Analysis of White House Decision to End the Cost Sharing Reduction (CSR) Payments
On October 12, 2017, the White House announced that they would stop payment of the Affordable Care Act (ACA) Cost Sharing Reduction (CSR) payments immediately. This announcement is expected to impact the 2018 calendar year Open Enrollment on the ACA Marketplaces. This announcement was made following an Executive Order that also may weaken the ACA. In a statement, the White House stated that the CSRs were not legal and the government had no authority to continue them.
The CSRs are one of two affordability policies for people shopping in the individual market. The other is the Advanced Premium Tax Credits (APTCs), which reduce the premium costs for most people under 400% of the Federal Poverty Level (FPL). On the other hand, CSRs are directed at making the out-of-pocket spending for copayments and deductibles more affordable for households between 100% and 250% of the FPL.
Health insurance companies (also referred to as “carriers”) are responsible for paying for the CSRs for eligible enrollees. This is, in part, why so many carriers raised their rates for the 2018 Open Enrollment period. The government is then responsible for reimbursing the carriers. In 2016, CSRs totaled $7 billion and 58% of all Marketplace enrollees received them. This was expected to be $10 billion for 2018.
In 2014, House Republicans filed a lawsuit stating that the Executive Branch cannot authorize payments because only Congress has that authority, which appears to be a genuine legal problem in the ACA. The court ruled that Congress was correct and issued a ruling that these payments were to stop, but stayed its ruling, knowing that stopping the payments would yield chaos in the individual market.
The Republican-led Congress has been reluctant to fix this broken part of the ACA, instead pursuing a strategy of “repeal and replace.” The latter, so far, has not been effective either, leaving the Republicans in a tough spot: either move quickly forward on the very unpopular repeal and replace promises, without a viable replace policy, or fix the ACA and appropriate the CSRs through Congress.
In the meantime, a coalition of Attorneys General, led by California and New York, are involved in two lawsuits. The first is pursuing the appeal of the injunction in the event that the White House and Justice Department did not continue to appeal against the decision that the payments were illegal. These 15 states included: California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, New Mexico, New York, Pennsylvania, Vermont, and Washington.
Additionally, the day after the White House announcement to end the CSRs, the Attorneys General from at least 19 states and the District filed a complaint against the Administration. Led by New York and California again, the other states included are: Kentucky, Massachusetts, Connecticut, Delaware, Maryland, Oregon, North Carolina, Illinois, New York, Vermont, Pennsylvania, Rhode Island, Virginia, Minnesota, New Mexico, Washington, Iowa, and the District of Columbia.
If Congress does not act to fund the CSRs, as the Congressional Budget Office estimated, we may see a disaster scenario play out with the Marketplaces. Carriers will have to raise their prices for the silver plans (which are benchmarked for the APTCs), and we have already seen carriers raise their rates accordingly. The government will pay more money in APTC subsidies for people between 100-400% FPL. The people who are not eligible for APTCs (those over 400% FPL) are likely to see higher rates if they have a silver plan.
One option that was raised in August was having states use section 1332 waivers to pay the CSRs. Given the Administration’s lack of support in approving any 1115 or 1332 waivers that support the ACA provisions, this is unlikely, as 1332 waivers are approved based on Secretarial discretion.
In some states, carriers may still pull out of their 2018 contracts. However, since many states and carriers were expecting something like this — and raised rates in accordance to offset it — the Open Enrollment season may continue with marginal disruptions. The bigger issue is funding the CSRs over the long term and how many people will enroll in coverage if they are not eligible for APTCs.