- Eliminating direct federal funding for cost-sharing reductions for health plan enrollees would raise premiums by 16.6 percent in 2018 for Silver plan consumers.
- Modeling suggests consumers who benefit from subsidies would shift to non-Silver plans.
- Overall, the federal premium-subsidy funding for enrollees would rise by an amount significantly above the current cost-sharing reduction funding.
- Enrollment in Covered California would rise slightly, while enrollment off exchange would decrease slightly, increasing the federal cost by approximately 29 percent for the same benefit to consumers.
SACRAMENTO, Calif. — A decision by federal officials to eliminate direct federal funding to reduce cost-sharing for more than 50 percent of consumers in Covered California would increase premiums substantially for Californians who buy health care in the individual market, while also resulting in higher costs for the federal government, according to new research commissioned by Covered California.
The study, “Evaluating the Potential Consequences of Terminating Direct Federal Cost- Sharing Reduction (CSR) Funding,” looked at what would happen to premiums and how consumers would react to those changes if instead of funding cost-sharing reductions through direct federal funding — as has been the case since 2014 — health plans were required to build the costs of such subsidies into their premiums. The study found that consumers in the individual market who are enrolled in Silver plans, both inside and outside of Covered California, would see their prices rise 16.6 percent.
In addition, since the calculation for Advanced Premium Tax Credits (APTC) is based on the cost of the second-lowest-priced Silver plan, any increase in premiums would also result in an increase in the amount of tax credits that help consumers pay for their premiums. The study found that eliminating cost-sharing reductions and requiring health plans to build the costs into premiums in 2018 would increase federal expenses by $221 million, or 29 percent, because the new amount of APTC would be significantly greater than what the government currently pays directly in cost-sharing.
“Covered California commissioned this report as part of our effort to plan for the future and provide concrete analysis of the real-world impacts of the policy alternatives being considered on consumers and the federal budget,” said Peter V. Lee, executive director of Covered California. “This report underscores the importance of making policy choices informed by evidence. 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 subsidies.”
Funding to reduce cost-sharing is one of the two ways that health care is made more affordable through federal financial assistance. The first way is to provide premium assistance in the form of a tax credit (the Advanced Premium Tax Credit), which eligible consumers receive in the form of a monthly reduction to the premium they would have paid for private insurance. Nationally about 85 percent of consumers with coverage through marketplaces receive the tax credit, and about 90 percent of consumers enrolled through Covered California receive this benefit.
Reducing cost-sharing lowers out-of-pocket costs for consumers once they are enrolled and getting care, with the size of the reduction based on the consumer’s income. The rationale behind reduced cost-sharing is the recognition that lower-income individuals would avoid needed care if faced with higher out-of-pocket costs, given their income.
Cost-sharing reductions are available to Covered California consumers who earn between 138 percent and 250 percent of the federal poverty level. These funds help lower-income enrollees increase their access to care by lowering their copays, coinsurance, deductibles and maximum out-of-pocket costs. For example, a consumer who enrolls in a typical Silver plan would pay $45 for a primary care visit, while a consumer with reduced cost-sharing could pay as little as $5. As of June 2016, more than 678,000 consumers — about 50 percent of total enrollment — were enrolled in a Covered California Silver plan with reduced cost-sharing.
The study, which was conducted by researchers from the University of California, Los Angeles, looked at the potential impact of the Department of Health and Human Services dropping the appeal of a 2014 lawsuit initiated by members of the U.S. House of Representatives.
This study is the first of its kind by a state-based exchange to examine the impact of such a move on consumers and on federal spending.
The study can be found here: http://coveredca.com/news/pdfs/CoveredCA_Consequences_of_Terminating_CSR.pdf.
Also on Thursday, Covered California released an analysis of repealing the Affordable Care Act without replacing it.
“This in-depth analysis underscores the importance of not having disruptions to the market that would cause imminent harm to consumers,” Lee said. “And it is also helping us look ahead to 2018 and beyond.”
The analysis can be viewed here:
For health coverage in 2017, Covered California is continuing open-enrollment efforts through Tuesday, Jan. 31.
Consumers interested in enrolling online can do so on CoveredCA.com. They can also get free and confidential in-person assistance, in a variety of languages, by clicking on “Free Local Help to Enroll.” They can find a nearby enroller or have a certified enroller contact them through the “Help on Demand” feature. Consumers can also enroll over the phone by calling Covered California at (800) 300-1506.
About Covered California
Covered California is the state’s health insurance marketplace, where Californians can find affordable, high-quality insurance from top insurance companies. Covered California is the only place where individuals who qualify can get financial assistance on a sliding scale to reduce premium costs. Consumers can then compare health insurance plans and choose the plan that works best for their health needs and budget. Depending on their income, some consumers may qualify for the low-cost or no-cost Medi-Cal program.
In addition, small business owners can purchase affordable health insurance for their employees through Covered California for Small Business.
Covered California is an independent part of the state government whose job is to make the health insurance marketplace work for California’s consumers. It is overseen by a five-member board appointed by the governor and the legislature. For more information about Covered California, please visit www.CoveredCA.com.