Minnesota: #TeamReinsurance dukes it out with #TeamSubsidies

About a month ago, I noted that new DLC Minnesota Governor Tim Walz rolled out an ambitious state budget proposal with a ton of awesome-sounding healthcare reform stuff, including:

Provide a 20 Percent Health Insurance Premium Subsidy

The Governor will take immediate action by creating a subsidy program to reduce by 20 percent the monthly premiums for Minnesotans who receive their insurance through MNSure. This subsidy will be applied directly against a consumer’s premiums. This proposal provides relief to Minnesotans with incomes over 400 percent of the federal poverty level do not qualify for the federal premium tax credit which helps lower the costs of health insurance premiums. Up to 80,000 people could participate in the program, reducing the out-of-pocket costs of their health insurance premiums.

Establish a Health Insurance Tax Credit

The Governor’s proposal establishes a State Based Health Insurance Tax Credit to help ensure Minnesotans on the individual market pay no more than roughly 10 percent of their income on health care. This proposal also provides relief for consumers who do not qualify for the federal tax credit or other state-based health coverage programs. Minnesotans will be able to qualify for the credit beginning with plan year 2021 coverage. Almost 50,000 Minnesotans could be eligible to receive the State Based Health Insurance Tax Credit and see a reduction in their health insurance premium costs by 2023.

As I noted at the time, the one-time 20% subsidy is a cut 'n dry "lop 20% off the top" for unsubsidized enrollees, very similar to the one-time 25% flat subsidy provided to unsubsidized enrollees back in 2016. It's the State-based Tax Credit which I'm really geeked about, however; this amounts to killing off the ACA Subsidy Cliff, as I've been arguing needs to be done for years now.

When I read this section of Gov. Walz's proposed budget, I was a bit unclear as to how he proposed paying for the expanded ACA subsidies...until today:

A bitter, partisan debate erupted on the Minnesota House floor Wednesday when Republicans tried to bring up a health care reinsurance bill that House Democrats oppose as a giveaway to the insurance industry.

Back in 2017, when Republicans controlled both chambers of the Legislature, they passed a $549 million reinsurance plan designed to hold down soaring premiums in the individual marketplace. A bill approved by the GOP-controlled Senate last week would re-extend the program three more years.

Rep. Greg Davids tried a procedural maneuver Wednesday to pull the Senate bill out of a House committee so that it could get a floor vote. He said reinsurance works and that reduced premiums by an average of 20 percent. His motion failed 45-79 along party lines...

...The new House Democratic majority backs Walz's approach, which would give premium relief to Minnesotans who get insurance through the state-run MNsure exchange. While the state Commerce Department has acknowledged that reinsurance kept premiums 20 percent lower than they would have been, the governor wants to cut out the insurance company middlemen and give customers a 20 percent subsidy instead.

"You can either give the money to the insurance companies and hope they will pass it on to consumers, or you can give it to consumers right off the bat," said Rep. Tina Liebling, a Rochester Democrat who chairs a key health and human services committee.

The debate turned personal at times. House Minority Leader Kurt Daudt asked some freshman female legislators directly whether reducing health care costs was important to their constituents. The Republican from Crown said the governor's plan would result in higher premiums compared with reinsurance, and would benefit only consumers who buy their insurance through MNsure, a program he called a failure.

(sigh) Hoo, boy. There's a lot going on here, and believe it or not, both sides are both right and wrong at the same time.

Reinsurance does lower unsubsidized premiums by essentially offloading a large chunk of the most expensive enrollee claims to the government. In Minnesota's case, the state agrees to cover 80% of all ACA enrollee claims between $50,000 - $250,000 for the year, using a blend of federal and state funds.

Since offloading that chunk of expenses lowers the average claims cost to the insurance carriers, they're able to lower their premiums substantially...and since they lower their premiums, that in turn means lower ACA subsidies are required to cover those premiums for subsidized enrollees...which, in turn, frees up that revenue to be used to cover the federal portion of the reinsurance funding itself. In other words, it's the same money just being redistributed...but it all still ends up going to the insurance carrier in the end.

If you eliminate the reinsurance program, a few things happen. First, you free up $250 million or so (?) in state funds per year. Second, with the reinsurance program no longer in place, unsubsidized premiums increase (presumably by around 25%). Third, you lose the $100 million or so in federal reinsurance funding. These last two things sound bad.

However, when the premiums go up 25%, that also means subsidies go up 25% for the roughly 70K subsidized enrollees, meaning they end up paying pretty much the same either way ...and if you then take that $280 million in state funds and instead use it to provide subsidies to the 50-80K unsubsidized enrollees, it would cancel out that 25% increase for them as well, give or take.

