Thursday, October 12, 2017, was one of the most eventful days in the history of the Affordable Care Act. Late Thursday morning, President Trump released an executive order directing the Departments of Labor, Treasury, and Health and Human Services to begin the process of drafting rules that will expand the use of association health plans, exempting small employer plans from the ACA’s small group consumer protections and perhaps preempting state regulation; expand the length and renewability of short-term coverage; and expand the ability of employers to use health reimbursement accounts to shift coverage of their employees to the individual market.
That evening, the administration announced that it will no longer be reimbursing insurers for the reductions in out-of-pocket limits, deductibles, and other forms of cost sharing that the ACA requires insurers to provide to enrollees in silver plans with incomes below 250 percent of poverty and to Native Americans.
These two steps obviously furthered the administration’s two-part strategy to undermine the ACA. President Trump is reportedly furious that Congress failed to repeal the ACA and has set out to single-handedly dismantle it himself. The cost-sharing reduction (CSR) payment cut-off will, in tandem with other steps taken by the administration to discourage enrollment in the individual market, drive up the cost of coverage. The executive order will open escape routes so that healthy people will leave the ACA-compliant individual market for cheaper, non-compliant forms of coverage.
This post will explore first the likely practical effects of President Trump’s October 12 actions. It will then analyze the legal challenges to those actions that began brewing on Friday, October 13.
Effects Of The Executive Order And CSR Payment Cutoff
Executive Order
The executive order is unlikely to have an immediate effect. It calls for the agencies to draft rules, which will go through notice and comment rulemaking. The earliest they could possibly go into effect would be early in 2018. Once the association plan rules go into effect, however, small groups could begin to drop ACA-compliant coverage and move into the association market. Similarly, healthy individuals insured in ACA-compliant individual market coverage could drop it in favor of short-term coverage. Healthy individuals who lose employer coverage and who would have purchased ACA-compliant could instead purchase short-term coverage. The risk pool is likely to begin to erode further, with this erosion reflected in 2019 individual and small group market rates.
CSR Payments
The effect of the CSR cutoff is more difficult to predict. A group of bloggers—David Anderson, Andrew Sprung, Charles Gaba, and Louise Norris—have looked at how each state is responding to the end of the CSR payments, and at how each state’s response will affect the damage the ending of the CSR payments is likely to have for 2018.
Before reviewing their findings, three observations are in order. First, the announcement of the CSR cutoff days before open enrollment began was timed to do great damage to the ACA market. President Trump stated that he relied on advice from the Justice Department that the payments were illegal; more on that later. But if that is the case, President Trump has been making illegal—unconstitutional—payments since January. The cut-off was apparently announced now because the insurers have, as of September 27, signed their exchange contracts and set their rates for 2018, and revising them to allow the marketplaces to open on November 1, for an already shortened open enrollment period, will be difficult.
But second, President Trump has been foreshadowing a CSR cutoff for months, and so many states and insurers had already taken action to accommodate the cutoff in their rates for 2018. In fact, at least in some states, a continuation of CSR funding for next year might have been more problematic than their cutoff.
Third, however, the payment cutoff means that three months of 2017 will remain unreimbursed. This could amount to up to $2 billion of lost revenue in aggregate for the insurance market. Unless state regulators allow insurers to modify their 2017 rates prospectively, which may not be possible in some states, all exchange insurers will suffer losses and some may face reserves or solvency issues. State insurance regulators are hopefully giving this issue their immediate attention.
Insurers will, of course, be able to sue in the Court of Claims to recover their losses—the obligation the CSR statute places on the government is clear and judgments against the government will be funded through the judgment fund, which is appropriated. But it may take years for the insurers to recover their losses, as is currently the case with the risk corridor payments, for which insurers were also short-changed.
So how are states accommodating the cutoff, and how will these accommodations affect their markets for 2018? Most (but not all) states took into account the possibility of a cut off and instructed their insurers to factor the possibility into their 2018 rates. Anderson, Gaba, Sprung, and Norris identify five different ways in which the states did this.
