“Stability” Bill Will Not Reduce Premiums in 2019 Compared to 2018

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Backers of Obamacare “stability” legislation claim it will lower premiums. However, most studies suggest that even after Congress spends tens of billions of dollars, premiums will still rise in 2019 compared to 2018. If the “stability” bill won’t deliver on its promise of lower rates, why enact such controversial legislation…?

CLAIM: “Oliver Wyman projected premium decreases…40% lower premiums…”

THE FACTS:
1.     Half of supposed premium decrease depends on states enacting their own reinsurance programs.

2.     Oliver Wyman’s own report admits most states will not get reinsurance programs enacted in time for 2019 open enrollment—less than eight months away.

3.     10% of supposed premium decrease comes from appropriation of cost-sharing reductions (CSRs).

4.     In all but six states in 2018, individuals can purchase plans with premiums unaffected by cancellation of CSR payments. Therefore, most unsubsidized enrollees will not see any premium reduction in 2019 if Congress appropriates CSR funds—because they never saw a premium increase to begin with.

5.     Does not consider impact of Association Health Plans (AHPs) or short-term plans. If either AHPs or short-term plans achieve sizable enrollment, they could siphon off healthy individuals from the Exchanges—raising premiums for those who remain.

REALITY:     Eliminating the effects of waivers most states won’t receive by year-end, and CSR payments that didn’t affect most unsubsidized enrollees to begin with, Oliver Wyman believes premiums in 2019 will decline only by about 10%. If health costs rise substantially, or short-term plans become popular, those modest premium decreases will disappear—and if both occur, individuals will likely face double-digit premium increases in 2019, even after the “stability” measure.

CLAIM: “CBO projected premium reductions…2019: Average 10% premium reduction…”

THE FACTS:
1.     Both CBO and the Trump Administration believe the elimination of the individual mandate penalty will raise premiums by roughly 10%—completely offsetting the effects of the “stability” bill next year.

2.     CBO has yet to analyze whether and how short-term plans and AHPs will raise Exchange premiums.

3.     While the Trump Administration thinks short-term plans will raise Exchange premiums only slightly—because a small number of people (100,000-200,000) will enroll in them—higher take-up of short-term plans could raise Exchange premiums substantially. The Urban Institute believes that 4.3 million individuals will enroll in short-term plans—and that this high enrollment in short-term plans (where they are offered) will raise Exchange premiums by 18.3 percent.

REALITY: At best CBO believes that the “stability” bill will mitigate the effects of eliminating the mandate penalty next year. But that makes premium increases for 2019 inevitable, and double-digit premium increases quite possible—even after the “stability” bill takes effect.

“Stability” Bill Likely Will Not Lower Premiums in 2019

In the debate over an Obamacare “stability” bill, advocates of such a measure contend that it will lower premiums, throwing around studies and numbers to make their case. Sen. Lamar Alexander (R-TN) released a handout earlier this week claiming that Oliver Wyman forecast a 40 percent reduction in premiums from a “stability” package, and that the Congressional Budget Office (CBO) gave preliminary estimates of a 10 percent premium reduction in 2019, and a 20 percent reduction in 2020 and 2021.

However, all these numbers avoid — wittingly or otherwise — answering the critical question: Premium reduction compared to what? Barack Obama ran into this problem when trying to sell Obamacare. In 2008, he said repeatedly that his health care plan would “cut” people’s premiums — and then, after signing the bill into law, tried to argue that when he had said “cut,” he really meant “slow the rate of increase.”

But would a “stability” bill actually prevent those premium increases for 2019, particularly for unsubsidized enrollees? (Federal subsidies insulate individuals with incomes under 400 percent of the poverty level — $100,400 for a family of four — from much of the effects of premium hikes.) Would premiums remain flat, or even decline, next year compared to 2018 rates? Based on the studies released to date, most indications suggest otherwise — which should give conservatives pause before embracing a measure that would further entrench Obamacare, making repeal that much less likely.

Factors Affecting Premiums For 2019

Over and above annual increases in medical costs, multiple unique factors will impact premiums for the coming year:

Cost-Sharing Reductions: President Trump’s October decision to stop Obamacare’s cost-sharing reduction (CSR) payments to insurers had a large theoretical impact — but in most states, little practical effect on unsubsidized enrollees. Estimates released prior to the President’s decision suggested that insurers would need to raise premiums for 2018 by roughly 20 percent to account for loss of the CSR payments.

An analysis of states’ decisions regarding CSRs shows that only six states applied the CSR charges to all health insurance plan rates—thereby forcing unsubsidized enrollees to pay higher premiums. Because comparatively few unsubsidized enrollees paid higher premiums due to the CSR decision, the inverse scenario applies: Few unsubsidized enrollees will receive any premium reduction from appropriating CSRs.

Individual Mandate Repeal: As I noted last fall, eliminating Obamacare’s individual mandate tax, while retaining its costly regulations, will put upward pressure on premiums — the only question is how much. Without getting taxed for not purchasing Obamacare-compliant insurance, some healthy individuals will drop coverage, raising average premiums for the remainder.

In its most recent estimate last November, the CBO stated that eliminating the tax would raise exchange premiums “by about 10 percent in most years of the decade.” The administration likewise believes that eliminating the mandate penalty will raise premiums by a similar amount. Its proposed rule on short-term health plans estimated an average monthly premium of $649 with the individual mandate penalty, and $714 without—an increase of $65 per month, or exactly 10 percent.

The administration’s proposed rule on short-term health insurance admitted that exchange premiums would rise as a result of healthy individuals choosing short-term coverage over exchange plans, but by very modest amounts. In the administration’s estimates, premiums would rise by only $2-4 per month for exchange coverage — far less than the $65 monthly estimated premium increase due to elimination of the mandate tax, as noted above. However, the administration’s estimates only assume that 100,000-200,000 individuals enroll in short-term coverage.

By contrast, the liberal Urban Institute estimated much higher take-up of short-term plans by healthy individuals, and therefore much greater premium increases for the sicker individuals who would remain in Obamacare-compliant coverage. According to Urban, 4.3 million individuals would enroll in short-term coverage — more than 20 times the administration’s highest estimate. Because of these healthy individuals migrating to short-term coverage, the Urban researchers assume much larger premium increases for Obamacare-compliant plans, averaging 18.3 percent in the 45 states (plus the District of Columbia) that currently allow the sale of short-term coverage.

The proposed regulatory action on short-term plans — which the administration hopes insurers will start selling by this fall — could have minimal impact on premiums, or lead to sizable premium increases. In general, however, the more that short-term plans succeed in attracting many (healthy) customers, the higher premiums will climb for the (sicker) individuals who maintain exchange coverage.

Premium Tax Suspension: In the January continuing resolution, Congress suspended Obamacare’s health insurance tax — currently in effect for 2018 — for 2019. An August 2017 study, paid for by health insurer UnitedHealthGroup and conducted by Oliver Wyman, found that the insurer tax would raise premiums by about 2.7 percent. Removing the tax next year would lower 2019 premiums by roughly the same amount.

Premium Estimates — Comparing 2018 And 2019

Given the above factors, will premiums go down in 2019 compared to their current 2018 levels? Based on the analyses conducted to date, most indicators suggest they will not.

Oliver Wyman: As I noted on Wednesday, the 40 percent headline figure in the Oliver Wyman study relies on an assumption that Oliver Wyman itself finds dubious. That premium reduction assumes that states apply for and receive a waiver to create their own reinsurance pool on top of the federal reinsurance funds. However, Oliver Wyman concedes that “states that have not already begun working on a waiver will be challenged to get [one] filed and approved under the current regulatory regime in time to impact 2019 premiums.”

The report continues: “In those states that are not able to obtain [a waiver]…we estimate that premium [sic] would decline by more than 20 percent across all metal levels. Those estimates include an average 10 percent reduction due to the funding of CSRs, with the remaining reduction coming from the reinsurance program.”

However, most individuals will NOT receive a 10 percent premium reduction in 2019 if Congress funds CSRs — because, as noted above, most unsubsidized individuals are not paying higher premiums in 2018 due to the non-funding of CSRs. Moreover, while Oliver Wyman said its modeling “reflects elimination of the mandate penalty,” it does not consider the impact of regulatory action on short-term plans or AHPs.

