States Can, In Effect, Make The Treasury Pay For Cost Sharing Reductions
Many have noted that Trump has the strange idea that he can destroy the US health care financing system & people will blame Obama. I actually think he is wrong about this — many polls show that a solid majority of US adults say they will Republicans responsible (yes I know it’s unfair to think they have the responsibility just because they have all the power).
But before that comes the question of whether Republicans can destroy the ACA without repealing the bill. I think there is a weak point in their strategy (and there is no doubt this is the the Trump administration’s strategy). The Federal Government does not regulate the premiums insurance companies may charge if the participate in the exchanges. Even if only very sick people buy insurance on the exchanges, state regulators can allow insurance companies to make a profit by charging gigantic premiums. If only very sick people with income less than 4 times the poverty line buy insurance on the exchanges, then the Federal Government will pay the huge increase in premiums due to adverse selection. I don’t see any way the Trump administration can stop this without changing the law (or how they can change the law having repeatedly failed).
Already states including Oregon, California and Alaska have allowed insurance companies to raise premiums to compensate for Trump’s decision to welch on CSR payments (who would have thought Trump would refuse to fork over money that is owed ???). In particular, they are allowing increases of the premium on silver plans — the premium which determines the subsidies.
I should cite @xpostfactoid https://twitter.com/xpostfactoid who has been making this argument on Twitter.
I don’t see a limit on what state insurance commissioners could do if they decided to play hard ball. In particular, they can allow gigantic premiums without hurting people with income over 4 times the poverty line if the market segregates and some insurance companies sell only on the exchanges (to people getting subsidies) and some only directly (setting market insurance rates).
What if a regulator approved a premium of $ 1,000,000 a month ? This would create no problem for people with income under four times the poverty line — they would pay the same function of their income as now and the Treasury would pay the rest. No one who didn’t get a subsidy would come close to the exchange (or that company which is required to charge the same if it sells directly to prevent blatant fraud). Now the insurance company wouldn’t be able to keep the money — the minimum medical loss ratio of 80% means they get only 25% what health care providers get. However, unless I am confused, the excess is sent to policy holders not the Treasury.
I may be confused, but I think the only things which has been preventing this raid on the Federal Treasury are norms of fairness and a desire to not inconvenience unsubsidized upper middle class consumers by forcing them off the exchange. I’d guess the second factor is more important.
But if the alternative is a collapse of the individual market *and* Trump is, as usual, ignoring norms by not paying what is owed, then I think neither barrier will hold.
I am sure they won’t go to the blatant million dollar raid on the Treasury. But I am also sure that state regulators can (and some will) make the Federal Government bear more than 100% of the cost of Trump’s stunt.
I think this is basically correct although there were supposed to be caps on the rate of increase, gdp + 0.5% comes to mind. Changing the rules like this would seem to open that up. Also I believe allowable increases are under control of the state while subsidies are guided by law.
Look, the ACA allows for compensation for premiums based upon where you sit in relation to FPL. If you are above 400% FPL, you may be screwed if the state does not tell insurance companies they can not increase rates.
Trump’s move there is more noise than anything else. Part of it is unconstitutional and will be rejected eventually.
He is desperate like Bill Clinton was in 1993-94 to do anything. Voters wanted him to be a “modern'(acceptance of Civil Rights) day dixiecrat and he didn’t get the message until 1995. Trump may never make it to the next term with his issues, but he better take heed of what happened over Clinton’s first term. Clinton would love todays electorate; Supporting increased public investment, a “Dutch” health care system, Clinton tax rates and controlled, but steady increasing inflation adjusted spending
The cost of COBRA insurance was not very reasonable, so I have been on exchange insurance twice now. Since I found jobs again I ended up returning my 3 months of subsidies when I filed my taxes.
The point is that the individual market is not just people who are guaranteed subsidies. Dean Baker has also pointed to statistics of people voluntarily working part time as another group who use the exchange.
Dean Baker does not always get it right with his wishes, dreams, and hypotheticals. Cobra was never reasonable. Were you out of work when you received the subsidies? If so, why did you return the subsidies? What you did was an allowable reason to get insurance later than the cut off date. It is possible if your income for the remainder of the year in > 400% FPL. To me, that is a flaw. You should be allowed to keep it if out of work.