DC Deciphered

“Nobody knew that health care could be so complicated.”  That was the quote heard round the world (okay, maybe just round the country) around a month into Trump’s presidency, when it began to dawn on him that getting rid of Obamacare and giving everybody “beautiful” health insurance to replace it wasn’t going to be so easy.  And it’s true: health care, which as an industry makes up nearly 1/5 of our economy, is complicated – very complicated.

And that fact has allowed Republicans to demagogue about Obamacare for the past seven years, misleading the public, and terrifying countless Americans about things that exist only in the GOP imagination.  That fact also means that even when good faith efforts are made to talk honestly about issues relating to health care, confusion can reign supreme.  And unfortunately, that’s what’s been happening with the coverage of Trump’s latest move on Obamacare.

Trump actually did two things related to Obamacare late last week:  First he signed an  executive order making several changes to the types of plans individuals and small businesses can sign up for in the markets.  Then, shortly after, he announced that the government would  no longer fund Obamacare’s “cost sharing reductions” (CSRs).  It is this second item that I want to address in this post, because it is on this issue where I think the media coverage has been particularly confusing (and to be fair, the subject itself is pretty confusing).  And this is important, because this confusing media coverage – in and of itself – could potentially end up causing additional harm to the Obamacare markets by leading fewer people to sign up.

Almost all of the television coverage, and much of the print coverage has described this issue as Trump cutting off or ending Obamacare “subsidies.”  There are a few variations on the headlines, but they almost always use the word subsidies.  And therein lies the problem.  Because most people who know anything about Obamacare know that many of the people who get insurance in the Obamacare markets get subsidies to help pay their premiums, i.e. “premium subsidies.”  Very few people are aware that there is another type of financial assistance that a smaller group of people get – these are the “cost sharing reductions.”  (Below, I’ve reposted & slightly updated a short portion of an old post, which explains exactly what CSRs are, why they’re so important, and how everyone in the market will be affected when they end, not just the low income customers who receive financial assistance).

So when the media uses the word “subsidies” in the context of Obamacare, most people’s thoughts automatically go to the subsidy they know about – the “premium subsidies.”  But this is not the subsidy that Trump just ended.  What Trump cut off are the CSR payments. (And it’s important to note that people who’ve been relying on the cost sharing reductions will still be able to rely on those as well.  It’s the insurance companies who will not receive the payments they’re due, as a result of Trump’s decision.  See re-post below for explanation).

Now, most of the print stories do explain this once you read beyond the headline, and some of the tv stories do as well.  But many people these days get much of their news from the headlines.  People are so busy and overwhelmed with long work hours, taking care of their families, etc, that they don’t have time to keep up with the details of every news story.  This is especially true when you factor in the inordinate amount of news being created every day – every hour! – with this administration.  People have news overload, and most can just barely keep up with the headlines.  So for many people, all they’re hearing is that “Obamacare subsidies” are ending.  They’re left with the impression that premium subsidies are being cut off, when that’s not the case at all.

This is a problem, first, because just as a general principle, we obviously want the public to have accurate information.  But it’s especially problematic in this case, because if people mistakenly believe they’re not going to be getting premium subsidies anymore, many of them will likely choose not to sign up for insurance, thinking they will no longer be able to afford it.  This is harmful on two levels:  (1) We of course want people who need insurance to have insurance; and (2) the insurance markets work better when more people sign up.

If people believe (falsely) that they’re losing premium subsidies and that insurance will therefore suddenly be much more expensive, the customers most likely to drop out are the healthiest and/ or the youngest, since they are the ones who can most easily withstand the risk of going without.  But those are the customers that insurance companies most need in their risk pools to balance out their older, sicker customers.  So this misunderstanding would be bad on an individual level, and bad for all of us collectively.  (In a twist that confounds expectations, as a result of this move by Trump, premiums will likely go up for certain people, but not for those who’ve been receiving premium subsidies.  It will affect those who make too much money to receive premium subsidies.  Again, see below for explanation).

This is obviously not an intentional attempt to mislead on the part of the media.  CSRs are not a simple concept to explain.  And until recently they were an obscure concept that most of the general public had no reason to be familiar with.   It seems clear that the media is just attempting to find a simplified way to get the general concept across to its audience.  Unfortunately, in doing so, the issue has ended up more confused for many people instead.  And sadly, the result might be that the very goal Trump set out to achieve by ending the CSRs – destroying the Obamacare markets – will get an unwitting assist from the media he so loves to treat as his enemy.

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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.

Why Are Cost Sharing Reductions 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.  And, because premiums would rise, premium subsidies paid by the federal government would rise as well.  So this means that cutting off the CSR payments would actually end up costing the government.  The CBO predicts that ending CSR payments will add nearly $200 billion to the deficit over the next 10 years.

Additionally, health industry analysts say that ending CSRs would lead to destabilization of the health care markets, because the only alternative to 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.”

But Why is Trump Allowed to Do This if CSRs are Part of the Law??

As Obamacare foes like to point out, Obamacare is a very lengthy piece of legislation. That’s because, as noted above, health care is complicated.  There were a lot of intricate details to cover, and a lot of interlocking parts.  When trying to regulate something so complex, mistakes are bound to be made. This is not unusual, and typically could be remedied after the fact.  But with Obamacare being such a political football, Republicans never allowed for that, and instead, took every opportunity to exploit the drafting errors. And, when it came to the CSRs, the drafters of Obamacare overlooked a detail, 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 to make the first payment, the Obama administration had to ask Congress for an appropriation (i.e. specific funding) to pay the reimbursements. 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, and the payments were allowed to continue until the appeal was 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.  Suddenly it was the Trump administration that was appealing against the Republican House (the Trump administration inherited all the cases the Obama Justice Department had been handling).  At the time, 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.  This allowed Trump to continue to make the CSR payments for as long as he chose to. But his administration has now dropped its appeal, and they’re using the ruling of the lower court judge to say that the payments are unconstitutional.

This is, of course not the true reason Trump decided to no longer make the payments.  But it gives him a facially legitimate rationale for doing so.  There will be multiple lawsuits challenging Trump’s decision, and the administration will – in the end – likely be forced to make the payments that it owes insurers.  But this could take years to play out, and in the meantime, much chaos will ensue, millions will be harmed, and the Obamacare markets may be completely destroyed.