Adding Complexity to an Already Complex Process
Given the well-publicized challenges with the individual market, carriers’ product development and pricing process for 2018 has been particularly difficult. In an effort to give insurers some reprieve, last week the Centers for Medicare and Medicaid Services extended the deadline for issuers to make changes to their rate filings from August 16 to September 5. However, finalizing rate filings remains a difficult process for carriers due to the uncertainties in the market and the administration’s lack of commitment to secure payment of the cost-sharing reduction (CSR) subsidy, which is critical to holding down out-of-pocket costs for low-income consumers.
Under the Affordable Care Act (ACA), carriers are mandated to offer health plans with CSRs to limit out-of-pocket costs for low-income consumers who earn less than 250 percent of the federal poverty level (FPL). Carriers initially cover these costs and are then reimbursed by the federal government. Over the past year, the CSR subsidies have been put into jeopardy by a lawsuit that the House of Representatives filed against the Secretary of the Department of Health and Human Services. The lawsuit claims that due to the absence of Congressional appropriations to fund the subsidies, the ongoing payments are illegal. The lawsuit is currently on hold, leaving the future of the subsidies in question. This lack of clarity – and potential dissolution of the subsidies – not only impacts 2018 product filings but could also substantially impact carriers’ 2017 payments, which have not been secured through the end of the year.
Without government funds, insurance carriers would be required to assume the costs associated with these subsidies; and, like any additional cost, carriers would have to factor those costs into their premium prices. The cost implications are significant. Many carriers have indicated that premiums would increase 12 percent to 25 percent above the existing premium increases if CSR payments were not available. Having to increase premiums for consumers because of lack of CSR payments is certainly a concern for all market stakeholders.
Absent clarification from the federal government, insurance companies are looking to their respective states for guidance on how they should incorporate the potential loss of CSR payments into their rate filings. While not all communications between state regulators and health plans are made public, Leavitt Partners has identified that states that have provided public guidance to health plans for 2018 rate filings are generally taking one of four approaches:
- File two sets of rates: Some states have chosen to cover their bases by requesting health plans to submit two sets of rates, one that assumes CSR payments will be made and one that does not. While this may allow states to make a last-minute choice of one set of rates over the other, assuming some clarity is provided before open enrollment, it creates additional complexity for carriers that already struggle with one set of product filings.
- Assume status-quo: Some states have taken the stance that given CSR payments have been paid thus far and help lower premiums for consumers, that carriers should continue assuming CSR will be paid unless told otherwise. This allows states to publicize lower rate increases and enables carriers to operate as before but could create significant challenges should a final decision on ending CSR payments be made without time to re-price insurance plans which may push carriers to exit a market.
- Create a tailored solution: Some states, such as California, have taken a more proactive approach, creating guidelines that seek to limit significant premium increases for subsidy-eligible consumers while shifting the added costs back to the federal government.
- Remain silent or lack clear direction: Given the complexity of this issue, many states have either remained silent or have not provided clear guidelines to carriers on this issue. While this approach may appear similar to the “status-quo” approach, it has the potential to create even more consumer strife and carrier confusion as different carriers may take difference approaches in their CSR assumptions. For instance, if one carrier in a market assumes CSR payments will be paid and another assumes they will not, all things being equal, the second carrier will likely increase its premiums much more than the first carrier.
Interestingly, if the government ceases to pay the CSR subsidies, it may end up costing the government even more money in up-front premium subsidies. A net increase in subsidies would occur due to the expectation that carriers would increase premiums to offset the loss of CSR payments, which would in turn require the administration to increase premium subsidies. So while some policymakers may win the philosophical debate by ending these subsidies, they may lose the fiscal debate by reducing overall savings. Regardless of the merits of CSR payments, further federal or state guidance would bring greater clarity to the market, assist carriers in their efforts to prepare for 2018, and allow consumers greater certainty on their premium costs. Leavitt Partners’ Health Insurance Market Practice Area will continue to monitor and report on developments.
 CMS Release, Information on Risk Adjustment Methodology and Rate Filing Deadlines, Aug. 10, 2017 (link here)
 Obamacare rates could be nearly 20 percent higher next year just from Trump administration delay on subsidy case, CNBC (link here)
 Analysis: Potential Impact of Defunding CSR Payments, Oliver Wyman; May, 2017, link (here).