First, about ten states instructed their insurers to assume that the CSRs would be paid in setting their 2018 rates. In these states, insurers could end up with serious shortfalls. Premiums would reflect only other changes such as increases in medical costs or changes in the risk pool and would go up less than in other states. But some insurers would likely attempt to exit the ACA-compliant market rather than take the huge losses that they would face, leaving bare counties.
Insurers have the right to terminate their contract with the exchange in federal exchange states now that the CSR payments are ended. They would have to give notice as required by state law, however, which could vary from state to state. Insurers would have to give 180 days’ notice to leave the individual market altogether. Insurers that left the exchange would not, moreover, be able to terminate individual insurance policies with their enrollees, but would rather have to transfer them to non-exchange individual policies. Without premium tax credits, however, many of their enrollees would likely cancel their coverage or be terminated for nonpayment. But the ability of insurers to leave the exchanges will vary from state to state, and will not be easy anywhere.
There have been no reports yet of insurers leaving the individual market. In several of the states that directed insurers to assume that the CSRs would be paid, insurers were also instructed to file dual rates and will now be allowed to move to rates that assumed that CSRs will not be paid. It is reported that the Centers for Medicare and Medicaid Services (CMS) is allowing states to revise their instructions and will permit insurers to use their revised rates to reflect the end of the CSRs. Presumably even states that did not request dual rate filings will allow insurers to raise their rates for 2018, probably by 15 to 20 percent, to accommodate the loss of the CSR payments and remain in the market.
Second, in five states, insurers are loading the cost of the CSR repeal onto all metal levels. Premiums will go up for all coverage in the individual market, but because only part of the cost is loaded onto silver plans, only part of the increased cost will be covered by increases in premium tax credits, which are determined by the cost of the second-lowest cost silver plan. Gold plans may become particularly costly. But enrollees in silver plans will receive required cost-sharing reductions and should receive premium tax credits to cover their increased costs.
Third, about half the states have instructed their insurers to load all the increased cost onto the premiums of silver plans. This will drive up the cost of silver plans, and thus increase the value of the premium tax credits. As premium tax credits increase, bronze plans will become more affordable for those who have credits. Gold plans may cost less than silver. Individuals higher up the income scale but still below 400 percent of the poverty level who would not have been eligible for tax credits before the CSR funding cutoff may become eligible. But individual market plan enrollees who do not receive premium tax credits will find silver plans very costly.
Fourth, about a dozen states have instructed insurers to load all of the premium increase onto silver plans on the exchange. This is the best result for all consumers, as it means that silver plan enrollees in the marketplace who are eligible for premium tax credits will have all of their premium increase covered by the increased tax credits, while their increased premium tax credits will go further in purchasing bronze or gold plans. Individuals who are not eligible for tax credits can simply move to the off-exchange market, where most of them are anyway, and find coverage that is not affected by CSR funding cutoff premium increases.
Fifth, a few states, apparently including the states where CMS directly enforced the ACA, have given no instructions to insurers, allowing each to pursue its own strategy. This is, of course, problematic, if some insurers load the CSR cost onto silver plans, driving up the cost of those plans, while others do not, reducing the cost of their silver plans, and thus in all likelihood, the premiums of the second-lowest cost silver plan, and thus the value of the premium tax credits.
Finally, it should be noted that in a few places the change may make little difference. Minnesota and New York have Basic Health Programs that cover enrollees up to 200 percent of the poverty level and thus have few CSR beneficiaries. The District of Columbia has few low-income enrollees in its marketplace, which covers the whole individual market. If the administration decides that an end to CSR means it must also end the funding attributable to CSRs for Basic Health Programs—or 1332 waiver states—this could affect states with those program. But HHS would presumably also have to take into effect increases in premium tax credits attributable to the end of CSR funding in recalculating funding for those states, perhaps leaving them better off.
