As deliberations over a replacement of the Affordable Care Act (ACA) continue in the U.S. House of Representatives, the fate of the ACA’s Cost-Sharing Reduction subsidies (CSRs) may be at stake. Under the ACA, Marketplace insurers are required to reduce certain costs for low-income enrollees in silver-level plans, such as deductibles, co-insurance, and co-payments. The federal government then reimburses insurers directly for these CSRs. According to Congressional Budget Office projections, reimbursements to insurers are estimated to cost $7 billion in 2017 and are projected to top $9 billion in 2018.
The fate of these CSRs should concern employers that provide group health plan coverage to their employees. Elimination or delay of CSR payments will severely affect insurers that provide Marketplace coverage, leading, potentially, to an exodus from the individual market. If this occurs, costs could be shifted to employers and employees, and employees that might not be eligible for the employer-sponsored coverage will have few individual coverage options. Further, early retirees and COBRA qualified beneficiaries will have few choices other than COBRA for coverage following termination of employment. Healthy, sustainable Marketplaces provide flexibility in coverage options for part-time and former employees. Employers should expect these individuals to request coverage options in the absence of Marketplace or other individual coverage.
Status of CSRs
The U.S. Department of Health and Human Services (HHS) under the Obama administration had directed the U.S. Department of the Treasury to fund CSR payments. The House Republicans filed a lawsuit in response, arguing that such funds could not be paid without Congressional appropriations. The Obama administration appealed a federal court ruling in favor of the House Republicans. The Trump administration is now in the paradoxical position of potentially defending CSR payments required by a federal law they vowed to repeal and/or replace. The parties are scheduled to confer on the status of the litigation on May 22, 2017.
In the meantime, CSR payments have continued—to the relief of Marketplace insurers and enrollees as well as employers that might have otherwise covered such individuals in their employer-sponsored group health plan coverage. For payments to continue into 2018, however, it appears Congress must pass a continuing resolution by April 28, 2017.
Consequences of Discontinuing CSR Payments
Discontinuing CSR payments could have tremendous consequences for health insurance markets and low-income individuals, which we anticipate would ultimately be shared by employer-sponsored group health plans as well. Insurers that intend to offer health plans on federally-facilitated Marketplaces in 2018 would be filing rating applications as early as June 21, 2017.
However, uncertainty around CSRs may force insurers to make a preemptive choice between absorbing the costs of CSRs, raising premiums midyear, or leaving the Marketplaces entirely. A mass exit of insurers could threaten the stability of the Marketplaces. While the HHS has recently issued final rules to stabilize the Marketplaces and individual insurance markets effective beginning in 2018, those rules do not address the fate of CSR payments, which appears to rest in the hands of the Trump administration and House Republicans. Moreover, such costs could be shifted to employer sponsors of group health plan coverage. Group health insurance premiums would likely rise, in addition to the increased costs of covering employees and pre-65 retirees who would have purchased subsidized Marketplace or other individual coverage that is no longer available.
What This Might Mean for the ACA
This issue has become an additional source of Republican in-fighting and threatens Republican unity in future healthcare reform efforts. The HHS reportedly told news outlets on April 10, 2017 that CSRs would be funded until the litigation discussed above is resolved, while the Trump administration vigorously refuted this statement only days later. Similarly, several influential House Republicans have encouraged the introduction of a bill to fund CSRs into 2018, while others noted that the House Freedom Caucus would certainly block any such proposal.
President Trump may be playing a game of chicken with Congressional Democrats over CSRs. However, this could lead to serious consequences that could ultimately be shared by individuals and employer-sponsored group health plan coverage. We will closely watch these developments and keep you informed with future health plan compliance services updates.
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