December 19, 2017

Alexander-Murray and Collins-Nelson Bipartisan Stabilization Bills

NOTEWORTHY

Background: The Bipartisan Health Care Stabilization Act of 2017 is an agreement between Senators Alexander and Murray to temporarily fund cost-sharing reduction subsidies and to make other changes to Obamacare. The bill was first released on October 19 with 24 cosponsors, 12 Republicans and 12 Democrats.  The Lower Premiums Through Reinsurance Act of 2017 was first introduced by Senators Collins and Nelson on September 19 and is aimed at stabilizing the individual market by funding new risk mitigation programs.

Floor Situation: Leader McConnell has stated that he supports adoption of both Alexander-Murray and Collins-Nelson before the end of this year.

Executive Summary: Both bills make changes to Obamacare’s 1332 waivers, which allow states to waive Obamacare requirements and create state-based reforms. Alexander-Murray creates more flexibility in the affordability requirements for waivers, rescinds restrictive Obama-era guidance and regulations, and makes the approval process faster and less burdensome for states. The bill also opens up catastrophic plans for all consumers, temporarily directs exchange user fee dollars to go toward enrollment and outreach activities for the Obamacare exchanges, and requires the HHS secretary to issue regulations regarding a provision of Obamacare that helps facilitate the purchase of insurance across state lines. The bill would fund CSRs for the remainder of 2017, and for 2019 and 2020. Collins-Nelson would provide $10.5 billion in new funding for states that use 1332 waivers to establish invisible high-risk pools or reinsurance programs. 

OVERVIEW OF THE ISSUE

In October, President Trump ended the illegal payment of Obamacare’s cost-sharing reduction subsidies. Without the direct payment of CSRs, premiums and tax credits for Obamacare’s individual market health plans have increased. Alexander-Murray is an agreement between Senators Alexander and Murray to temporarily fund cost-sharing subsidies and to make other limited changes to Obamacare. The goal of the bill is to provide certainty and stabilization to the individual market through 2020. In the wake of the individual mandate’s repeal in tax reform, Collins-Nelson would provide new funding for states to establish risk mitigation programs.

NOTABLE BILL PROVISIONS

Alexander-Murray: The Bipartisan Health Care Stabilization Act of 2017

Section 2 – Waivers for State Innovation

The bill makes several changes to Obamacare’s Section 1332 waiver, which allows states to receive funding to develop different health insurance reforms using existing federal spending. The bill’s changes make it faster and easier for states to obtain approval of 1332 waivers. It also gives states greater flexibility from certain aspects of Obamacare, allowing for more significant reform of their health insurance markets.

Background on 1332 waivers: Under current law, a state is able to waive many elements of Obamacare with a 1332 waiver, including:

  1. Definition of qualified health plan, including requirements related to essential health benefits, actuarial value, and limits on cost-sharing

  2. Establishment of health insurance exchanges

  3. Cost-sharing reduction subsidies

  4. Premium tax credits

  5. Individual and employer mandates

However, a state may only obtain a waiver if the secretary determines that the state’s plan complies with four so-called guardrails:

  1. Provides coverage at least as comprehensive as under Obamacare, which is to be certified by the office of the CMS actuary;

  2. Provides coverage and cost-sharing at least as affordable as under Obamacare;

  3. Provides coverage to at least as many people as under Obamacare; and

  4. Will not increase the federal deficit

Faster, easier, more flexible waivers: The bill amends the existing waiver to change the affordability requirement, which has been cited as a barrier for states applying for waivers that could significantly alter their markets. The affordability guardrail is changed from “at least as affordable” to “of comparable affordability” to give states more flexibility in their reforms. This change will allow states to offer value-based insurance plans. It will also give them more flexibility to vary cost-sharing and other design elements more than they can under the current affordability guardrail.

The deficit guardrail is also amended to clarify the time period for which the waiver must not increase the deficit. Under current guidance from the Department of Health and Human Services, a waiver must be deficit neutral over each year of the waiver, which can be limiting for reforms in their first year. This change would clarify that the waiver may be approved for state plans that would not increase the deficit over the term of the waiver and in the 10-year budget window. It also allows the HHS secretary to consider the waiver’s impact on federal spending for other programs in the deficit calculation.

The bill allows for spending for the Basic Health Program to be used as pass-through funding, and clarifies that portions of Obamacare tax credits and CSRs can be used as pass-through funding for waivers.

Under current law, a state must pass a law to implement the state plan developed through the waiver process. This bill would also allow certification by a state’s governor as another option for state approval.

The bill reduces the approval deadline for the secretary from 180 days after receipt of the application to 90 days. In addition, it creates a 45-day, expedited approval process for states experiencing an urgent issue in their insurance market or if the waiver application is substantially similar to a waiver already approved in another state.

The maximum term of the waiver is extended from five years to six years and it cannot be terminated by the secretary unless the state has failed to comply with the terms and conditions of the waiver.

The bill requires the secretary to issue guidance containing examples of model waivers that states could pursue that meet all of the approval requirements, not later than 30 days after enactment.

The bill rescinds restrictive Obama-era guidance and regulations on the date of enactment, giving the Trump administration broad authority to interpret and implement the statutory changes in the bill immediately.

Section 3 – Cost-Sharing Payments

Insurers are obligated by Obamacare to reduce cost-sharing levels for eligible enrollees, regardless of whether the government pays them or not. Obamacare does not include a regular appropriation for CSRs and Congress never appropriated funding for them. Despite this, CSRs have been paid since 2014. The Trump administration stopped the illegal payment of CSRs in October.

