CSRs are about to self-defuse

Dylan Scott at Vox has a good state of play regarding the slim chance of a bi-partisan ACA bill coming out of the Senate much less the House with sufficient votes to override a potential veto. The odds aren’t good for both policy and timing reasons:

The realistic list of fixes for the law has shrunk dramatically. The final package isn’t likely to contain much: just payments to insurers that help cover reduced out-of-pocket costs for lower-income Americans and some additional state flexibility under a waiver program set up under Obamacare.

That could really be it — and that modest package wouldn’t even be assured of passage….
There is little hope for adding any substantial funding to the marketplace. And the schedule for September is already packed and treacherous.

“Honestly this whole thing is a joke,” another GOP lobbyist told me. “No money. No floor time and even less than any administration interest.”

There is a chance but it is not a good chance.

The critical thing that people have to realize is that the Cost Sharing Reduction bomb will self-defuse as long as payments are made on September 20th. We’ve been tracking that since this spring:

This is a time limited threat. It is obviously a time limited threat for insurers have been stating that they are usually filing with the assumption that CSR will be paid for 2018, they reserve the right to refile under a variety of assumptions and attribution methods if CSR goes for 2018.

More subtly, let’s imagine that CSR has been paid through November 30th. If they were not paid in December, the carriers would have to use their reserves to cover the expenses but insurers would not flee the market before the end of the policy year. They might be able to reprice their 2018 policies based on the lack of the regular, early notification of accounts payable that they get before the CSR money is actually transferred in mid-December. They would take a hit, but it would not be a show stopper.

Moving to payment through Halloween but no payment for November and December, most insurers would have sufficient reserves to eat the loss and re-adjust their prices for 2018 while their lawyers get warmed up. Moving back another month, thinly capitalized insurers will start being in trouble as they may be hitting a Premium Deficiency Reserve (PDR) event that threatens their Risk Based Capital (RBC). At that point, some state regulators would be forced to either shut down insurers or allow insurers to terminate the CSR policies immediately. Well capitalized insurers could survive longer and jack up their rates for 2018 with state support.

Insurers have priced in not being paid Cost Sharing Reduction subsidies. Smart insurers and smart states are splitting the on-Exchange from the off-Exchange market under a variety of loading circumstances. The threat of not paying CSR was a threat against mid-2017 exits by insurers and not the threat of exits in 2018 by insurers that have decided to stick around with the assumption that CSR won’t be paid.

If CSR payments arrive in the insurers’ accounts on September 20th, the threat of mid-year exits effectively disappears. And at that point, the insurers will price as if CSR will not be paid and there is a $192 billion dollar pot of new money that totally changes budget neutrality calculations for waivers and federal budgetary policy. From this new pot of money, a $92 billion dollar stabilization and change fund could be combined with a $100 billion cut from Obamacare which would allow everyone to claim a win.