Health Reform WK-EDGE Why is no one swimming in the risk pool?
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Friday, July 20, 2018

Why is no one swimming in the risk pool?

By Bryant Storm, J.D.

Following countless attempts (some successful, some theatric) to overhaul or repeal the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), health reform is in an odd place. Many of the ACA’s landmark provisions—the individual mandate, Medicaid expansion—have been repealed or altered so significantly that the law is no longer functioning as designed. This Strategic Perspective evaluates the current state of the ACA, focusing specifically on those provisions which pertain to spending and revenue (the individual mandate, cost-sharing reductions (CSRs), and risk corridors). Wolters Kluwer reached out to Layna Rush, a shareholder with Baker Donelson, to discover how recent changes have altered the effectiveness of the ACA and what the future looks like for the law.

Individual Mandate

Section 1501 of the ACA created the individual mandate (26 U.S.C. §5000A(a)), which requires individuals to pay a tax if they do not maintain minimum essential health coverage. The provision was considered essential to ensure an adequately large risk pool. explained that "insurance is a risk spreading mechanism; having more individuals—particularly more healthy individuals—participate in health care coverage, lowers the overall cost of coverage. The individual mandate was included in the ACA as a means of encouraging more individuals to obtain coverage, thereby lowering the overall cost of coverage."

However, on December 22, 2017, President Trump signed The Tax Cuts and Jobs Act (P.L. 115-97) which effectively repealed the individual mandate by making any required payment $0 (see Tax Cuts and Jobs Act, effectively repealing individual mandate, signed by Trump, January 10, 2018). Subsequently, on June 7, 2018, Attorney General Jeff Sessions notified Paul Ryan, Speaker of the House of Representatives, that, with the approval of Trump, the Department of Justice (DOJ) will not defend the constitutionality of individual mandate in a case challenging the provision as unconstitutional (see Sessions announces DOJ will not defend the constitutionality of the individual mandate, June 13, 2018).

Rush said, "If the individual mandate is repealed, then, theoretically, the incentive for healthy individuals to enroll in health care coverage diminishes." This is a problem she explained, because, "when it is primarily those who are unhealthy (and thus, have an immediate need for health care coverage) enrolling, it will drive up the cost of coverage."

Cost-Sharing Reductions

"The ACA was designed to extend access to health care coverage to more Americans, in part, by making it more affordable," Rush explained. One of the provisions of the ACA designed to make coverage more affordable, she noted, is "the CSR provision, which require insurers in the marketplaces to offer health plans with reduced deductibles and copayments for those with incomes at 100 to 250 percent of the poverty level." Under the CSR program, Rush said, "insurers would then be compensated by the federal government for the cost of offering these plans."

Specifically, section 1402 of the ACA allows for reduced cost sharing for individuals enrolling in qualified health plans (QHPs). The HHS Secretary determines whether an individual enrolled in a QHP is eligible for a CSR based on his or her annual income and family size; the Secretary then notifies the issuer of the plan of that eligibility, and the issuer reduces cost sharing under the plan. After the reductions are made, the plan issuer notifies the Secretary, who "shall make periodic and timely payments to the issuer equal to the value of the reductions."

According to the Trump Administration, the ACA makes no specific appropriation for payments under Section 1402. Accordingly, on October 12, 2017, CMS Administrator, Seema Verma, announced the discontinuation of CSR payments. (see Trump terminates CSR payments, October 18, 2017). Insurance companies urged the administration to continue payments and threatened to withdraw from the ACA exchanges or increase premiums to account for the lost payments.

Rush warned, "the discontinuation of the payments to the insurers will most likely result in more insurers withdrawing from the marketplaces. In several states, there are already only one or two insurers participating in the marketplaces. If insurers are not willing to participate, the marketplaces cannot remain viable." The collapse of programs like the CSR program means not only the failure of the marketplaces but also a lack of affordable options. Rush said, "many of the ACA’s provisions designed to make coverage more affordable, such as subsidies and cost-sharing reductions, are only available for plans purchased through the marketplaces."

Risk Corridors

Section 1342 of the ACA created the temporary risk corridor program to provide issuers with protection against uncertainty resulting, in part, from the prohibition against denial of enrollment to individuals based upon preexisting conditions. The risk corridor program was designed to achieve that end by limiting issuers’ losses and gains for calendar years 2014 through 2016. Section 1342(b)(1) requires the HHS Secretary to make payments to QHPs that suffer losses above a set amount, while §1342(b)(2) requires QHPs experiencing gains above a set amount to make payments to the Secretary.

Lawsuits. A number of insurers have filed lawsuits related to the risk corridor program. For example, Humana filed a lawsuit seeking $611 million in payments filed lawsuits against the federal government seeking money owed under from the federal government for benefit years 2014 through 2016. According to Humana, the government’s "unilateral decision" to pay only a fraction of what it owes violates the language of §1342 of the ACA (see Humana sues government for $611M in risk corridor payments, November 8, 2017).

In a case filed by Moda Health Plan, Inc., a court recently found that the government was liable for annual risk corridor payments. In another case, a court granted class certification and denied the government’s motion to dismiss on jurisdictional grounds, finding that HHS was required to make annual risk corridor payments to insurers. With no current appropriations for risk corridor payments and ongoing attempts to repeal the ACA, however, it is unclear if, and how, HHS will make the payments (see When will insurers receive risk corridor payments? February 15, 2017).

Rush noted that "the risk corridor program is another mechanism in the ACA that was intended to support the marketplaces by promoting stability." She explained, "because insurers who experienced losses have not received payments from the federal government and are not likely to receive them given recent rulings by the courts, more insurers will likely make the decision to withdraw from the marketplaces."

Change or Collapse?

The ACA is on unstable footing. The revision and repeal of significant revenue provisions (the individual mandate, the risk corridor program, and CSRs) has undermined marketplace participation and risk pool stability with detrimental consequences for the future of the law. When asked about the future of the ACA, Rush said, "the ACA’s insurance provisions were intended to work together to both expand health care coverage and make it more affordable. Like the game of Jenga®, remove too many pieces and the construction collapses. After unsuccessful attempts at a wholesale repeal and replace, those who oppose the ACA are undermining its viability by removing key pieces or provisions. While portions of the law may remain, the ACA is not the construct that it was intended to be."

Yet, despite dramatic changes to the law, the ACA continues to provide insurance for a significant portion of the country. If the entire ACA were eliminated, the number of uninsured would increase by 50 percent, or 17.1 million people, in 2019, according to an analysis by the Urban Institute (see 17 million would lose insurance under full repeal of ACA, June 20, 2018). Thus, while the law is in a state of turmoil, it continues to serve some of its intended purpose for millions of individuals. At present, however, it is unclear how policymakers should proceed to ensure the law remains viable. Rush said, "key elements of any plan to improve the law should identify means of competition in the insurance market and getting more healthy people into the insurance pool."

Attorneys: Layna Rush (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC).

Companies: Humana; Moda Health Plan, Inc.

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