On October 23, 2017, Governor Kim Reynolds and Insurance Commissioner Doug Ommen announced that Iowa has withdrawn its 1332 state innovation waiver proposal. In a late afternoon press conference, Governor Reynolds and Commissioner Omen announced that the federal government had informed them that it would be several weeks yet before it could tell Iowa how much pass-through funding the state would receive to pay for its waiver program. With open enrollment just days away they could not proceed in the face of that uncertainty. Iowa therefore withdrew its request.
Iowa had applied for a stopgap waiver in June under section 1332 when the insurers that had been covering Iowa's individual market stated that they would not be returning for 2018, leaving it potentially with a statewide bare market. In the face of this, Iowa worked an arrangement with Wellmark, Iowa's Blue Cross Blue Shield plan. Wellmark would provide coverage at premium rates negotiated with the state. Iowa would withdraw from the federally facilitated exchange and make its own eligibility determinations for premium credits. It would offer credits to all enrollees, including higher-income enrollees.
Iowa insurers would offer only a single standard silver plan, which would have a high deductible but reasonably generous cost sharing for some services before the deductible attached. Iowa proposed to terminate cost-sharing reductions (CSRs) for low-income enrollees. It would use the pass-through payments of money the federal government did not spend on CSRs or on federal premium tax credits to fund its own generous premium credits. Iowa would tighten up on the special enrollment periods (SEPs) currently offered through the FFE and impose a 12-month continuous coverage requirement for some SEPs.
By the time Iowa finally submitted its final waiver application in late August, another insurer, Medica, had committed to covering all Iowa counties. Iowa, however, contended that its stopgap plan was still needed because Medica intended to increase its premiums 56 percent.
Iowa submitted its final proposal only two months before open enrollment period. CMS solicited comments on the proposal and raised questions about the proposal's compliance with section 1332. Iowa submitted two supplemental proposals with which it would have restored most of the CSRs, but problems with its proposals remained.
In the end, Iowa's hope that the federal government would cover the full cost of its premium credits and reinsurance proposal proved unrealistic, sinking the proposal. The federal government is in fact only able under 1332 to pass through the funds it would have saved by reduced federal premium tax credits and CSR payments, less any revenues the federal government would have lost because of the proposal. Iowa was not willing to help cover the cost of its proposal, so the proposal proved nonviable.
Governor Reynolds and Commissioner Ommen were bitterly critical of the Affordable Care Act at their press conference. The complained that the ACA had ruined Iowa's insurance market and that section 1332 was far too inflexible to allow them to fix it. But, as an article by Politico's Paul Demko describes, there is plenty of blame to go around.
Like a number of other states, Iowa has allowed individuals who were covered by ACA noncompliant plan to remain in those plans. While nationally about ten percent of individual market participants remain in non-compliant plans, in Iowa half do, undoubtedly seriously undermining the ACA-compliant market risk pool. Wellmark, the Iowa Blue Plan with which the state negotiated the stopgap plan, was the only Blue plan in the country to sit out the first two years of the ACA marketplace and then withdrew again two years later, choosing to negotiate its own deal with the state rather than help preserve the ACA market. Iowa complained at the press conference that the ACA was creating insurer monopolies across the country, but the state was pushing a proposal negotiated specifically with one insurance company (although presumably others could have gotten a similar deal).
Finally, the Trump administration's threats to the CSR payments, and ultimate withdrawal of the CSR payments at the last minute, drove up the cost of ACA plans. The administration also withdrew 80 percent of navigator funding from two of three Iowa navigator programs (causing one to withdraw) and 90 percent of advertising funding nationally, further dampening projected exchange enrollment and driving up insurer premiums.
Iowa could have simply applied for a reinsurance proposal, as did Alaska, Minnesota, and Oregon, all of which now have approved 1332 waivers. The governor and insurance commissioner contended that this would simply have prolonged the collapse of their market, but a Rand analysis of the Iowa waiver concluded that a reinsurance program could have reduced premiums as much as the stopgap proposal at far less cost.
Massachusetts Waiver Effectively Denied
Also on October 23, 2017, the Centers for Medicare and Medicaid Services effectively rejected Massachusetts's application for a 1332 waiver. Massachusetts had asked that the money that would have been spent on CSR reimbursement instead be passed through to the state to fund a premium stabilization fund that would allow its insurers to avoid raising premiums in the face of CSR funding uncertainty.
