Cost Sharing Reductions: Has Congress done the math?

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​Congress is debating whether to shut off Cost Sharing Reductions under the ACA, but what will that cost taxpayers and the insurance marketplace in general?

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There’s been a lot in the news recently about #45 threatening to defund the Cost Sharing Reductions (CSRs) under the Affordable Care Act.  But this didn’t start with him, it started in the U.S. House of Representatives during the Obama administration. 

Under the ACA, the CSRs were included to help lower income Americans afford health services.  These are in addition to the Advanced Premium Tax Credits (aka Subsidies), which help lower income Americans afford health insurance premiums.  
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To make a long story short, the House sued HHS stating that the Cost Sharing payments should not be made to insurance companies without an explicit appropriation by Congress.  The District judge agreed, HHS appealed, and payments are still permitted while waiting for the appeals process to make its way through the courts. 
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Most people have heard of the Federal Subsidies to help individuals purchase coverage on State Exchanges.   But few realize that there are also Federal dollars flowing to insurance companies to reimburse them for lowering the “Cost Share” out-of-pocket expenses low-income Americans need to pay when they actually seek care.  

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Household Income	Plan Must Pay On Average
Native Americans	100%
100% to 150% ​of FPL	94%
150% to 200% ​of FPL	87%
200% to 250% of FPL	73%
Over 250%  ​of FPL	70%

​Under the ACA, insurance carriers are required to bump up their average “actuarial” coverage of incurred claims. 

This only applies to Silver individual plans for those with household incomes from 100% to 250% of the Federal Poverty Level, as well as for Native Americans. 

This “Cost Sharing Reduction” must include a reduction to the plan’s out-of-pocket maximum, and can include any combination of lower deductibles, copays, and coinsurance.  

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Let’s do the math

According to the Kaiser Family Foundation, over 6.4 million people were enrolled in a plan with CSRs in 2016.  In Washington State, there were:

• 158,245 people enrolled through our State Exchange
• 110,476 received subsidies to help pay for premiums (69.8%)
• 66,083 received CSRs to help pay for the cost of care (41.8%)

What would shutting off the CSR spigot do to the individual marketplace?  It could spook carriers into jumping ship and no longer offering individual coverage.  For carriers that remain, it will most definitely result in rate increases, which, according to Kaiser will most likely average over 19% nationally (this is over and above any annual increase that will already be needed).  Depending on how many carriers leave the marketplace, this estimate could go much higher.

And that’s where the numbers fall apart for #45 and the House.  Both Subsidies and Cost Shares are paid by the Federal Government.  If the Feds pull the Cost Share funding, then rates increase. If rates increase, then the Feds will end up shelling out more in Subsidies.  Would there be any true savings in the end if Congress kills funding for the CSRs?  In fact, Kaiser calculates that there would actually be an increase in costs.  To the tune of $2.3 billion in 2018 and a whopping $31 billion from 2018-2027. 

Given those numbers, any reasonable person wouldn’t mess with the Cost Sharing Reductions.  And it’s not only the cold hard cash. It is the individual market stabilization that is at risk, and it won’t just affect lower income Americans. It will affect everyone currently enrolled on individual coverage as well as future enrollees. 

Will reason prevail?