How CSRs Could Upend Health Care

Despite affecting as many 7 million people, cost-sharing reduction subsidies are often-ignored components of the Affordable Care Act.

While premium tax credits get most of the headlines, CSRs are what stand between millions of Americans and their health care — not to mention the decisions by insurance providers whether to participate in the 2018 marketplace. The possibility of eliminating CSRs is a real threat to President Barack Obama’s healthcare legacy.

CSRs were created to help low-income Americans pay for out-of-pocket expenses at the doctor or the pharmacy. The ACA requires that insurance companies offer discounts to eligible low-income enrollees; in 2018 the government is projected to spend $10 billion funding annual CSR subsidies paid to the insurers.

The ACA requires insurers to provide CSR assistance regardless of whether the government provides subsidies. Up until now, carriers have acted as conduits for federal funding; ending the subsidies would mean insurance companies would need to finance subsidies directly, and find another way to make themselves whole again.

Certainly, carriers could choose to raise premiums across the board to offset the loss in government CSR funding. The Kaiser Family Foundation estimates that — if the federal government no longer provides CSR subsidies and insurers elect to hike premiums — average premiums would go up by 19 percent nationwide. Some estimates peg that increase at as high as 20 to 30 percent.

Ironically, such a hike in premiums would, in turn, cost the government more in tax credits. A new report from the Kaiser Family Foundation estimates that the federal government would end up paying $2.3 billion more in premium tax credits annually than it pays in CSRs (or roughly $12.3 billion total in 2018) should Congress decide not to fund CSR subsidies.

Insurance companies could also decide to simply pull out of money-losing markets, as many have done in recent years. CMS included a clause in 2017 exchange contracts allowing carriers to withdraw from markets, subject to state law, if CSRs disappear. Instead of looking for another way to fill the CSR hole, insurance companies could further destabilize markets by simply walking away.

In an April 20 letter to Congress and to President Donald Trump, a group of associations representing the healthcare safety net warned that “many issuers, particularly Safety Net Health Plans that operate with limited margins, will be forced to stop offering coverage altogether in 2017 or 2018” if federal CSR subsidies were to disappear.

The letter further warned that an end to CSRs would limit carrier options in the individual marketplace and potentially increase the cost of uncompensated care, as Americans who do not qualify for premiums tax credits are driven out of the marketplace.

The end of CSRs would have a more macro impact as well: It would send the message that Republicans don’t intend to further stabilize the marketplace while they work on repealing and replacing the ACA. With the current failure of the American Health Care Act, Republicans find themselves in the politically untenable position of needing to strengthen a law they have vowed for 7 years to repeal.

This, meanwhile, comes at the same time insurers are set to make decisions about 2018 market participation, a deadline that was pushed back until early summer by a February Trump administration rulemaking. CSRs have become a critical pawn in ensuring the existence of an ACA marketplace. And with 58 percent of ACA enrollees qualifying for cost-sharing subsidies in 2017, this issue is not going away anytime soon.

The backdrop to this, of course, is the lawsuit House GOP filed against the Obama Administration over CSR payments. Speaker Paul Ryan (R-Wis.) has indicated the House will not drop the suit (now called House v. Price) despite Republican control of the White House, pointing out that at issue is the separation of powers. Ryan says the lawsuit was in response to executive overreach in the appropriations process. For its part, the Trump Administration has indicated it will continue to make CSR payments while the lawsuit is still pending.

Republicans must now determine whether to appropriate new funds to continue CSRs and provide reassurance to insurance carriers. While it is likely Republicans will cave to intense pressure from industry to continue the CSR payments in 2018, they may not have a long shelf life in a GOP healthcare plan.

How CSRs could be ultimately replaced is a different question. With CBO projecting that the American Health Care Act would cost 24 million Americans their health care coverage, Republicans must determine how they intend to entice the participation of carriers while expanding coverage as broadly as possible.

Funding CSRs, even temporarily, may be a first step toward living up to a GOP promise of “health care for all.”

Ipsita Smolinski is managing director of Capitol Street, where she advises clients on national health care policy and emerging trends.

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