CMS had already issued guidance permitting insurers to delay providing consumers with notice of their 2018 rates beyond the prior October 31, 2017 deadline. It is very possible that as states and insurers scramble to accommodate new rates based on the non-payment of the CSRs, and CMS loads the new rates onto HealthCare.gov, consumers will not know what 2018 premiums will be until several days into the open enrollment period, if not later. This means that the 2018 open enrollment period, already half the length of the 2017 period, will get even shorter.
Insurers will not be able to simply stop reducing cost sharing. The cost-sharing reductions are clearly required by federal law. Even if the federal government did not enforce the federal law, state insurance regulators would be obligated to do so, and insured individuals could sue for breach of contract. Insurers will be able to sue in the Court of Claims for any money damages they suffer because of the fund cutoff, but those cases could take years to resolve.
Legal Developments
Justice Department Files Notice That Next CSR Payment Will Not Be Made But Does Not Ask For Dismissal Of House v. Price appeal
Two major legal events affecting the CSR payments occurred on October 13, 2017. First the Department of Justice filed in the ongoing appeal of House v. Price a notice that the October 18 (actually October 23) CSR payment will not be made. The notice attaches a letter from Attorney General Sessions to the HHS and Treasury Secretaries concluding that the “best interpretation of the law” is that the government’s prior position in the litigation—that the section of the ACA that appropriated funding for the premium tax credits also appropriated funding for the CSR payments—was incorrect. The statutory language, statutory context, and contemporary evidence all cut against the prior interpretation of the law, according to the notice.
The Trump administration did not, however, ask the court to dismiss the House v. Price appeal, a move that surely would have been opposed by the state attorneys general who are now parties to the case. It rather stated that further steps would be addressed at the next status call in the case, on October 30, 2017. The states could conceivably ask the appellate court to order the continuation of the payments, but they have not so far done so. Whether or not such a motion could be granted given the posture of the case is far from clear.
State Attorneys General File Suit Seeking Continuation Of CSR Payments
Instead, the attorneys general of eighteen states and the District of Columbia filed on October 13 a separate action in the Northern District of California to compel payment of the CSRs (fact sheet) asking the court to enjoin and declare illegal the CSR funding cutoff. The complaint contends that the Trump administration’s decision to stop funding the CSRs is not based on a good faith reading of the statute, but rather is part of a deliberate effort to “explode” the ACA. It recites other efforts that administration has undertaken to “sabotage” the ACA.
The complaint alleges that the defunding of the CSRs will increase the cost of individual insurance coverage and depress individual market enrollment. The plaintiffs say stopping the payments will increase the costs that states pay to cover the uninsured and increase the states’ administrative and regulatory costs.
The complaint alleges that the administration’s decision is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” in violation of the Administrative Procedure Act. The CSR payments, the plaintiffs allege, are in fact appropriated and are mandated by law. The administration’s sudden change of position without an adequate explanation, after making the CSR payments since the inauguration, also violates the APA. The complaint further alleges that the administration’s actions, including but not limited to the CSR cutoff, violate the constitutional requirement that the President “take Care that the Laws be faithfully executed.”
The plaintiff state attorneys general ask for a declaratory judgment that the ACA in fact authorizes and compels the payments to be made. They request a temporary restraining order and preliminary and permanent injunctions requiring continued CSR payments. No motions for immediate relief were filed, however, with the complaint, so it is not clear when this relief will be sought.
Conservative Reactions, And An Important Caveat
One final note. Several conservative commentators have characterized the administration’s decision as a victory of the Constitution over lawlessness. They claim that the Obama administration made payments that had not been appropriated by Congress, in violation of the Constitution, and the Trump administration is finally complying with the Constitution. Why is anyone surprised, much less outraged?
This opinion was supported by the decision of a district court judge below in House v. Price. But it is important to note that the Obama administration never argued that it could make the payments without an appropriation—it argued that there was an appropriation. The Trump administration has now concluded, after making the payments for months, that the “best interpretation of the law” is that there is no appropriation. But the case is still on appeal to the D.C. Circuit, which could still conclude that the Obama administration was correct. A judge in the Northern District of California could also reach that conclusion. This is not a question of constitutionality versus lawlessness, but rather a dispute as to what the law is.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/2yic8FV
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