Cost-Sharing Subsidies and Healthcare Reform

Americans who rely on state exchanges for coverage expressed concerns about cost-sharing subsidies and healthcare reform when Republicans proposed their Affordable Care Act replacement bill.

Lake and her 55-year-old husband, Steven, live in Truckee, California, and rely on a program designed to reduce her out-of-pocket health-care costs. This “cost-sharing” assistance, which is paid directly to her insurer, Blue Shield of California, keeps the couple’s copayments for doctor visits at around $15 per visit and reduces their annual deductible from $10,600 to $4,700.

Whether or not the ACA is fully repealed, the loss of cost-sharing subsidies could mean the end of coverage for many people, including the Lakes. Not only would some enrollees be unable to afford treatment, but insurers would likely raise premiums or withdraw from Obamacare exchanges and even the broader individual market, according to experts.

“It’s impossible for me to plan my income and my life when everything is up in the air,” Lake said. “It worries me that insurers are going to say ‘the heck with this’ and pull out.”

Lake and others like her have reason to be concerned. During the Obama administration, House Republicans sued the federal government, claiming that payments to insurers were illegal because the funds had not been appropriated by Congress. A lower court judge concurred. It is now up to the Trump administration to decide whether to file an appeal or discontinue the payments.

House Speaker Paul Ryan said on Thursday that Republicans will not drop the lawsuit, but that the subsidies will continue until the case is resolved.

Ryan’s comments appeared to reassure some insurance industry representatives. “We are starting to see signals from back East that the intent is to continue these cost-sharing subsidies, and that’s good as we’re planning for 2018,” said Charles Bacchi, president and CEO of the California Association of Health Plans. According to his knowledge, the 11 Covered California plans are committed to providing coverage through the exchange.

According to Kristine Grow, a spokeswoman for America’s Health Insurance Plans, it would be most beneficial to the industry if the federal government funded the cost-subsidy program through the 2018 benefit year.

Because so much is at stake, the ongoing uncertainty is difficult for insurers and enrollees. If the program is maintained, insurers could lose approximately $130 billion in cost-sharing subsidies over the next ten years.

According to the journal Health Affairs, the federal government paid approximately $7 billion to insurers in 2016 to reduce out-of-pocket expenses for qualified enrollees.

Premium tax credits, which reduce the cost of monthly premiums, are not the same as cost-sharing subsidies. Only those with incomes less than 250 percent of the federal poverty level — roughly $61,000 for a family of four this year — are eligible for assistance with copays and deductibles.

If federal reimbursements for these subsidies are discontinued, insurers will most likely raise premiums to compensate, according to Erin Trish, an assistant professor at the University of Southern California’s Schaeffer Center for Health Policy and Economics. Those most vulnerable are exchange enrollees who receive little or no premium assistance, as well as the 750,000 California residents who purchase private insurance outside of the exchange.

“They would see high [premium] increases and no help,” Trish said.

Dr. Mario Molina, CEO of Long Beach, California-based insurer Molina Healthcare, agreed with her assessment: without the subsidies, the insurer would have to raise its premiums. Molina’s company serves nearly 1 million marketplace members in nine states, including California, with approximately 70% receiving cost-sharing subsidies.

Molina Healthcare received $221 million in reimbursements for these subsidies last year. If the payments were to cease this year, the health plan would be forced to withdraw from markets, according to Molina. Only the Trump administration and House Republicans can provide the answers insurers require, he claims.

“The ball is in their court,” Molina said. “They need to make some decisions, and the longer they wait, the more they are making the marketplace unstable.”

According to Wesley Yin, an associate professor in UCLA’s Department of Public Policy and Anderson School of Management, rate increases caused by the loss of cost-sharing subsidies would raise federal costs elsewhere because premium tax credits would rise. Yin calculated for Covered California that if insurers had not received the subsidies, the federal government would have paid $976 million more in premium tax credits in California in 2016.

“Here the evidence is clear that changing the payment method for cost-sharing reductions would be a bad deal for the federal government and a bad deal for consumers who do not receive [premium] subsidies,” said Peter V. Lee, Covered California’s executive director, in a statement about Yin’s analysis.

Nonetheless, some patients who receive premium assistance are concerned.

Rebekah Turnbaugh, 36, of Modesto, California, is paralyzed from the chest down due to complications from a spine surgery when she was a child. She requires medication as well as medical equipment such as catheters, which can cost hundreds of dollars per month.

According to her insurance plan, she pays $15 for an office visit that would normally cost $105 without subsidies.

“If I had to pay $105 just to go get established with a new doctor, I would do it because I need medication on a regular basis,” Turnbaugh said. But she was unemployed when she first signed up for coverage last August, so $15 was far less of a stretch. Her $650 deductible is also manageable.

“I have peace of mind knowing that I won’t have to give everything I’ve worked for to stay alive or healthy.”

This story was produced by Kaiser Health News, which also publishes California Healthline, a non-profit editorial service of the California Health Care Foundation.

Kaiser Health News (KHN) is a national news service covering health policy. It is a program of the Henry J. Kaiser Family Foundation that is editorially independent.

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