Downside of Obamacare Subsidy Repeal Could Be Offset, Group Says

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By Sara Hansard

Legislation funding high-risk Obamacare enrollees would significantly reduce marketplace premiums, almost negating the impact of repealing the individual mandate penalties in the recently enacted Tax Cuts and Jobs Act.

That was a finding of an analysis released Jan. 19 by the Council for Affordable Health Coverage (CAHC), a group that represents a broad range of health-care groups.

“For every dollar of savings that you create through a reinsurance program, the federal government is going to save somewhere between 60 and 80 percent,” CAHC chief economist Jeff Lemieux said at a Capitol Hill briefing sponsored by the group. CAHC is calling for Congress to enact legislation to reinstate federal funding for reinsurance, similar to an Affordable Care Act program that was in effect from 2014-2016.

Providing funding to health insurers to cover people with high claims reduces premiums for other ACA enrollees. That in turn reduces the amount of premium tax credit subsidies the federal government must provide under the ACA to enrollees with incomes between 100 percent and 400 percent of the federal poverty level.

The Congressional Budget Office estimates that eliminating the mandate penalties would increase individual market premiums by 10 percent and reduce individual market enrollment by 3 million in 2019 and 4 million in 2020 due to a decline among young, healthy people.

“The market right now is in a very perilous situation,” CAHC President Joel White said at the briefing. “It’s highly unstable. The risk pools are unbalanced,” with more older, sicker consumers in ACA marketplaces and premiums rising steeply in 2018 for the second year in a row.

Representatives of California’s major Blue Cross Blue Shield plan, state insurance regulators, and online health insurance broker eHealth Inc. joined the CAHC in calling for Congress to enact reinsurance legislation to help stabilize the individual health insurance markets.

Legislation Introduced

Legislation ( S. 1835) has been introduced by Sens. Susan Collins (R-Maine) and Bill Nelson (D-Fla.) that would provide $10.5 billion for state-run reinsurance programs in 2019 and 2020, according to the CAHC analysis. Similar legislation ( H.R. 4666) has been introduced in the House by Rep. Ryan Costello (R-Pa.).

“Reinisurance works, and we know that it works,” Andy Chasin, policy director for Blue Shield of California, said at the briefing. Blue Shield of California, which has about 4 million members and about 450,000 people in the ACA exchanges, is one of the largest single-state health plans in the ACA marketplaces, he said.

Reinsurance provides subsidies for insurers who cover people with high claims, reducing risks for insurers, he said. The three-year reinsurance program under the ACA “was not a sufficient amount of time for reinsurance,” and it needs to be extended in order to help stabilize the markets, he said.

Alaska and Minnesota, with federal help, have successfully implemented reinsurance programs, which are reducing premiums in the ACA exchanges in those states.

The ACA succeeded in covering many previously uninsured people, but it also drove up premiums and cost-sharing burdens for people who don’t qualify for the federal subsidies, speakers at the briefing said.

The number of people signing up for insurance on the federal HealthCare.gov marketplace used in 39 states decreased to about 8.8 million during the shortened 2018 open enrollment period that ended Dec. 15. About 12.2 million enrolled during the longer 2017 open enrollment period. Some states that operate their own exchanges are still enrolling people for 2018, so total enrollment figures are not yet available. Since the inception of exchanges in 2014, about 80 percent of their enrollees receive subsidies.

Coverage Slipping for Those Without Subsidies

But ACA coverage appears to be slipping for people who don’t qualify for the subsidies. Among people who make too much money to get subsidies, enrollment numbers were lower than the previous year, John Desser, senior vice president for government affairs and public policy with eHealth, said at the briefing. eHealth is the nation’s first and largest online private health insurance exchange, according to the company.

For people who don’t qualify for the subsidies, “the cost of coverage went up dramatically,” Desser said.

Between 2013 and 2018 monthly average premiums increased from under $200 to $440, and average family monthly premiums rose from $426 to $1,168, he said. Plans sold before 2014 didn’t have to cover comprehensive essential health benefits or people with pre-existing conditions, among other things.

“We’ve got to do something about the subsidies,” Desser said. He suggested making health insurance tax deductible for people making more than 400 percent of the poverty level, and allowing people to pay for health insurance premiums out of tax-favored health savings accounts, among other things.

Carriers Pulling Out of Marketplaces

Carriers have been pulling out of many marketplaces because of uncertainty in health insurance regulation and funding uncertainty for things such as cost-sharing reduction subsidies for the lowest-income people in the exchanges, Brian Webb, assistant director of health policy and legislation for the National Association of Insurance Commissioners (NAIC), said at the briefing.

The impact of regulations, such as an expected Trump administration rule allowing short-term health plans that don’t comply with the ACA, will vary among states, Webb said. However, “proportionally, the impact’s going to be in the red states,” he said. “That’s where the problems are going to be. And they’re going to have more carriers pulling out, more areas without options, more cost sharing going up, and more rates going up in those areas.”

Since 2016 the NAIC has advocated reinstating a reinsurance program, Webb said. “With a modest investment, reinsurance takes care of a lot of these issues. It brings a lot more certainty into this program, and it’s something we desperately need.”

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bloomberglaw.com

For More Information

The reinsurance legislation analysis is at http://src.bna.com/vLx.The CBO report is at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.Information on the CAHC briefing is at http://src.bna.com/vMo.Information on S. 1835 is at http://src.bna.com/vMr.Information on H.R. 466 is at http://src.bna.com/vMu.

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