Distributional consequences of widening AV bands

One of the major proposals in the draft Center for Medicare and Medicaid Services (CMS) rule that was released on the 15th is to increase the de minimas allowed actuarial value band.  Currently the regulation allows a plan to be included in a metal band if it is within two Actuarial Value (AV) points of the target band for normal bands, and within a point in either direction for the targeted Cost Sharing Reduction Silver plans.  So that means a standard Silver plan which should be a 70% AV could be anywhere from 68% AV to 72% AV.  The proposed modification would allow for a plan to qualify for a band if it was no more than four points below or two points above the target.  A Silver plan would be anywhere from 66% AV to 72% AV.

All else being equal, a lower AV means a slightly lower premium.  It also means higher out of pocket spending for patients. But all else is seldom equal so things can get messy.

This has significant distributional consequences.  And these consequences are not entirely straightforward as the individual market is a complex market.  Let’s start looking at the easiest scenarios and then build in complexity.  We will need to divide the analytical units into four groups.  The vertical split of a 2×2 grid are people who either have met their out of pocket limit or have not incurred sufficient claims to meet their out of pocket limit.  The horizontal split is between people who receive premium tax credits that are keyed to the price of the second Silver and people who are not receiving premium tax credits and thus pay the full premium out of pocket.

We will only look at individual beneficiary consequences.

The simplest scenario to analyze is a market that has converged with multiple carriers.  Indianopolis, Indiana is a good example.  There are two carriers that currently offer Silver plans with 68% AV with similarly narrow networks and very similar pricing.  The strategic logic of that situation will have both carriers offer Silver plans that would be near 66% AV as soon as they could.

That produces a nice simple outcome matrix:

Individuals who are receiving subsidies and have significant claims that matched their out of pocket maximum under a 68% AV Silver are indisputably worse off. They will face higher cost sharing. If all cost sharing is from deductibles (an oversimplification), they will go from having a $4,400 deductible to a $4,850 deductible. They do not benefit from lower premiums as the federal government is the risk bearer and reward recipient of lower premiums as the subsidy formula is based on the federal government filling in the gap between the calculated individual contribution as determined by income and the cost of the second least expensive Silver.

Individuals who have not met their out of pocket maximum and are subsidized for a 68% Silver will still not meet their out of pocket maximum and their post-subsidy premium will not change. They are indifferent.

Individuals who are not subsidized and who meet their out of pocket maximum are almost always worse off. They have a small gain in lower premiums (2% drop in AV leads to a 2.4% premium drop on first estimate) but higher cost sharing. There is a small sliver of individuals whose costs above current cost sharing is less than the premium drop. But this is a sliver of people whose total costs are within $100 of the current out of pocket maximum.

The big winners of this change from a beneficiary point of view are individuals who are not subsidized and who are under the out of pocket maximum. They have no incremental cost sharing and they have lower premiums. If the non-subsidized market is extremely price sensitive this will bring in more healthy individuals as prices will fall slightly.

This is the simplest scenario. This intuition should serve people well, but things will get complicated.
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Of Course It Would Be the Saudi Government, and Lobbying for Such A Fine Cause, Too…

A lobbying firm working for Saudi Arabia paid for a room at Donald Trump’s Washington hotel after Inauguration Day, marking the first publicly known payment on behalf of a foreign government to a Trump property since he became president.

Qorvis MSLGroup, a communications firm that lobbies for the Saudis, has been organizing veterans and other activists to come to Washington to urge Congress to repeal the law letting 9/11 victims’ families sue the kingdom. Between 20 and 40 veterans, with the assistance of the advocacy group NMLB, stayed at the Trump International Hotel on Pennsylvania Avenue in December and January.

One of those veterans checked in on Jan. 23 and left on Jan. 26 at a rate of $250 to $325 a night plus tax, according to NMLB president Jason Johns. The bill was paid by Michael Gibson, a subcontractor to Qorvis representing the Saudis, according to disclosures filed with the Justice Department.

The Emoluments Clause of the Constitution prohibits U.S. officials from receiving payments from foreign governments. Lawyers started warning about the potential for violations at Trump’s Washington hotel and overseas properties after he won the election, but the clause didn’t start applying to Trump until he took office on Jan. 20…

“The problem with Donald Trump’s constitutionally forbidden foreign government cash and other benefits is not just that any one particular payment is problematic — it’s also a systemic problem,” said Norm Eisen, who was President Barack Obama’s ethics czar and is now part of a lawsuit accusing Trump of violation the Emoluments Clause. “It’s another tile in the mosaic of unconstitutional behavior.”…

Before the inauguration, Kuwait and Bahrain held events at the Trump hotel, and other foreign diplomats reportedly patronized it to curry favor with the incoming president.

