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.

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