By Justin Giovannelli and Sabrina Corlette
In spite of concerns raised by health experts and Democrats, Congressional leaders may be inching towards a deal to temporarily fund the Affordable Care Act’s (ACA) cost-sharing reduction (CSR) subsidies in an end-of-year legislative package. To win support for the pending tax bill and its repeal of the individual mandate, Senate leaders have reportedly agreed to pass ACA-related legislation developed earlier this year by Senators Lamar Alexander and Patty Murray. In addition to funding CSRs for two years, Alexander-Murray would also loosen rules governing the ACA’s 1332 waiver program, broaden eligibility for catastrophic plans, and set aside additional dollars for state outreach. Originally conceived as a bipartisan market stabilization bill at a time when it seemed that repeal of the ACA’s core provisions was off the table, Alexander-Murray is projected to have a limited ability to improve health insurance markets if the individual mandate penalty is repealed. (In fact, because most states responded to the President’s decision to discontinue funding for CSRs by adopting policies that insulated consumers and lowered the after-subsidy cost of many plans, passage of Alexander-Murray’s CSR provisions would amount to a cut in financial assistance that would leave many people worse off.)
Quick Action Required of States If Alexander-Murray Passes
Alexander-Murray requires states to make some quick decisions about an issue that many thought they had already put to bed. As noted, the bill in its current form funds CSRs in 2018 and 2019. But states have already had to make decisions regarding the 2018 plan year: in the face of repeated threats by the administration to stop paying for CSRs, most states required (or encouraged) insurers to assume the payments would cease and instructed them to add the CSR shortfall onto the premium rates for silver plans (usually, only the silver plans sold on-marketplace).
Should CSRs now be funded, what was once a shortfall might become a windfall, as many insurers would be paid twice for the cost of these plans. Alexander-Murray takes account of this by requiring states to design a rebate program for insurers to return the excess payments.*
No later than 60 days after the enactment of the bill, states must certify that they will ensure that each marketplace insurance carrier provides “a direct financial benefit” to the federal government and affected consumers, and must provide federal officials with a plan for making good on this assurance.
State plans may require insurers to pay rebates to affected consumers and the federal government (1) in monthly installments; (2) in a one-time payment; (3) after year-end; (4) via the rebate process required under the ACA’s medical loss ratio provisions (with a portion of the rebate going to the federal government)**; or (5) by other means approved by the state insurance regulator.
In general, rebate programs can be complex to administer and burdensome for states and insurers alike. It may be worth exploring whether the fifth option—allowing insurance departments authority to use “other means” to provide a “direct financial benefit” to affected consumers and the federal government—would allow states to dedicate the funds to a reinsurance program that lowers premiums for individual market consumers and the premium tax credit obligations of the federal government.
Regardless of the route they choose, states must provide prominent notice to enrollees that they may qualify for a rebate or other similar benefit and explaining how they will be provided. States must also ensure that carriers do not distribute their rebates in such a way as to create an inducement to buy coverage from that insurer.
End-of-year legislative maneuvering has already put states in a difficult position, particularly over the future of the Children’s Health Insurance Program. With the potential repeal of the insurance mandate and policy changes on the horizon from the administration that may undermine the individual market, states may be in the hot seat to develop their own incentives to encourage a balanced risk pool. Requiring states to develop a rebate program to undo the effects of yearlong policy uncertainty at the federal level will give state officials still more to think about.
* Any state that, prior to the enactment of Alexander-Murray, directed its insurers not to accept federal CSR payments in 2018 is excused from the obligation to develop a rebate plan. It appears at least one state may fall into this category.
**The ACA’s medical loss ratio rebate program is operated by the federal Department of Health & Human Services; how a state would implement this option is unclear.