Trump leases the building for the hotel from the General Services Administration, part of the executive branch. Democrats are pressuring the agency to evict Trump because a line in the contract prohibits it from benefiting an elected official. Trump’s lawyer and some contracting experts dispute that interpretation.

Shortly after his inauguration, Trump replaced the agency’s designated temporary chief with his own pick.

America’s Food Sourcers: The Common Clay of the New West

Actually, I don’t think the farmers in the following articles are idiots — they’re just ideologues. To the point of religious obsession. Sure, superior people like us are motivated by monetary rewards, but you can’t expect dumb minimum-wage workers to respond to such refined incentives!…

From the NYTimes, another sad story of Trump supporters who took him seriously-not-literally — “California Farmers Backed Trump, but Now Fear Losing Field Workers“:

MERCED, Calif. — Jeff Marchini and others in the Central Valley here bet their farms on the election of Donald J. Trump. His message of reducing regulations and taxes appealed to this Republican stronghold, one of Mr. Trump’s strongest bases of support in the state.

As for his promises about cracking down on illegal immigrants, many assumed Mr. Trump’s pledges were mostly just talk. But two weeks into his administration, Mr. Trump has signed executive orders that have upended the country’s immigration laws. Now farmers here are deeply alarmed about what the new policies could mean for their workers, most of whom are unauthorized, and the businesses that depend on them.

“Everything’s coming so quickly,” Mr. Marchini said. “We’re not loading people into buses or deporting them, that’s not happening yet.” As he looked out over a crew of workers bent over as they rifled through muddy leaves to find purple heads of radicchio, he said that as a businessman, Mr. Trump would know that farmers had invested millions of dollars into produce that is growing right now, and that not being able to pick and sell those crops would represent huge losses for the state economy. “I’m confident that he can grasp the magnitude and the anxiety of what’s happening now.”…

Dude, the old man can barely grasp how to work a light switch. You think he cares about your troubles, now that he’s sitting in the Oval Office (possibly in the dark)?
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Sunday Morning Open Thread: Stupor Bowl?

I’m not a sports-minded person, but it seems to me that I’ve seen a lot less Superbowl hoopla than in previous years. (Leaving aside the local tv news channels, which are kind of obligated to whoop for the home team, even though Tom Brady’s Patriots represent the ugly Masshole underbelly that us proudly-blue-state Dems prefer not to discuss in public.)

The notoriously pricy advertising still draws the desired publicity, though. From the NYTimes, “Challenge for Super Bowl Commercials…”:

… 84 Lumber, a private supplier of building materials in Pennsylvania that is advertising during the game for the first time this year, said it was forced to alter its plans for a commercial after Fox deemed its depiction of a Spanish-speaking mother and daughter confronting a border wall between the United States and Mexico, which President Trump has pledged to build, as “too controversial.”

The ad, slated to run before halftime during the network’s broadcast of the game on Sunday, will now showcase the pair on a journey, but omit the wall. Instead, the address of a website will appear on the screen, giving viewers a chance to see how their story ends.

“I still can’t even understand why it was censored,” Maggie Hardy Magerko, 84 Lumber’s president and owner, said in an interview this week. “In fact, I’m flabbergasted by that in today’s day and age. It’s not pornographic, it’s not immoral, it’s not racist.”…

Well, there’s yer problem, lady — this is Donald Trump’s America! (/snark)

… “We review spots to ensure they do not violate our advertising policies,” a league spokesman, Brian McCarthy, said in an email. “The ad that will air does not violate our policies.” He did not say if the N.F.L. had asked for 84 Lumber’s original commercial to be altered…

But with political tension in the country running high since the election of Mr. Trump, keeping politics completely away from the broadcast is a difficult task.

Budweiser, for instance, has gained notice it wasn’t anticipating for its Super Bowl ad. The commercial, which was released online this week and has passed two million views on YouTube, recounts how the brewery’s co-founder immigrated to the United States from Germany in the 1800s and notes the discrimination he overcame. Budweiser has emphasized that it is not responding to Mr. Trump’s immigration crackdown last weekend…

… It has become a marketing strategy of sorts over the years to intentionally create a Super Bowl ad that will never make it to air, then capitalize on online traffic. But Ms. Magerko said that was not 84 Lumber’s plan, noting that the company is still showing the edited 90-second spot that Fox has approved…

As for immigration and the wall, “We didn’t know this was going to be the hot topic six weeks ago,” Ms. Magerko said. “We knew it was a topic. We didn’t know it was the topic.”

