SWORD OF DAMOCLES FALLS: Trump officially cutting off CSR reimbursements

Right on top of his potentially devastating executive order this morning (I haven't written up a formal post about it after the fact, but my explainer from a few days ago does a pretty good job of giving the gist), Donald Trump has supposedly finally decided to lower the boom for real on cutting off the legally and contractually mandated Cost Sharing Reduction reimbursement payments to insurance carriers:

President Donald Trump plans to cut off subsidy payments to insurers selling Obamacare coverage in his most aggressive move yet to undermine the health care law, according to two sources.

The subsidies, which are worth an estimated $7 billion this year and are paid out in monthly installments, may stop almost immediately since Congress hasn’t appropriated funding for the program.

OK, that answers that question: We aren't talking about a January cut-off; this means the insurance carriers will likely have to eat 3 full months worth of losses, perhaps $1.7 billion or so I'd guess.

Cutting the funding is likely to jolt already fragile Obamacare markets but the impact may be less severe than it would have been a few months back. Many insurers had priced next year's plans higher than they otherwise would have, fearing Trump would pull the plug. Others have already fled the Obamacare markets, which are set to begin open enrollment in Nov. 1 for the 2018 plan year.

“Certainly problematic markets are going to become more unstable," said Greg Scott, who oversees Deloitte’s health plans consulting practice.

Some state officials also took steps to insulate their markets in anticipation of the long-threatened move. Covered California officials announced this week that the state exchange would impose an average 12.4 percent surcharge next year on mid-priced plans to stabilize rates if Trump made this decision.

In other words, California, along with at least 8 other states, will pull the Silver Switcharoo, while another 18 states appear to be "Silver Loading". Both of these strategies will partly or fully mitigate the damage from Trump's CSR sabotage, but it'll be messy as hell.

The announcement, which sources expect to come Friday, follows Trump's signing of an executive order on Thursday, encouraging the rise of a raft of cheap, loosely regulated health insurance plans that don't have to comply with certain Obamacare consumer protections and benefit rules. They're expected to attract younger and healthier people — leaving older and sicker ones in the Obamacare markets facing higher and higher costs.

Insurers rely on the subsidies to reduce out-of-pocket costs for low-income Obamacare customers. They’re still on the hook to provide the discounted rates to their members under the law, despite no longer receiving the federal funding.

Yes, that's right: Once again, Donald J. Trump is stiffing contractors out of their contractually-owed payments. So what else is new?

I'll be updating this post with more details about What Happens Now, so check back soon...

OK, so how are various states handling it? Well, several healthcare wonks including myself have been piecing together a spreadsheet which lays out how we believe each state plans on loading the CSR cost. This is an incomplete table; some may be wrong or may change, but it's the best we have at the moment:

  • 8 states appear to have assumed CSR payments would continue throughout 2018, which was a hell of a risky bet.
  • 7 state are spreading the CSR load evenly across all individual market plans, both on and off the exchange. This is the worst way to deal with it.
  • 29 states appear to be "Silver Loading"...that is, loading the cost onto Silver plans only, both on and off exchange. This will result in weird pricing, with Gold plans costing about the same as Silver in many areas.
  • 11 states appear to be going the "Silver Switcharoo" gambit, which is the best (but also the most confusing) route to take.
  • These add up to more than 50 because some states have a mixed strategy, with different carriers choosing different paths.

Here's an explainer of what each of these 4 paths means.

Again, some of these states may change, but it's awfully late in the game to do so: