Wednesday, October 18, 2017

Cost Sharing Reductions: It's Not Sabotage. It's Not a Bailout: Part 2

In Part 1, we learned the difference between subsidies and the much misunderstood CSR's, and why ending the latter isn't a bailout. Now we learn why it's also not "sabotage:"

It's Not Sabotage

Obviously if the Government won't pay their obligation and an insurer still must offer the better level of benefits they will have to factor these expected claims costs into their standard rates. This will push premiums up substantially. Many studies have been done on the financial impact but for ease of math let's assume it will increase costs to Silver plans by 20%.

Yes, 20% is a lot. But keep in mind rate increases in 2014, 2015, and 2016 all rose by significant amounts too. We didn't hear cries of "sabotage" back then. Instead we heard "this won't impact very many people because subsidies (tax credits) will protect them from the increases." So, how is this different? It's not. In fact, because the increases are on Silver plans it will raise the tax credit amounts and reduce the costs for Bronze, Gold, and Platinum plans to those who qualify for subsidies.

This leaves one income group potentially getting the shaft on Silver plan premiums. Anyone who doesn't qualify for a tax credit/subsidy must pay full price. It's easy to assume that these people will suffer because all the discussion - even in this post - has focused for insurance plans sold ON exchange. It's true that insurers must price the same product equally both on-exchange and off-exchange. But, insurers can also offer plans off-exchange that have slight benefit variations at different prices.

Using my example above, an insurer will offer this plan both on and off exchange. The new plan without CSR funding will cost 20% more. The smart insurer will also create a plan that closely mirrors their original plan with a slight tweak - let's say a $6,200 deductible. Because this plan is only offered off-exchange the insurer doesn't have to include the 20% mark up to fund CSR risk. This solves the problem of the 400% and above person not being able to afford a Silver plan.

So, who does this hurt? Over the next 10 years CSR payments are expected to cost more than $200 billion. It's either going to come from Congress appropriating the funds or through higher premium tax credits given to consumers.

The answer is it hurts everyone. Because those in DC want to focus on political agendas and not the real problem we all suffer. Higher taxes, higher premiums, lesser benefits, market uncertainty. All will continue. Because nobody wants to focus on the 80% side of the equation. That 80% side is the actual costs of care.
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