Trump won the election.  Now suddenly, it’s the Trump administration on the side of the case that’s appealing against the Republican House.   Trump and the GOP thought they were about the repeal and replace Obamacare and take responsibility for the entire health care system.  So they asked the court to put the appeal on hold, which the court agreed to.  The next court date is May 22.  But the Trump administration must decide what to do about this case: will it continue with the appeal?  And whether it continues with the appeal or not, will the Trump administration urge GOP allies in Congress to appropriate the money to pay the cost-sharing reimbursements?? (The cost-sharing problem could be solved either way: by the Trump administration winning the lawsuit (remember, they’d be arguing the Obama side of the case), or by Congress appropriating the money.  Though the latter would be much simpler and quicker. If, on the other hand, Trump decides to drop the appeal, the cost-sharing reimbursements would end immediately since the House won the suit at the lower court.)

Why is This One Issue So important??

Because of the way Obamacare is written, if the Trump administration stops paying the reimbursements, the cost-sharing reductions don’t go away.  Insurance companies that participate in the exchanges are still required under the law to offer the reduced cost plans.  But they would no longer be reimbursed by the government for additional claim expenses.  So that would mean approximately $7 billion extra the insurance companies would have to account for.  Insurance companies would either need to take significant losses or raise premiums significantly to make up the difference.  According to the Kaiser Family Foundation, insurance companies would have to raise premiums  19% on average to make up for the lost reimbursements (exact premium increases would vary by location).  And the 19% would be just to make up for the lack of reimbursements, so that would be in addition to whatever premium increases were already planned.

Health industry analysts say that this would lead to destabilization of the health care markets, because the only alternative to these significant premium increases would be for insurers to leave the markets altogether:

“This will destabilize the market,” said Christine Eibner, a senior economist and an associate director of the health services delivery systems program at the Rand Corp. “Insurance companies may pull out of marketplace and/or increase premiums for marketplace coverage.”

And Julie Mix McPeak, for example, the commissioner of the Tennessee Department of Commerce and Insurance, said that it could be devastating if the cost-sharing payments were to stop.

“I don’t know that we would have any insurers participating in the exchange market, and I don’t think Tennessee would be alone in that.”

Instead of Giving Answers, Trump Is Using CSR Funding as Leverage

So this is obviously a huge outstanding question for insurance companies that are deciding whether to remain in the exchanges for 2018. As of mid-April, Congress said it has no plans to appropriate the money for the payments in their next spending bill due at the end of the month. So probably the single biggest item on insurance executives’ wish list for the Trump administration is reassurance that the cost-sharing reductions will be paid.  And America’s Health Insurance Plans (AHIP), the huge trade group of insurance companies, sent a letter to the Trump administration last week asking for Trump to give some certainty on this issue.

But Trump won’t give it.  Instead, when the issue was first raised by reporters, Trump indicated that he’ll use this issue as a tool to force Democrats to negotiate on an Obamacare replacement bill.  Earlier this month, just a day after Health and Human Services appeared to commit to continuing the payments for 2018, Trump called HHS Secretary Tom Price and forced him to retract that statement and replace it with a new one:

We have not been contacted by Democrats to help save Obamacare, perhaps because they consider Obamacare to be a losing cause. Democrats need to help solve this failed Obamacare plan.

Later that day, Trump said to the Wall Street Journal about the cost-sharing payments, “I don’t want people to get hurt. What I think should happen ― and will happen ― is the Democrats will start calling me and negotiating.”  And a Senior White House official told Politico, “POTUS wants to use [the subsidies] as leverage. When Obamacare fails on its own, the Dems will want to come to the table.” With Trump playing this game, refusing to give insurance companies the assurances they need, there’s real risk that many of them will have to pull out of the exchanges:

“This is a very potent threat, because the administration has the authority unilaterally to do this, and this is really a kill switch. This makes the program unprofitable for the majority of health plans operating in it today,” said Dan Mendelson, chief executive of Avalere Health, a consulting firm. “The timing of this threat is really curious, in the sense that now is the time that the plans have to be deciding whether to bid on 2018. If you’re on the bubble and the president is making a threat like this . . . this just puts more uncertainty on the program.”

Finally, just this past Tuesday, a group of health insurance executives met in person with, Seema Verma, Trump’s head of the Centers for Medicare and Medicaid Services (CMS).  They’d hoped they might be able to get some answers from her.  But once again, they were left without any certainty on this question of whether they’ll be reimbursed for the cost-sharing reductions.  Verma simply told them that the decision was up to Congress.

 

What the Heck Does This Have to do With Mexico???

And in just the past couple days, Trump’s Budget Director Mick Mulvaney revealed that the administration has plans to connect the CSRs to an entirely separate policy issue.  They want to withhold CSR payments until Democrats agree to fund Trump’s Mexican border wall.  Yes, the same wall that Trump claimed – as one of his central campaign promises – that Mexico would pay for.  And in fact, Mulvaney is offering Democrats an exact dollar for dollar exchange. [See update at end of post].

So, the latest plan is to require Democrats to fund something Democrats have no responsibility to fund and which serves no purpose other than to stoke Trump’s ego: the wall (since Trump promised that U.S. tax dollars wouldn’t be paying for it, and since it is, by the why, also not supported even by some Republicans and is not very popular with the American public) in exchange for something which Trump doesn’t seem to understand is now his responsibility: the health care of millions under Obamacare (and which has only become more popular as Republicans have threatened to repeal it). Republicans seem to have a better understanding of their  dilemma here than Trump does, so hopefully this threat won’t hold up for long.

And it’s pretty clear that the whole idea of swapping CSR funding for border wall funding is just a gimmick to try to get Trump off the hook for his inability to fund the wall in the manner he promised throughout the entire campaign.  This supposed trade offer is an attempt to shift the blame to Democrats for Trump’s embarrassing failure. It’s actually stunning if you stop and think about what the Trump administration is really saying here: if Democrats don’t help us with our boondoggle, we’ll make millions of innocent people suffer for it.

 Insurance Companies Are Left With No Answers, Can’t Plan for 2018

So, with that, the Trump administration is leaving insurance companies completely up in the air on this extremely important question.  Trump is giving them no guidance to help them figure out the intricate calculations needed to determine whether they can remain in the markets for 2018, and if they do remain in, how to price their products.  In addition, he’s clearly using these cost-sharing payments as a threat against the Democrats, with no concern for the many millions of lives that will be affected by his actions.

Trump’s ultimate decision on this question remains to be seen, but whatever the outcome, insurances companies need this information right now, so the games he is currently playing and the time he is wasting will have already effected the decisions of numerous insurance companies and many thousands – if not millions – of lives.  Even if he ultimately makes the decision to fund the cost-sharing payments, irreparable harm will already have been done.

Will Trump Enforce the Individual Mandate?

Another major concern insurance executives  –  and anyone who cares about the fate of Obamacare – have is whether the Trump administration will enforce the individual mandate.  This is important of course because without the mandate, many people will wait to purchase insurance until they are sick or injured.  Young, healthy people will be very unlikely to buy insurance, and insurance pools will be made up of mostly those who are very expensive to insure.  Unfortunately there are signs that the administration will be quite lax in enforcing the mandate.

The first executive order Trump signed upon taking office was an order aimed at weakening Obamacare.  The order, entitled Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal, didn’t itself make any specific changes to the law, but it gave directions to the relevant agencies on how to implement the law.  For example, it directed agencies tasked with enforcing Obamacare regulations to grant exemptions to any provisions that impose a fiscal burden or penalty on any individuals or families.  That sounds like it would encompass the individual mandate penalty.

Then in February, the IRS announced that it would process tax returns even if they don’t indicate whether the filer has insurance coverage.  Previously in 2016, the Obama administration had announced that tax returns which were missing such information would not be processed. This was part of the method for enforcing the individual mandate – people were required to state on their returns that they had creditable coverage.  The Trump administration will no longer require this.  The IRS did note that filers are still responsible for any individual mandate penalty they owe.  However, this change likely sends a signal to people that the mandate will not be enforced.  And Obamacare supporters are worried that this will hurt enrollment.

The Center on Budget and Policy Priorities, a progressive think tank focused on the impact of budget policies, has an analysis out arguing that the change in IRS requirements is confusing and may cause people to think the mandate isn’t in effect anymore, leading them to drop coverage as a result:

More generally, it could undermine the individual health insurance market since healthier people are most likely to drop coverage, thereby weakening the risk pool and raising premiums. Like the Administration’s cancellation of ads at the end of open enrollment and new rule raising consumer health costs, this step undercuts the “market stability” that the Administration claims it wants to promote.

And The Hill reports that insurers are concerned that the loosening of this requirement is a sign that the Trump administration won’t be enforcing the mandate or will be granting more exemptions.  The New York Times says that insurance executives raised this concern at Tuesday’s meeting with CMS head Verma.

This is yet another area where the Trump administration could – if it so chose – offer clarity and reassurance to the insurance companies.  This would make it likelier that insurance companies would be willing to continue to participate in the exchanges, bringing more stability to the exchanges along with more choice, lower prices and better products to millions of customers.  Trump and the GOP could do this simply by implementing Obamacare as it was intended.  Up to this point, they do not appear inclined to do so.

Conclusion

So now let’s look back at the original question posed in Part 1 of this post: Are the Trump administration’s new “stabilization” rules really intended to stabilize the Obamacare markets, or are they just a short term sop to Trump’s corporate buddies? Considering the context, looking at all of the actions Trump and the GOP have taken in the past and are still continuing to take at this very moment to destabilize Obamacare, it’s impossible to see these new rules as genuine effort to stabilize the markets.   There’s a little bit more time for the current decision-making to play out, but as of now, the evidence is overwhelming that Trump & the GOP are continuing to drive Obamacare down sabotage lane.

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And Read Obamacare Wars – Part 1 about the Trump administration’s new “stabilization” rules for Obamacare.  What do you think – are they really intended to promote stability in the insurance markets?

Read Obamacare Wars – Part 2 in which I look back at some of Trump/the GOP’s past behavior toward Obamacare for hints about what their current intention is with these new rules.

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Note: Neither Part 2 nor Part 3 of this post are meant to be comprehensive surveys of Trump/the GOP’s actions surrounding Obamacare.  They have taken a number of other actions in the past that have affected the outcome of Obamacare, and they have additional decisions upcoming in the future that can help determine the success or failure of the law.  But the activities I covered in these posts are representative of the types of activities Trump & the GOP have taken/are taking with respect to the law, and I chose to focus deeply on a few of the most significant ways in which they have been able to affect the fate of the law.

Update 4/25: Reports are now coming out that Trump is backing off his demand that the Mexican border wall be funded in the April budget.  Up until Monday, Trump and his representatives in the administration had been giving indications that they would push the government into a shutdown if the budget did not include funding for the wall.  This was being done separately from (and had begun before) their proposal to make a trade for CSR funding, i.e. they had a free standing demand that the wall be funded, whether or not Democrats made a trade.  Now that they are backing off the demand for border wall funding and accepting that it will not be in the budget, it’s unclear what their new stance will be on the CSR issue.

Democrats have indicated they will support increased funding for border security in this upcoming budget, just not money for constructing the wall which they believe is wasteful, unworkable and sends a terrible message.  A budget agreement seems to be coming together based on this understanding.  There is still no agreement on whether to include funding for the CSR payments in the budget, however.