What, if Anything, Do the Latest Cost Sharing Reduction (CSR) Court Rulings Mean for 2020 Premiums?
Sabrina Corlette, Georgetown University Center for Health Insurance Reforms
Several recent federal court decisions have held that the federal government owes insurers billions in cost-sharing reduction (CSR) payments. The Administration cut off those payments in October 2017, after efforts to repeal the Affordable Care Act (ACA) failed in Congress. Insurers promptly sued, arguing that the government had breached its statutory obligation to compensate insurers for offering the mandated low cost-sharing plans. Of note, the court decisions suggest that the government continues to owe these CSR payments even though most insurers were able to mitigate their losses by increasing plan premiums in 2018 and beyond. Because this litigation is almost certain to carry over into 2020 or beyond, this Expert Perspective post suggests that states not change their approach to insurers’ rating practices for 2020. However, states should consider what their approach should be if insurers do prevail in the litigation and states have an opportunity to recoup what otherwise would be a windfall for insurers.
Brief Background: CSRs, Executive Action, and State and Insurer Responses
The ACA includes two forms of subsidies to improve the affordability of insurance coverage. Premium tax credits (PTCs) lower the cost of health plan premiums for eligible consumers. Additionally, insurers must offer plans with reduced cost-sharing for eligible low-income enrollees who enroll in silver-level marketplace plans. The ACA provides that the federal government “shall make periodic and timely payments to the [insurer] equal to the value of the [cost-sharing] reductions.” In October of 2017, the Administration discontinued making CSR reimbursements to insurers, arguing that Congress had failed to appropriate funding for them.
In response, all but a handful of state departments of insurance (DOIs) either encouraged or required insurers to mitigate their losses by increasing the 2018 premiums on their ACA plans. Most DOIs further encouraged or required insurers to apply the full premium increase attributable to the loss of CSR payments to their silver-level plans, a practice called “silver loading.” Silver loading helped protect unsubsidized consumers from the premium hike. In addition, because premium tax credits are tied to the price of the second-lowest cost silver plan in the market, it helped boost the buying power of subsidized consumers. Indeed, the Congressional Budget Office estimates that the practice of silver loading will increase federal outlays for marketplace premium subsidies by more than $200 billion over 10 years.
For 2019, all states permit or require silver loading.* Although the Administration has signaled it may prohibit insurers from silver loading in the future, it has thus far allowed the practice to continue, and recently said that it would not require any changes for the 2020 plan year.
CSR Litigation: What Happens Next?
Recent federal court rulings have raised the potential not only that insurers will recover the CSR payments they were owed for the fourth quarter of 2017 (before they were allowed to silver load), but also the CSR payments due in 2018 and beyond. At least one judge has concluded that the ability of insurers to mitigate their damages through silver loading was irrelevant to determining the federal government’s obligation. If that view prevails, then insurers could reap a windfall, as they recoup the lost CSR payments for which they hiked premiums in 2018 and 2019.
The judge has asked the parties to the suit to come forward with estimates of the damages owed so that she can make a determination of the government’s obligation. Most likely, the U.S. Department of Justice will appeal her decision. The Federal Circuit court will need to decide not only whether the lower court was correct in holding the government accountable for CSR payments, but also whether and to what extent the insurers are owed damages. The latter question raises numerous practical issues and could vary not just state to state, depending on their silver loading approach, but also insurer to insurer (law professor Nick Bagley does a great job laying out some of the complexities here).
State Options: 2020 Silver Loading and Premium Rate Setting
The litigation will take time to be resolved – potentially years – and insurers won’t recover CSR payments anytime soon, if they prevail. For state insurance regulators and marketplaces, this likely means business as usual with respect to the review and approval of insurers’ 2020 premium rates. States that have permitted or required insurers to use silver loading to make up for lost CSR payments should continue to do so.
However, some states may wish to proactively guard against the potential insurers will “double dip” through both premium increases and recovered CSR payments. Options to do so could include:
- Requiring profitability adjustments: In 2017, Covered California notified participating insurers that the marketplace will, in future years, take back via lower premiums, any excess profits insurers received due to “shifts in federal policy and other uncertainties.” Other states without California’s active purchasing approach could similarly use their rate review authority to require insurers to parlay CSR repayments for past years into reduced rates or benefit enhancements for consumers in future years.
- Establishing a state rebate program or fund: A state could establish a requirement that insurers return excess CSR funds back to policyholders via a rebate, or contribute to a state fund for another purpose. This option gives states flexibility to direct funds in ways that match state priorities, such as a reinsurance or subsidy wrap program. However, rebate programs can require state investments in administration and can be imperfect mechanisms for ensuring that rebates go to those most harmed by past excessive premiums. In the case of CSRs, because silver loading protected many enrollees from higher premiums, the most harmed stakeholder is probably the federal taxpayer.
- Requiring insurers to refuse federal CSR payments: Some state DOIs may have legal authority to instruct insurers that successfully mitigated their lost CSR payments through silver loading to refuse to accept payments arising from this litigation. At least one state contemplated doing so in 2017, when there was a possibility Congress would restore CSR payments.
- Relying on federal medical loss ratio (MLR) rebate program: If CSR repayments result in a MLR above 80 percent for marketplace insurers, under the ACA, their policyholders are owed a rebate. The program is administered by the federal government and not states. However, because the federal MLR is calculated on a three-year rolling average, insurers with losses in past years may not pay any rebate, even if their MLR is well below 80 percent due to CSR repayments. And, just as with state-based MLR rebate programs, the rebates may not go to those most harmed by past excessive premiums.
*The District of Columbia does not permit its insurers to silver load. However, because the city’s Medicaid program covers individuals up to 200 percent of the federal poverty line (and pregnant women and children up to 300 percent), very few marketplace enrollees are eligible for CSR plans, meaning that insurers’ losses are minimal.