Cost-Sharing (Reductions), Employee Benefits Compliance, Marketplaces, Subsidies

Cost-Sharing Reductions (CSRs): What Are They? And What’s the Big Deal About Them?

“CSRs” (cost-sharing reductions) have been in the news a lot lately, especially if you have been watching the Senate HELP Committee hearings on stabilizing the individual health insurance market. Some of you may be wondering what the heck they are, while others know what they are but don’t understand why they are such a big deal in the healthcare reform debate. This article briefly summarizes what they are and what the issues and the lawsuit are all about.

Spoiler alert: The bottom line is:

  • Without the CSRs, lower-income people could not afford health insurance, and
  • As long as health insurers don’t know if they will be reimbursed for the CSRs they are required to offer, they won’t know what premiums to charge for their insurance products, and many will raise rates significantly or pull out of the Marketplace/Exchange.
  • Update:  On October 12th the White House and HHS issued announcements that the federal government will discontinue CSR reimbursements to insurers, effective immediately.  On October 13th the Attorneys General of 18 states and the District of Columbia filed suit in the Northern District of CA asking the court to require the federal government to continue CSR payments.  It remains to be seen whether Congress will pass legislation to continue these payments. 

What is a CSR?

“Cost-sharing” is the amount individuals enrolled in health insurance pay toward their health insurance coverage, other than premiums. Examples of cost-sharing include co-pays, coinsurance and deductibles. Combined, these add up to the “out-of-pocket maximum” – the amount an individual must pay before the health insurance policy starts paying 100% of the cost of “allowable” expenses.

A cost-sharing reduction (CSR) happens when the out-of-pocket maximum is reduced for lower-income individuals as per the Affordable Care Act (ACA). Specifically, people with household incomes less than 250% of the federal poverty level pay reduced co-pays when they go to the doctor, have a lower deductible, , and a lower out-of-pocket maximum before the insurance policy starts paying 100% of the costs.

What’s the Issue with CSRs?

These lower cost-sharing amounts are only possible because the true cost is subsidized by other taxpayers. Insurance companies are not charitable organizations and they are not offering reduced co-pays and deductibles to lower-income people just because they think that would be “fair.” They are offering them because they are required by the ACA to do so and because the ACA provides that the insurance companies will be reimbursed by the federal government for the reduced cost sharing amounts.

This is where there is an issue. The Republicans in the House of Representatives filed a law suit in November 2014 (House v Burwell) alleging, among other things, that the ACA had not legitimately “appropriated” the money to reimburse insurance companies for the cost-sharing reductions. The lawsuit sought to stop (enjoin) the federal government from reimbursing insurers for these cost-sharing reductions. (See below for additional detail on authorization and appropriation bills.) A federal judge agreed with the House Republicans, but under President Obama the federal government continued to allocate the funds and reimburse insurers for the CSRs. The lawsuit is now called House v Price because Tom Price is the current Secretary of Health and Human Services (HHS).

Why CSRs are a Big Deal in the Health Care Reform Debate

While the ACA does require insurers to provide cost-sharing reductions and does specify who is eligible for them, what the lawsuit alleges the ACA does not do is appropriate the funds the federal government needs to reimburse insurers for the required CSRs. Under President Obama the federal government reimbursed the insurers for CSRs, but President Trump has repeatedly said he might not authorize those payments – which he refers to as “bailouts” for insurance companies – and has suggested the government should let Obamacare fail under its own weight.

All this uncertainty has caused turmoil for insurers. If insurers don’t know whether they will be reimbursed for the CSRs (which the Congressional Budget Office estimates will total about $7 billion in 2017), they can’t estimate their costs, so they don’t know what premiums to charge. That’s why some insurers have pulled out of the Marketplace and others threatened to but some stayed (or new ones entered) in the final weeks this summer, and most have increased their premiums, often dramatically.

One way the Centers for Medicare and Medicaid Services (CMS) dealt with this problem was by allowing insurers to submit two sets of rates: one if they will be reimbursed for CSRs, and the other if they will not. In many states the difference in rates was 15-20%. This was on top of rate increases due to medical inflation, which often averaged 4-10%.

The continuing uncertainty has resulted in another wrinkle – the ever changing deadline to submit rates for the 2018 Marketplace open enrollment, which begins November 1, 2017. The original deadline was May 3, 2017, for policies to be effective January 1, 2018. In February that deadline was delayed until June 21, and subsequently was delayed to August 30 and then to September 5.

Another critical deadline is the date by which insurance companies must sign contracts with the federal government to sell health insurance in the federal Marketplace in 2018. That date is currently September 27. Even if insurers submit rates and get government approval, they may be unwilling to commit to selling in the Marketplaces if the issue of CSR reimbursements is still unsettled.

Additionally, the deadline for the Republicans to use the budget reconciliation process to pass repeal-and-replace legislation is September 30th. And the Senate HELP Committee – which held hearings the past three weeks on ways to stabilize the individual insurance market – has failed to produce a bill or even a concrete proposal on how to do that.

The CSR Problem Affects Everyone in the Individual Market

If insurers’ rates increase significantly – because of uncertainty about CSR reimbursements or whether the Republicans will repeal the individual mandate or medical inflation rates — government subsidies will soften the impact for lower-income people, and these subsidies will increase because the subsidy amounts are tied to the cost of the second-lowest price silver plan offered on the Marketplace. The people who will be the hardest hit, however, are the 9 million people who buy individual health insurance but make too much money to qualify for government subsidies for premium tax credits or cost-sharing reductions. Many of these people may be priced out of the insurance market.

Additional Background on the Law Suit

The lawsuit was originally called House v Burwell because it was filed against then-Secretary of Health and Human Services (HHS) Sylvia Burwell, as well as against then-Secretary of Treasury Jacob Lew. The lawsuit has evolved into House v Price, since President Trump appointed Dr. Tom Price as the Secretary of HHS.

The original lawsuit also alleged that President Obama had improperly amended the ACA by delaying the effective date of the individual mandate (remember that?) and that the ACA had not provided the federal government the authority to pay insurers for the premium tax credits, but earlier rulings in the case eliminated these claims. Thus, the lawsuit as it now exists only seeks to prevent the federal government (HHS) from reimbursing insurers for the cost-sharing reductions they are required by law to allow.

Additional Detail on Appropriation and Authorization Bills

The U.S. Constitution (Article I, section 9, clause 7) states that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law…” This Constitutional provision is what gives Congress the power to make these appropriations.

Congress makes an appropriation (allocates money) by passing an “appropriations bill” – a bill that sets aside money (“appropriates” funds) to specific federal government departments, agencies, and programs so they can pay for particular items, personnel or programs. The House and Senate Committees on Appropriations have jurisdiction over appropriations bills.

Other Congressional committees, and Congress generally, write and enact legislation that authorizes new and continuing programs and authorize funds to pay for them, but general legislation cannot actually give the money to these programs. The appropriations bill is what actually grants the money to the programs that have been authorized.
The allegation in House v Price is that the ACA authorized the cost-sharing reductions but did not appropriate funds to be used for the purpose of reimbursing insurers for cost-sharing reductions. The cost-sharing reimbursements are estimated to be $175 billion over the first 10 years of the program.