UPDATE: Donald Trump could potentially destroy the ACA on 1/20 without Congress having to lift a finger.

Back in September, I wrote about a doomsday scenario regarding the ongoing "House v. Burwell" court case, in which the GOP sued the federal government to stop them from making good on Cost Sharing Reduction reimbursements to ACA exchange carriers. I followed up with an update on Nov. 9th, the day after the election:

The typical agreement a QHP issuer enters into if selling on the FFM requires them to keep the policy in force for the entire calendar year. [This exit clause] gives them option to term the policy abruptly if the Courts rule, or a Trump administration decides, that it won't pay CSR offset payments to carriers. Because this won't hit the Supreme Court until late 17 or early 18, I think this is as much about assuaging carriers fears of a Trump admin trying to destroy the marketplaces as anything else.

In other words, a Trump administration could come in the office on January 20 immediately directing the treasury secretary to not make the February 1 payment for CSR (and only pay the APTC) that month.

This would be devastating in two different ways.

First, it would immediately cut off Cost Sharing Reduction payments for perhaps 6-7 million people starting in February. This is the financial assistance to people below the 250% Federal Poverty Level who are enrolled in Silver exchange policies which covers a large portion of their deductibles and co-pays.

Even more nightmarish, however, is that under this scenario, the "exit clause" appears to give the carriers the contractual right to terminate existing policies immediately. As in, not 12/31/17, but January 31st, 2017...just 11 days after Trump is inaugurated (and, as it happens, the last day of the 2017 open enrollment period).

As noted, this could be Trumped (hah!) by state laws disallowing such terminations, and depending on the wording of the contracts, they might only be allowed to kill off Silver plans; I'm not sure how that works. But either way, this would make a situation which is already a disaster into a true catastrophe for millions of people.

I just realized that I may have misstated the termination date here...by one day. Depending on the exact legal wording, it's conceivable that the exit clause wouldn't technically be triggered until February 1st. Small comfort.

However, as devastating as that scenario would be, it gets even worse yet, as I realized in this discussion with Josh Schultz, Ken Kelly, David Anderson (née Richard Mayhew) and Wesley Sanders this morning via Twitter:

One health insurer on the record planning to move cost sharing recipients into a bronze or gold plan if subsidies end. https://t.co/265CnrYzNb

— Josh Schultz (@joshschultzdc) January 9, 2017

It's probably a gold plan or a non-CSR silver variant if the deductible is only $1500. Gold more likely & compatible with an exit strategy?

— Josh Schultz (@joshschultzdc) January 9, 2017

@joshschultzdc Don't forget state laws may preclude exit in some cases?

— Charles Gaba (@charles_gaba) January 9, 2017

@charles_gaba @joshschultzdc if state law precludes exit expect any remaining co-ops in those states to fold

— Wesley Sanders (@wcsanders) January 9, 2017

@charles_gaba @joshschultzdc state law can't legislate cash out of empty bank accounts

— Wesley Sanders (@wcsanders) January 9, 2017

@joshschultzdc @politico @pauldemko @adamcancryn Hmm... I'm not sure the law would permit that mid year.

— Wesley Sanders (@wcsanders) January 9, 2017

@joshschultzdc @wcsanders @politico @pauldemko @adamcancryn Remember CMS gave insurers an out if CSR disappears, many will flee

— David Anderson (@bjdickmayhew) January 9, 2017

@bjdickmayhew @wcsanders @politico @pauldemko @adamcancryn That's what we're talking about. It if can be a "less than all the way out"

— Josh Schultz (@joshschultzdc) January 9, 2017

But here's where it really gets ugly:

@joshschultzdc @wcsanders @pauldemko @adamcancryn Next Q -- if all carriers in a region pull their Silvers (can they??) what is benchmark?

— David Anderson (@bjdickmayhew) January 9, 2017

There isn't one. All APTC goes to zero https://t.co/RXvSZ4WeHG

— Josh Schultz (@joshschultzdc) January 9, 2017

@joshschultzdc There wouldn't be any other plans to apply APTCs to anyway. Silver (& gold) plans are obligatory for Exchange participation.

— Ken Kelly (@_KJKelly) January 9, 2017

@joshschultzdc @_KJKelly @wcsanders So you're saying Trump could kill APTC along with CSR as soon as Feb. 1st.

