A ruling in favor of the Republican-led House of Representatives in its lawsuit challenging the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) cost-sharing reduction (CSR) payments could cost the federal government $47 billion over 10 years. An analysis funded by the Urban Institute that examined the implications of a favorable ruling for Republicans in House of Representatives v. Burwell, also determined that such a ruling could eventually cause insurers to pull out of the marketplace altogether.
Cost-sharing reductions. Sections 1401 and 1402 of the ACA establish two programs to assist individuals in affording their health insurance. Section 1401 provides for a refundable tax credit to assist with premiums for qualified health plans. Section 1402 allows for CSRs for certain individuals enrolled in qualified health plans, which reduce copayments, deductibles, and out-of-pocket maximums. When an individual is eligible for CSRs, the HHS Secretary notifies the insurer of the enrollee’s eligibility and the issuer will reduce the cost sharing in its plan. The insurer is then reimbursed by the federal government for the reductions.
The House filed suit alleging that the ACA’s cost-sharing reductions payments to insurers are invalid because Congress did not appropriate the funds (see Did Obama steal Congress’ purse? The House’s case against the Administration, September 30, 2015).
Impacts. Using the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM) to determine the effects of eliminating federal reimbursement of CSRs, the study’s authors concluded that a ruling could cost the federal government $3.6 billion in 2016 and $47 billion over the next ten years. The ACA requires insurers to provide low-income enrollees with CSRs regardless of whether the federal government reimburses them. Therefore, it was assumed that, in the absence of federal reimbursement, insurers would build the costs of the reductions into premiums for marketplace silver plans. As a result, it is estimated that the silver plan premiums would increase by $1,040 per person, on average, which would make them cost more than gold plans. The higher premiums would lead to higher federal payments for tax credits, which are tied to the second-lowest-cost silver plan premium.
Additionally, enrollment in the marketplace would decrease by one million people because less expensive coverage would be available elsewhere. However, the study also found that the number of uninsured would decrease by 400,000 as tax-credit-eligible individuals would likely take advantage of the ability to purchase better insurance.
Uncertainty. The authors note, however, that it is uncertain whether insurers would continue to offer marketplace coverage if the court finds in favor of the House because the timing of such changes could disrupt already established, approved premiums and would cause insurers to suffer financial losses and “chaos” for enrollees. Therefore, the timing of the ruling would likely significantly impact insurer response. Even if insurers are allowed to modify their premiums, they may still leave the marketplace due to continued litigation and lack of certainty about continued litigation and unpredictability in costs.
Companies: Urban Institute
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