Background on CSRs: Cost-sharing reduction subsidies reduce the out-of-pocket expenses – deductibles, copayments, and coinsurance – enrollees are responsible for covering. These subsidies are only available to people enrolled in silver plans who have incomes between 100 percent and 250 percent of the federal poverty level. In 2017, this range is $12,060-$30,150 for an individual and $24,600-$61,500 for a family of four. CSR subsidies vary in generosity depending on the eligible income level.

People who qualify for CSR subsidies are offered “variants” of silver plans that have increased actuarial values, depending on their income. The higher the actuarial value, the more costs are covered by the insurance company using federal CSR payments.

Under current law, qualified health plans may not use cost-sharing reductions to pay for abortion services. If a QHP provides coverage for abortions separate from the CSRs, federal law requires that the insurer segregate the funds. The Trump administration announced on October 6, 2017, that it would enforce this requirement more strictly than the Obama administration, with the potential for decertification or civil monetary penalties.

The subsidies are given directly to the insurance companies to subsidize their costs for providing the more generous plans. Through the first half of 2017, 68 percent of all Obamacare subsidized enrollees were receiving cost-sharing reduction subsides, for a total of 5.8 million people, at an estimated annual cost of $7 billion or almost $600 million a month.

For 2018, in the absence of a CSR appropriation from Congress, insurers in almost every state are offsetting the cost of the increased actuarial value of plans by charging higher premiums. CBO has estimated that premiums will increase by an average of about 20 percent for benchmark silver-plans on the exchange in 2018.  When insurance companies raise premiums, low-income people who get subsidies do not pay more for the benchmark plan because, under Obamacare, recipients spend a certain percentage of their income on health insurance premiums and the rest is covered by the premium tax credit. For subsidized enrollees, it does not matter how much their premiums rise, because the amount they pay is capped. But it does matter to taxpayers, because Washington picks up the cost of the increased premiums through increased spending on premium tax credits.

In addition, there are roughly 9 million people, or half of the individual market, who continuously face increasing premiums under Obamacare and have no relief, as they do not qualify for premium tax credits or CSRs. These people, along with taxpayers, essentially pay for the increased Obamacare subsidies.

The CBO estimated (separate from the initial cost estimate of Alexander-Murray) that ending the direct payment of CSRs and instead funding them through increased premiums would increase net federal spending on Obamacare premium tax credits by $6 billion in 2018 and add $194 billion to deficit from 2017-2026. This is what insurers are doing for 2018.

The bill as amended would fund CSRs for the remainder of 2017 and for all of 2019 and 2020. This ensures that insurers are not paid twice for CSRs in 2018 since it is too late to re-approve rates or implement a rebate for the 2018 plan year.

Section 4 – Allowing All Individuals Purchasing Health Insurance in the Individual Market the Option to Purchase a Lower Premium Copper Plan

Under Obamacare, catastrophic health plans are only available to people under the age of 30 who qualify for a hardship exemption. This provision of the bill allows anyone to buy a catastrophic plan regardless of age or hardship status. These changes would be effective for plan years beginning January 1, 2019.

Section 5 – Consumer Outreach, Education, and Assistance

For plan years 2018 and 2019, the bill requires the secretary of HHS to issue biweekly public reports during the annual open enrollment period on the performance of the federal exchange and the Small Business Health Options Program exchange. Each report will include a summary of information on the open enrollment season including the number of website visits, accounts created, calls to the call center, number of people who enroll in a plan and what enrollment path they took, e.g., website, broker, or call center. 

In addition, it requires the secretary to issue an “after action” report on the enrollment season that includes data on plan enrollment and activities related to Obamacare’s navigator program. Navigators are federally funded and help educate and enroll consumers into health plans.

The Secretary must issue a report on advertising and consumer outreach for the 2018 plan year, including information on spending for these activities.

The bill also stipulates that of the amounts collected from federal exchange user fees for plan years 2018 and 2019, $105.8 million shall be obligated each year for outreach and enrollment activities.

Section 6 – Offering Health Plans in More than One State

Obamacare includes a program to facilitate the interstate purchase of insurance, called Health Care Choice Compacts. However, rules for the program have never been promulgated. This provision requires the secretary of HHS, in consultation with the National Association of Insurance Commissioners, to issue regulations implementing Obamacare’s Health Care Choice Compacts. 

Collins-Nelson: Lower Premiums Through Reinsurance Act of 2017

Section 2 – Invisible High-Risk Pool and Reinsurance Programs

The bill provides federal funding for invisible high-risk pools and reinsurance programs established as part of a 1332 waiver. It includes appropriations of $5 billion a year for 2019 and 2020 to support states in establishing these risk mitigation programs. It also includes $500 million to help offset the administrative costs states face in applying for waivers that include these programs.

The secretary must provide an expedited approval process for certain waiver applications. These include waivers for invisible high-risk pools and for reinsurance programs that are similar to Obamacare’s, are similar to another state’s reinsurance program, or use a template provided by HHS. 

COST

The Congressional Budget Office and Joint Committee on Taxation estimated that implementing the original version of Alexander-Murray would reduce the deficit by $3.8 billion over 2018-2027. CBO has not yet released a new estimate on the bill taking into consideration the shift in funding years for CSRs.  CBO has not released a score of Collins-Nelson yet either.