That is what the Kaiser Family Foundation is projecting. If Cost Sharing Reduction (CSR) subsidies are eliminated with enough time for insurers to price the change into their 2018 products, the federal government will spend on net more money on Exchange than if they are funded.
NEW: Fed govt could see net ↑ of $2.3 billion in costs in 2018 if #ACA cost-sharing reduction payments eliminated https://t.co/0eCLhhuUNp pic.twitter.com/7SJAgHQvYs
— Kaiser Family Found (@KaiserFamFound) April 25, 2017
How does this happen?
CSR subsidies are narrowly means tested. People who make between 100% and 150% of Federal Poverty Line (FPL) get an actuarial value (AV) bump to 94% of AV instead of the standard 70% Silver plan. People who between 150% and 200% FPL get bumped to an 87% AV plan. People who make between 200% and 250% FPL get bumped to a 73% AV plan. Anyone who makes more than 250% FPL does not get a CSR subsidy.
If CSR subsidies are pulled, insurers are still obligated to provide the CSR bumps. Their choices are to either raise rates or run for the hills. Wesley is the finance director at a small insurer.
If insurers are on exchange, we are obligated to provide CSRs; either we will get off exchange, or get paid for them another way https://t.co/7MpFDZgeI3
— Wesley Sanders (@wcsanders) April 25, 2017
Kaiser has projected that raising rates to pay for CSR without receiving CSR subsidies means a 20% index rate increase. This would apply to all buyers of Silver plans. The least expensive Silver plan would increase by 20%. Far more importantly, the benchmark Silver plan would increase by 20%. In some regions, like Alaska, this does not matter, everyone who was subsidy eligible was already receiving subsidies. However in low cost regions like Pittsburgh, subsidies currently fade out for younger buyers around 300% FPL. A 20% increase in the benchmark will qualify these buyers for subsidies that they otherwise would not have received.
This transmission mechanism is why I have not been too worried about CSR for 2018 as the premium tax credit structure provides a lot of protection for people who make under 400% FPL and buy on Exchange. The people who will be hurt will be off-Exchange or more generally non-subsidized buyers and even then carriers who can split their business into an on-Exchange pseudo CSR filing ID and an off-exchange non-pseudo CSR filing ID can provide protection as well as carriers who only operate off-Exchange. The key question has been if the Exchanges can limp to 2018 without CSR blowing them up.
At this point, it looks like the Exchanges can at least limp intact to the end of 2017. Once there, insurers can price in whatever they need to guard against sabotage.
Barbara
I guess the only real question is whether Republicans hate their constituents less than they hate Obama. From what I can tell, it’s a pretty close contest, even if Republican constituents hate Obama more than they hate themselves. Even that question seems to be in doubt on any given day.
Uncle G
@Barbara: Is that your serious reaction to this well-constructed article or is that your standard reply to everything you read?
Dennis
It would completely drive healthy unsubsidized users off the Exchanges, though. Too costly. Leading to more premium spiral. These are the people who have taken a hit from ACA already–healthy people with no employer insurance (self-employed, for the most part.)