CSR, MLR and a surplus of cynicism

The following is a speculative post that is entirely cynical.

Cost Sharing Reduction (CSR) may or may not be paid in 2018. Some insurers in some states are loading all of the projected costs of CSR into their baseline premium rates. There is a chance that CSR will be paid in 2018 in full and in a timely manner. If CSR is paid in full and in a timely manner because they are either appropriated or the Court of Appeals reversed the district court ruling or the Administration continues to pay CSR for some reason, premiums will not change in 2018.

Insurers in the scenario where CSR is paid in full will effectively be double-dipping in a legal manner. They will be getting CSR money from the federal government and CSR money from the increased premium levels. Assuming that the actuaries are vaguely competent, the insurer in this scenario should be rolling in cash.

They should be rolling in enough cash where they are not in compliance with the Medical Loss Ratio requirement. An individual market company needs to spend 80% of their premium dollars on claims. If they don’t do that on a three-year rolling basis, they have to write checks that make up the difference back to their policyholders. Those checks are treated as tax-free rebates from previous purchases.

The rebates are sent in the following September after the end of the policy year.

In this scenario, in the fall of 2019, rebate checks start showing up just as final rates are to be approved. If there is still CSR uncertainty, rate regulators will have strong incentives of getting great press on being tough on the insurance companies by forcing them to hand out very large checks to tens of thousands of residents. They will have a strong incentive to continue to approve Silver load rates especially if they can get lower rates on the non-subsidized market by going full Silver Switcheroo by requiring insurers to offer Off-Exchange only Silver plans in addition to the on-Exchange Silver plans.

And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.

I might be getting too cynical today.






5 replies
  1. 1
    satby says:

    I don’t think it’s possible to be too cynical with the current crop of jerks in power, but I think that thinking as far ahead as this scheme you’ve outlined requires exceeds their abilities.

  2. 2
    Mary G says:

    I was wondering if that might happen. I imagine all the lobbyists for the insurance companies are pressing even harder for CSRs to be paid so they can collect twice and having their accountants figure out how to cook the books to make sure they keep as much of it as they can.

  3. 3
    Tom Levenson says:

    There is no amount of cynicism that could possibly form a surplus. Not while Donald Trump sits in the Oval, Ryan in the Speaker’s chair, and the turtle holds sway (of a sort) in the other chamber.

  4. 4
    Neldob says:

    Blessings all around you for swimming in the shark tank. So the rest of us don’t have to.

  5. 5
    Ragbatz says:

    Come to think of it, who needs CSR uncertainty to pull off this trick. Routinely approve premiums excessive to the point of fraudulence, and blame “Obamacare”; then take credit for clawing back excess profits. So, in Georgia for example, the state has reportedly approved two premium tiers – one assuming no CSR assurance and one if CSR becomes assured. Yet, even the CSR-assured rates have huge increases for 2018 over 2017.

    Query: has anyone tried to challenge, judicially, state ratemaking based on MLR noncompliance? Do the retroactive clawback provisions of the ACA impliedly preempt such challenges?

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