For instance, the average 2019 ACA premium with the reinsurance program is around $466/month, or $5,600/year. Subsidized enrollees are only paying an average of $280/month, or $3,360/year. Unsubsidized enrollees have to pay the full $5,600.

If you just kill the reinsurance program, the subsidized enrollees would still be paying roughly the same $3,360 since their federal APTC subsidies would increase to match the 25% rate hike (in fact, 70,000 enrollees x $1,400 = $98 million...that's the same $100 million in federal dollars which was just "freed up")...but unsubsidized enrollees would have to pay more like $7,000.

HOWEVER, if you then take that $250 million or so in state funds and use it to provide additional subsidies only to the unsubsidized enrollees, it should be more than enough to cancel out that $1,400 premium increase for them, since it would knock the total premium down below 10% of their income, effectively eliminating the ACA subsidy cliff.

If this was all there was to the debate, I could honestly see it being kind of a wash, although I'd have to know more precise data about the exact number of enrollees involved, the income brackets of the unsubsidized enrollee market and so on. It's likely that one reduces net premiums for more people than the other, but I don't have enough data to know which one comes out on top. Assuming the net impact is nearly the same, it might be difficult to understand where the advantage is in going for one program vs. the other.

HOWEVER, there's three other reasons to support expanded subsidies over reinsurance:

First and most importantly: The higher the APTC subsidies are, the more federal dollars are available for funding the Basic Health Program, since the formula for that program is based on 95% of the combined APTC/CSR funding which BHP enrollees would otherwise be entitled to. The reinsurance program effectively reduces the amount of BHP funding because it has the effect of lowering APTC thresholds...whereas the state-based subsidy route increases BHP funding by increasing APTC subsidy levels.

In fact, it's quite likely that this was Gov. Walz's entire rationale behind this change in the first place. After all, when CMS Administrator Seema Verma approved Minnesota's reinsurance waiver in the first place, she also pulled a fast one at the last minute:

On September 19, Governor Dayton sent a scathing letter to HHS Secretary Tom Price, calling out CMS for their failure to approve Minnesota’s 1332 waiver in a timely fashion, and for what appear to be last-minute cuts to MinnesotaCare, the state’s Basic Health Program...

Dayton notes in his letter that Minnesota went to great lengths to follow instructions from CMS at every turn, throughout the process of drafting H.F.5 and the 1332 waiver proposal...

...Even more troubling, however, was the fact that Minnesota officials only recently learned that although the waiver approval was likely to be finalized soon, the process was now expected to result in a substantial cut in federal funding for MinnesotaCare. Dayton notes that he’s been told that $208 million in federal funding will be provided for the reinsurance program over two years, but that Minnesota will lose $369 million in federal MinnesotaCare funding over that same two years.

In other words, Minnesota will be worse off under the 1332 waiver than they would be without it. Dayton urged HHS to rapidly approve the 1332 waiver, and to reverse the provision that would otherwise cause a substantial funding cut for MinnesotaCare. However, the approval letter that CMS sent three days later stated that federal savings based on reduced premium tax credits (due to lower overall premiums as a result of the reinsurance program) would be passed on to Minnesota to fund the reinsurance program, but that savings associated with MinnesotaCare would not.

In other words, replacing the reinsurance program with expanded direct subsidies would effectively reverse those BHP (MinnesotaCare) cuts caused by the reinsurance program approval.

Second, as Rep. Liebling notes in the article above, there's a human perception factor here as well: If you give $280 million to an insurance carrier, it's seen as a corporate giveway. If you give the same money to the enrollees, it's seen as helping out the little guy...even if the money is still going to the insurance carrier either way.

This may be a purely political framing device, but it has real significance in terms of boosting public support for the program. People are a lot more likely to support a program they perceive as helping them personally than one which they perceive as helping Greedy Insurance Companies, even if there's no distinction in practice.

Finally, because they run their own ACA exchange, using only their own funds for the expanded subsidies means that Minnesota wouldn't be subject to the whims of federal waiver approval. This is especially important in light of the MinnesotaCare double-cross I noted above.

Right now both Vermont and Massachusetts offer their own supplementary subsidies to ACA exchange enrollees...although in those cases, they provide the additional assistance to enrollees already receiving APTC and CSR assistance. Minnesota would be providing assistance to those who aren't already receiving financial assistance.

Don't get me wrong: I've been a cheerleader for reinsurance programs for the past year or two. Robust versions of the program do help lower premiums significantly. However, part of the reason I've been so vocal in my support is that it's one of the only useful ACA stabilization actions which CMS Administrator Seema Verma has actually been supportive of. Ideally, both reinsurance and expanded subsidies should be in place, but given a choice between the two, I still prefer the latter.