DC Deciphered

Right about now, many of us who are rooting for the survival of Obamacare would love to just sit back, relax for a little while and luxuriate in the comfort of the GOP health care fail.  But we all know that Obamacare won’t really be safe from repeal as long as Republicans control all of Washington.  Many of them will never give up the dream of overturning Obama’s signature legislation.

At the same time, however, Friday morning’s failed vote was quite different from all the other stops and starts this effort has seen over the last few months.  Bringing a bill to the floor for a vote, only to see it go down in flames, is something that rarely happens in Congress these days.  So when it does happen, it makes a statement.  And President Trump is making it clear that he did not like what he heard.

Now, with a mature, level-headed, well-informed President, after months of trying to pass a health care bill, after so many permutations have been attempted and discarded, such a President might say, “okay we’ve wasted enough time on this, let’s move on to the next item on our long list priorities.”  Or perhaps that President would take Senator McCain’s suggestion and say, “we obviously can’t pass this by relying on our side only.  Let’s see if we can work something out with the other side.”  But this President – this narcissistic, petty, vengeful, policy-ignorant President that we’re stuck with in reality – he responded by deciding that if he’s not going to get his way on this bill, then he needs to punish as many people as possible for it, even (mostly) people who played no role in its outcome.

As he’s done several times before, Trump is now threatening to tank the individual insurance markets.  But this time, I believe he really plans to act on that threat.  In a Friday speech to law enforcement officers, Trump veered off topic to reiterate a call he’s made numerous times before to let Obamacare implode:

You know, I said from the beginning, let ObamaCare implode and then do it. And I turned out to be right. Let ObamaCare implode.

He also tweeted that same message shortly after the bill went down early Friday morning:

But what Trump really means by this is not that he’s going to let Obamacare implode, but that he’s going to make it implode.  Messing around with Obamacare’s “cost sharing reductions” is just one of many tools in Trump’s sabotage tool box.  If you’ve been reading DC Deciphered regularly, then you know that I’ve talked a lot about these cost sharing reductions (CSRs) and how Trump has, for months, been using threats to withhold these payments as leverage to try get his way on various things.  This is a powerful threat, because if these payments are withheld, the individual insurance market will likely fall apart completely.

Until now, Trump has ultimately made the payments each month when they’re due, despite his threats.  But he has been unwilling to commit to the payments long term, which allows him to continue to make these threats whenever he feels the whim.   Simply by making these threats, and refusing to make a long term commitment, Trump has already done significant damage to the Obamacare markets because insurers have no idea what to expect for the future. As a result, many insurers have either withdrawn from participation for 2018 or significantly increased their premiums to make up for the possible lost revenue.  But if the CSR payments were to actually stop, these effects would be far more widespread & devastating.

I explained all of this in more detail back in April in a post called Obamacare Wars – Part 3 (part of a series on this blog about the different ways Trump and the GOP have sabotaged Obamacare – Trump has since come up with even more ways).  I’m going to repost the relevant part below, because I think it’s really important for people to understand exactly what these CSRs are, the significant role they play in helping low income people afford health care (not just health insurance), how that affects the health care market overall (even for those who are not low income), and why Trump actually does have the power to stop making the CSR payments.

Anyway, over the last few days, Trump sent out the following two tweets:

The mention of “bailouts to insurance companies” and his talk about how the insurance companies should hurt too – those are both references to the CSR payments, with pretty clear threats that the payments should end.  But as described in my earlier post below, you’ll see that these payments are not bailouts to the insurance companies – they’re payments that help individual people. And the fallout from cutting off these payments will hit exactly the types of people Trump claimed during the campaign that he would help: the “forgotten people”, people who aren’t the elites, people who are working hard & struggling just to get by.  Getting rid of the CSRs will first hurt working people who make a bit too much to get subsidies & will bear the full brunt of the premium increases that will result, and then will eventually hurt everyone who buys insurance in the individual market, as the markets spiral into failure.

It’s true, Trump has made these threats before, and they’ve always turned out to be empty, but there’s the reason I fear he’s going to follow through this time:  This weekend, on Fox News Sunday, Kellyanne Conway was asked about the topic, and she told interviewer Chris Wallace that Trump will make a decision about the CSRs this week.  And here’s the thing about Trump – any time he finally officially announces a decision about something like this, something where companies and markets and people’s lives have all been on hold waiting to hear what he’s going to say – whenever he finally reaches a firm decision, it’s always the negative one, the one the “little devil” on his shoulder would tell him to make, not the one all the rational voices around him are encouraging.

And there’s a reason Trump operates like this. We’re all familiar with the old cliché about using carrots & sticks to get your way with people.  But we’ve never seen Trump use a carrot  – Trump is all about the stick.  Though he claims to be the great negotiator, all we’ve ever seen him do as President is threaten to whack people with a big fat stick.  So he needs to keep that stick handy.  He is never, ever going to make an announcement that robs him of that stick.

If Trump were to announce a long term commitment to paying the CSRs, he would lose the ability to use that threat forevermore.  Wielding that threat has been really useful to him (or at least, it’s felt really good to him.  It hasn’t actually accomplished much).  He is not going to give that up willingly.  It’s very similar to the situation with the Paris Accord announcement.  Once we heard that he was ready to make an announcement, the only possible outcome was that he was pulling the U.S. out of the agreement.  He would never officially announce that the U.S. was staying in because to Trump, that would feel like a loss of leverage.  The only tenable positions for Trump in that scenario were either to keep the uncertainty going forever by making no announcement, or to announce the “negative” decision by pulling us out of the agreement.

So back to the CSRs – either Kellyanne is just bluffing when she tells Wallace there’s an answer coming this week (which is very possible with this White House), or Trump is about to announce that Obamacare’s CSR payments are ending.  I have a bad feeling that it’s the latter. I desperately hope that I’m wrong, or that maybe this will be the first time Trump will heed the advice of people around him.  Several Republican lawmakers have reluctantly acknowledged in recent days that the CSRs will need to be funded – perhaps they will be able to get through to Trump, if not on the basis of it being the right thing to do, then maybe on the basis of the polls showing that the public would overwhelmingly blame Trump & the Republican Congress for any future problems with Obamacare. If only Trump believed in polls that don’t show him winning . . .

With that, here’s the relevant portion of DC Deciphered’s previous post explaining Obamacare’s cost sharing reductions  . . .

*****

Obamacare Wars – Part 3

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 her 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.”