Early Morning Open Thread: Nepotism Leads to Neoteny

An organism relentlessly protected from the normal stresses that led to maturation will never seem quite… finished. Young Donald Trump never looked as adult as his old man, and the devolutionary process continues with the next generation…

Reminder: Jared Kushner’s greatest accomplishment, to date, is being born a member of the Lucky Sperm Club. If his (convicted felon) daddy hadn’t made a bunch of money ‘developing’ real estate, Jared would be just another rodent-faced hustler in the Big Apple.

Incidentally, there’s a rumor going around that the President-Asterisk is feuding with Arnold Schwarzenegger because he wanted Ivanka to replace him on Celebrity Apprentice. Which I frankly do not believe, because either she’d tank in the ratings — and she’s the only person not named Vladimir Putin that Donald seems to genuinely like — or she’d do better than the old man, which would be an unimaginable insult to Lord Smallgloves’ tender ego.

Open Thread: Trump Prepares to Pay Off His Donors

The President-Asterisk may have a long history of cheating the people who work for him, but he’s not gonna stiff the people he works for

Via Joy-Ann Reid, from the Daily Beast, “Trump Just Declared Open Season on Suckers“:

If the 2016 election was a national litmus test to see just how many suckers live in this country, the next round of President Trump’s executive orders are going to make sure those millions of suckers are taken for every last penny…

One of Trump’s two executive orders today calls for a review of Dodd-Frank Law, a rule that was put in place in the thick of the recession of the aughts. It was supposed to be the law that represented the lessons we’d learned from the 2008-2009 financial crash. Lessons, one would hope, that would have lasted more than the average run of a successful sitcom.

At Dodd-Frank’s inception, this country was experiencing the most dire financial crisis since the Great Depression. Overzealous financial institutions had created and traded billions in securities made of underlying assets-—mortgages and credit-related products—that were valued based on wildly quixotic assessments of consumer creditworthiness. It wasn’t until these credit-backed products had become major components of massive portfolios, like pensions and hedge funds, that anybody realized that they were essentially valueless. The markets took a nosedive, Bear Stearns went ass-up, Lehman was shuttered, Merrill was sold. The American taxpayer subsidized all of it…

Trump’s other Executive Order is more insidious, somehow, than “doing a number” (his words) on Dodd-Frank. The President is planning on ordering the Labor Department to roll back the Obama administration’s “fiduciary rule,” which was supposed to take effect this April.

The rule would have required brokers and agents who manage retirement accounts to provide advice to their clients based on what would be best for the clients, rather than what’s suitable. This means that if a broker is considering two suitable investment vehicles for clients, but one makes him a fat commission and the other doesn’t but has slightly better prospects for the consumer, there’s nothing stopping him from pushing the client in the direction of the one that earns the commission. As long as they’re both “suitable.” …

With the number of people reaching retirement age growing by the year, these two moves by Team Trump are troubling signs of what might be to come. Thanks to the fact that many Americans who are now approaching retirement age entered adulthood when it was possible for young people to buy homes, many of them have spent decades passively amassing wealth as the value of their homes swelled. Their retirement accounts have more than recovered from the market troughs of 2008 and 2009. They’ve got more money than they’ve ever had, which means they’re more vulnerable to be fleeced than they’ve ever been….

Good news through the lack of bad news

One of the first potential blow-up points for the ACA in the Trump Administration was today. Insurers are required to offer lower deductibles and cost-sharing to people who buy on-Exchange policies and who make less than 250% of the Federal Poverty Level. This is the Cost Sharing Reduction (CSR) subsidy. Insurers offer the better product and the Federal government pays the insurers on the back end for the increased value of the Silver plan.

There is a lawsuit (House v. Burwell which will be renamed) that the District court judge ruled that the House’s argument that the CSR subsidies were discretionary spending that had not been appropriated was correct instead of accepting the Obama administration’s argument that the spending was mandatory and thus automatically appropriated. It has been appealed by the Obama Administration and once the administrations changed, the Appeals Court granted a delay in the appeal as the Trump lawyers figure out what they want to do.

However, the current CSR system where money goes out the door to pay insurers is based on administrative interpretation of the law. At any point in time, the Administration could decide to re-interpret the law and agree with the House that the funding is discretionary and that there is no money available to legally pay the insurers.

As I outlined in early January, this would blow up the Exchanges:

CMS in their 2017 QHP contracts allowed carriers to pull products from the market if the CSR subsidies disappear and it looks like that would be the plan of CHC to pull their Silvers….Carriers have to offer Silver plans to participate on Exchange. If they yank all of their Silvers, they have to yank everything on Exchange.

And carriers will flee if CSR disappears as they will not eat a 30% revenue loss for a high cost population in a market that they don’t know if it will be around long enough to actually make money on.

So far there is no executive order or administrative re-interpretation of the CSR funds.

This is good news. The markets and the plans survive for another month.