— Charles Gaba (@charles_gaba) January 9, 2017

@charles_gaba @joshschultzdc @_KJKelly @wcsanders effectively yes on Exchange

— David Anderson (@bjdickmayhew) January 9, 2017

@bjdickmayhew @joshschultzdc @_KJKelly @wcsanders Which means he could strangle ACA without Congress even needing to repeal it.

— Charles Gaba (@charles_gaba) January 9, 2017

@bjdickmayhew @joshschultzdc @_KJKelly @wcsanders ...and with near-immediate effect.

— Charles Gaba (@charles_gaba) January 9, 2017

@bjdickmayhew @charles_gaba @_KJKelly @wcsanders @adamcancryn I'd just add that APTC probably continues until end of tax year or redetermination. But CMS controls when redets happen.

— Josh Schultz (@joshschultzdc) January 9, 2017

There seems to be some confusion about whether the "near-immediate effect" part would come into play or not, but otherwise, this is pretty devastating. As Mayhew summarizes over at Ballon Juice:

Carriers have to offer Silver plans to participate on Exchange. If they yank all of their Silvers, they have to yank everything on Exchange.

And carriers will flee if CSR disappears as they will not eat a 30% revenue loss for a high cost population in a market that they don’t know if it will be around long enough to actually make money on.

To summarize, if I'm understanding everything correctly, here's the potential scenario:

  1. Trump orders his Treasury Secretary not to make February CSR payments.
  2. This triggers exit clause for carriers, who yank all Silver plans from the exchange immediately.
  3. Enrollees are either shifted to some other plan (Bronze, Gold, or non-CSR Silver), which they likely can't afford w/out CSR help, or kicked off entirely.
  4. Since Benchmark Silver plans include CSR, and CSR Silver plans are now gone, Benchmark plan is now gone.
  5. Since APTC is based on Benchmark plan, which is now gone, nothing to base APTC on...so APTC is now gone for everyone on exchanges (Gold, Bronze, Platinum)
  6. All of this likely becomes moot anyway, since without offering a Silver plan, the carrier can no longer participate on the exchange at all.
  7. Carriers are legally kicked off the exchanges entirely. ~12 million people (~10 million relying on subsidies, ~2 million paying full price) are immediately (?) thrown onto full-price off-exchange market.
  8. The 2M paying full price already presumably don't see any change (yet), but the other 10M or so now have to pay full price for plans they can't possibly afford in most cases.
  9. Perhaps ~1M at upper end of (lost) subsidy level scramble and stick it out; the other ~9M are basically screwed.
  10. With fully 50% of the entire individual market now wiped out, but all other regulations still in place (community rating, guaranteed issue, etc), off-exchange market is also utterly destabilized, threatening the remaining 9-10 million there as well (perhaps not until 2018?)
  11. Trump/GOP falsely claim that the ACA "collapsed by itself" as they claimed it would
  12. Most of media laps this up and dutifully repeats GOP line
  13. As one comment notes in Mayhew's post, the public will only hear about the effects as the exchanges collapse, and nothing of the cause.

UPDATE: Just to clarify:

  1. I have no idea whether Trump will do this or not; given how stupid and erratic/unpredictable he is, who the hell knows?
  2. Nicholas Bagley, the ACA expert University of Michigan law professor, says that he isn't sure about all of the legalities of the above one way or another. He did reiterate that state laws might prevent carriers from yanking their plans...but how would that play out? You'd have a legally binding federal contractual clause versus a legally binding state law; who wins? How long might it take to sort that all out? What happens to the enrollee (and their policy) in the meantime?
  3. Assuming state law did prevent carriers from dropping their Silver plans mid-year, as Dania Palanker noted (and as I noted myself in my first post on the subject last summer), the carriers would be required to eat the CSR losses for all of 2017. This would delay the carnage until next year...but I guarantee you that in that scenario, every single carrier would drop off the exchange next year...assuming they survived this year (some smaller carriers might go bankrupt mid-year from the losses anyway).
  4. Bagley also rightly pointed out that the Republicans in Congress have, ironically, asked for the federal court to put the brakes on their own lawsuit win--that is, they, at least, seem to be smart enough to understand that at least for the moment, they don't actually want the CSR payments to stop being paid.
  5. However, Congress has absolutely no control over whether or not Trump pulls the trigger on this scenario (ironically, this was the basis of the lawsuit itself--they claimed that the Obama administration was illegally making the payments without authorization to do so from Congress).
  6. In other words, this entire nightmare scenario rests on the question of Donald Trump's intelligence, wisdom, sanity and empathy for anyone other than himself, which is not particularly reassuring.