Many Obamacare Contracts Allow Termination if Subsidies Disappear

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By Sara Hansard

Obamacare insurers in 34 states have 2018 contracts that can be terminated now that President Donald Trump has ended payments to insurers to cover subsidies for low-income people.

The contracts had to be submitted to the Department of Health and Human Services by Sept. 27. Information wasn’t available from the HHS about whether any carriers had canceled their contracts under the provision.

Insurers are likely to have filed their 2018 premium rates knowing there was a possibility they may not be reimbursed by the federal government for the cost-sharing reduction subsidies, Christina Cousart, senior policy associate with the National Academy for State Health Policy, told Bloomberg BNA Oct. 13.

But nine states instructed carriers in their exchanges to file their rates assuming they would receive the subsidies, she said. Insurers are required under the Affordable Care Act to provide the subsidies, which means they could be left holding the bag without federal reimbursement.

Subsidies Assumed

Insurance regulators in Alaska, Arizona, North Dakota, Oregon, and South Dakota, all states that use the federal exchange, instructed carriers to file their rates assuming the cost-sharing reduction subsidies would be funded, Cousart said.

Regulators in Colorado, Maryland, Washington, and Vermont, all with state-based marketplaces, also instructed carriers to price their premiums based on the assumption they would receive the subsidies.

Other state-based marketplace states requested that carriers file two sets of rates to deal with the possibility that subsidies may not be funded, Cousart said. Those states are California, Connecticut, Idaho, Massachusetts, Minnesota, New York, and Rhode Island.

Alaska’s premium increase is expected to be smaller than many since that state received a waiver under the ACA’s Section 1332 to set up a reinsurance program to cover enrollees with high claims costs, Cousart said. The state had expected 2018 premiums to drop 26.5 percent on average due to the reinsurance program, and without the cost-sharing subsidies premiums are expected to decline 22 percent, she said.

20 Percent Increase Needed

If insurers don’t receive the cost-sharing subsidies, they need an additional 20 percent in premiums, the Congressional Budget Office reported in August. By not making the cost-sharing payments to insurers, federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026, because payments for tax credit subsidies for individuals under the ACA would rise to cover increased premiums, the CBO said.

The CBO estimated the cost-sharing payments to be $7 billion in 2017 and $10 billion in 2018. About 6 million people with incomes from 100 percent to 250 percent of the poverty level receive the subsidies for plans bought on the exchanges. For 2017, 12.2 million people enrolled in the exchanges.

The Trump administration said it based its decision to stop making the payments on guidance from the Department of Justice because there is no congressional appropriation for them.

Payments Illegal

A district court ruled in 2016 that the Obama administration was making the payments to insurers illegally, after the House of Representatives filed a lawsuit saying no funding had been appropriated for the payments. Trump had threatened to stop the payments unless Congress acted to repeal and replace the ACA, but the payments continued until the Oct. 12 announcement. The next payment was due Oct. 18.

“The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system,” the White House said in a statement Oct. 12.

America’s Health Insurance Plans and the Blue Cross Blue Shield Association issued a joint statement warning there will be “real consequences” if the subsidies are ended.

“We need constructive solutions that increase consumer choice, lower consumer costs, and stabilize local markets,” the health insurance trade associations said. “Terminating this critical program will do just the opposite.”

Carriers in a Quandary

“It puts the carriers in this quandary,” John McGowan, a partner with Cleveland law firm BakerHostetler, told Bloomberg BNA Oct. 13. McGowan has been critical of the ACA. BakerHostetler represented plaintiffs who lost the battle against the ACA’s individual mandate in a landmark Supreme Court decision in 2012.

The cost-sharing subsidies are part of the Public Health Service Act, “which creates no private right of action,” by individuals, McGowan said. The states are charged with enforcing the requirement, he said. But if states don’t enforce the provision, it isn’t likely the Trump administration would press the states to do so, he said.

“It’s a Hobson’s choice for commissioners,” McGowan said. Allowing insurers to increase premiums to cover the cost of the subsidies would mean increasing costs for middle-class consumers who don’t qualify for the ACA premium tax credits for people with incomes between 100 percent and 400 percent of the poverty level. Prohibiting insurers from increasing their rates to cover the subsidy cost could mean insurers leave the individual and small group markets, he said.

To contact the reporter on this story: Sara Hansard at shansard@bna.com

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

For More Information

Qualified health plan agreements are at https://www.qhpcertification.cms.gov/s/QHP%20Agreement.The Effects of Terminating Payments for Cost-Sharing Reductions is at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53009-costsharingreductions.pdf.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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