If the cost-sharing reduction (CSR) subsidies of the Patient Protection and Affordable Care Act (ACA) were eliminated, it could expose insurance carriers to a substantial increase in selection risk related to their particular mixes of business. In August, the Centers for Medicare and Medicaid Services (CMS) announced its intention to propose a set of risk adjustment modifications for states in which insurance carriers raise silver premiums in response to potential CSR subsidy termination.
In this paper, Milliman’s Jeffrey Milton-Hall, Doug Norris, and Jason Karcher explore the CMS proposal along with the current ACA risk adjustment program and three other potential alternative modifications to risk adjustment in response to the possible elimination of CSR funding.
Politico Pulse cited a new study performed by Milliman that examines cost-sharing reduction (CSR) subsidies under the Patient Protection and Affordable Care Act (ACA). The study was commissioned by the Association for Community Affiliated Plans.
Here’s the excerpt from the morning briefing:
FIRST IN PULSE: COST-SHARING SUBSIDIES ARE A SIGNIFICANT SHARE OF OBAMACARE REVENUES — Cost-sharing subsidies accounted for 7.8 percent of health plan revenues for customers enrolled in Obamacare plans in 2015, according to a new study commissioned by the Association for Community Affiliated Plans.
The study conducted by Milliman also found a huge discrepancy between states that expanded Medicaid and those that didn’t. Cost-sharing subsidies accounted for 4.8 percent of revenues in expansions states, but that share more than doubled in states that didn’t expand coverage. The amount of money at stake: $4.9 billion in assistance to 5.2 million exchange customers in 2015.
Why it matters: The future of the cost-sharing subsidies is in limbo. House Republicans sued to block the funding and won an initial court battle. But they’re being pushed by health plans to continue the payments now that they’re in control of the federal government. Otherwise, insurers warn, the Obamacare markets could collapse on their watch. “The loss of CSR payments in 2017 would trigger significant losses for many insurers in the individual market,” the study concludes. Read the report here.
In their article “CSR subsidies: Intra-year emergence,” Milliman’s Aaron Wright and Shyam Kolli assess the difference between prospective payments from the Centers for Medicare and Medicaid Services (CSM) and actual cost-sharing reduction (CSR) payments. They also discuss the effects that payments may have on quarterly financial statements for some carriers.
The Patient Protection and Affordable Care Act (ACA) introduced two subsidies for low- and moderate-income individuals to help make health insurance more affordable. These include premium subsidies to lower the initial purchase price of a policy and cost-sharing reduction (CSR) subsidies to lower the cost sharing (e.g., deductibles, copays, etc.) absorbed by individuals at the time they receive care. CSR subsidies, however, are administered in a complicated manner. In many cases the federal government may not reimburse the full cost, leaving the remainder on the shoulders of health insurance companies.
This Healthcare Reform Briefing Paper by Daniel Perlman and Jason Siegel outlines the design of the CSR subsidies under the ACA and its implementing regulations. The paper also describes how, depending on the reimbursement methodology agreed upon between issuers and the federal government, the regulations as currently written may under-compensate issuers of silver-level plans. Issuers should consider the scenarios described in this paper when choosing one of the CSR reimbursement methodologies allowed by the federal government.
In a new set of frequently asked questions (FAQs) on the Patient Protection and Affordable Care Act (ACA), federal agencies warn employers against providing premium reimbursement arrangements to help employees purchase individual policies on the health insurance exchanges. The set of FAQs (Part XXII), posted on the website of the U.S. Department of Labor (DOL) and coordinated with the U.S. Departments of Treasury and Health and Human Services (HHS), addresses three circumstances that will be subject to excises taxes for failing to comply with the ACA.
Under one scenario, a vendor claims that employers can cancel their group policies, establish a tax code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allows eligible employees to access the premium tax credits available in the exchanges. The FAQ states that these arrangements are not permissible because they are group health plans and, as such, would prohibit employees from receiving the federal subsidies. In addition, such arrangements are subject to the ACA’s market reform provisions, such as providing certain preventive services without cost sharing. These types of employer healthcare arrangements “cannot be integrated with individual market policies to satisfy the market reforms,” the FAQ notes, and can trigger excise taxes and other penalties.
The two other FAQs also conclude that the illustrated examples would violate the ACA’s market reforms.
• Offering employees cash to purchase an individual policy would violate the ACA because the arrangement remains a group health plan, which cannot be integrated with an individual health insurance market policy.
• Providing cash to encourage only “high claims risk” employees to decline enrollment in the group health plan would violate the ACA’s nondiscrimination requirements by requiring them, in effect, to pay higher premiums on the basis of an adverse health factor as opposed to employees who are not high claims risks and who were not offered the cash incentive. In addition, this type of arrangement—offering taxable cash or a tax-favored qualified benefit—could result in discrimination in favor of the highly compensated employees under the cafeteria plan rules of tax code section 125.
For additional information about the FAQs and the reimbursement arrangements discussed, please contact your Milliman consultant.