Without specifically addressing the question of whether states could claim pass through of CSR payments now that they are no longer being made, CMS concluded that the Massachusetts waiver application was submitted too late for it to obtain public comment on the proposal before the beginning of open enrollment, and therefore did not meet section 1332's timeliness requirement. CMS, therefore, rejected the proposal as "incomplete."
Judge Appears Skeptical Of States' Position In California CSR Case
Judge Vince Chhabria spent over an hour and a quarter of the afternoon of October 23, 2017 hearing arguments on the motion for a preliminary injunction requested by attorneys general from eighteen states and the District of Columbia in California v. Trump, the case challenging the administration's termination of CSR payments. It was less, however, a hearing than a prolonged grilling of the attorney representing California, resembling every law student's Socratic method interrogation nightmare.
To be awarded a preliminary injunction a plaintiff must show that it will be irreparably harmed if immediate relief is not granted. Judge Chhabria seemed convinced that not only were consumers who purchased coverage through the exchanges not worse off without CSRs; they were in fact better off without them—and would be worse off were he to grant relief. He noted that California has required insurers to load the increased cost of the loss of CSRs onto on-exchange silver plans, thus increasing premium tax credits for consumers who qualify for them, in turn making gold and bronze plans more affordable while not increasing the cost of silver plans. Premiums for plans off the exchange are not being increased, so consumers who do not qualify for premium tax credits are no worse off because of the change. Restoring the CSR payments at this point, Judge Chhabria argued, would simply create confusion and make gold and bronze plans less affordable.
There is some truth to Judge Chhabria's argument with respect to California, which reacted early and intelligently to President Trump's anticipated order. In many states, however, premiums are increasing to the same extent for consumers both on and off the exchange (as will be true in Iowa). This will drive nonsubsidized consumers from the market, with the healthiest likely exiting first (as was noted by Governor Reynolds and Commissioner Ommen). Moreover, as the Families/NHELP amicus brief observed, insurers now face an incentive to avoid low-income enrollees, for whom they will incur increased CSR costs without increased premiums.
Moreover, a number of states did not even load the full cost of the CSR loss onto silver plans, increasing premiums for all plans. Finally, the CSR funding cut is going to induce confusion and cause consumers to make bad choices across the market.
Judge Chhabria also appeared skeptical of the states' argument on the merits. He seemed to believe that in fact Congress did not appropriate funding for the ACA, probably through an oversight, and has not done so since. He asked a couple of technical questions of the federal government's attorney but did not press the government on its argument that the CSR funding had in fact not been appropriated.
White House Lays Out Its Objectives In ACA Fix
Finally, on the evening of October 23, 2017, the White House reportedly released a series of "Short Term Obamacare Relief Principles," which it would like to see included in a bipartisan short-term ACA fix. These include:
- A moratorium in individual mandate penalties for 2017 and employer mandate penalties for 2015, 2016 and 2017;
- Increasing contribution limits for health savings accounts and allowing them to be used for insurance premiums, direct primary care and health care sharing ministries;
- Expanding access to short-term limited duration insurance and association health plans, and exempting enrollees from the individual mandate penalty; and
- Giving states additional flexibility through 1332.
It is hard to believe that Democrats would agree to these conditions, a number of which were part of Republican ACA repeal bills that failed to make it through the Senate this summer. It is interesting, however, that the administration is asking for legislation to make changes with respect to association plans and short-term coverage that it had proposed to achieve through executive order. This suggests that the administration does not believe that it in fact has the authority to make the changes it would like to make on its own.
Judge Chhabria painted an overly rosy picture of the overall state of ACA markets in the wake of President Trump's decision to end CSR payments. However, in states like California whose insurance departments took steps to mitigate the damage, the primary beneficiaries of the ACA are not in fact worse off because of the funding termination; indeed, some are better off. In fact, the Democrats arguably have less to lose from the CSR termination than do Republicans, who are likely to take the blame for the premium increases higher-income consumers, like those in Iowa, are experiencing. The Democrats have little incentive, therefore, to make major concessions to the Trump administration in these negotiations.
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