Therefore, the study conducted by Oliver Wyman — which frequently does work for the insurance industry — suggests that, at best, the “stability” package would reduce premiums in 2019 compared to current law for the average enrollee by 10 percent. However, would it actually reduce premiums compared to 2018 levels for the average enrollee? Only if one assumes that 1) health costs do not rise significantly and 2) few individuals enroll in short-term plans or AHPs. If either scenario occurs, a slight premium decrease could turn into a premium increase — and if both scenarios occur, a sizable increase at that.

Congressional Budget Office: Neither Alexander nor the CBO have released their full analysis of a “stability” package. However, according to Alexander’s characterization of the CBO score, the budget office assumes a more modest premium impact than Oliver Wyman — a 10 percent reduction in 2019, followed by a 20 percent premium reduction in 2020 and 2021. Like Oliver Wyman, the CBO likely believes that tight deadlines would make it difficult for the funds provided by the “stability” bill to lower premiums in time for the 2019 plan year. Unlike Oliver Wyman, however, the CBO does not take into account whether and how funding CSRs would lower premiums — because, as I have written previously, federal budget law requires the CBO to assume full funding for CSRs (and all other entitlements) when conducting its analyses.

As noted above, the CBO believes that eliminating the mandate penalty would raise premiums by roughly 10 percent. Put another way, then, in CBO’s estimation, the entire “stability” package would only cancel out the effect of eliminating the mandate penalty on premiums in 2019. If health costs rise — as they do every year — then premiums will rise in 2019. And if the short-term plans succeed in attracting many customers away from the exchanges, then premiums for Obamacare-compliant plans could rise substantially — by double digits — even after the “stability” package.

Conservatives have many good reasons to oppose this “stability” measure — budgetary gimmicks, potential federal funding of abortion coverage, Congress’ total lack of oversight for the bad decisions made by insurers and insurance commissioners, to name just a few. But the fact that the measure looks unlikely to achieve its central goal of lowering premiums seems the most damning indictment of the proposal — failing to solve its intended problem, while causing so many others.

This post was originally published at The Federalist.

Susan Collins Moves the Goalposts on an Obamacare Bailout

The 19th century showman P.T. Barnum famously claimed that, “There’s a sucker born every minute.” Apparently, Republican Sens. Susan Collins and Lamar Alexander think that Barnum’s dictum applies to their Senate colleagues. Both have undertaken a “bait-and-switch” game, constantly upping the ante on their request for an Obamacare “stability” bill — and raising questions about their credibility and integrity as legislators in the process.

Flash back to last December, when Congress considered provisions repealing the individual mandate as part of the tax reform bill. At that time, Collins engaged in a colloquy with Senate Majority Leader Mitch McConnell, who said he would support legislation funding Obamacare’s cost-sharing reductions, as well as Collins’ own reinsurance proposal.

I thank the majority leader for his response. Second, it is critical that we provide States with the support they need to create State-based high-risk pools for their individual health insurance markets. In September, I introduced the bipartisan Lower Premiums Through Reinsurance Act of 2017, a bill that would allow States to protect people with preexisting conditions while lowering premiums through the use of these high-risk pools….

I believe that passage of legislation to create and provide $5 billion in funding for high-risk pools annually over 2 years, together with the Bipartisan Health Care Stabilization Act, is critical for helping to offset the impact on individual market premiums in 2019 and 2020 due to repeal of the individual mandate. [Emphasis mine.]

Collins viewed McConnell’s commitment as so iron-clad that she put a transcript of the colloquy up on her website. Unfortunately, however, Collins didn’t find her side of the bargain as an iron-clad commitment.

One week after that exchange on the Senate floor, Alexander wrote an op-ed on a potential “stability” package. That op-ed claimed that Collins’ reinsurance bill included “$10 billion for invisible high-risk pools or reinsurance funds.” However, the text of the Collins bill itself would appropriate “$2,250,000,000 for each of fiscal years 2018 and 2019” — that is, $4.5 billion and not $10 billion. I noted that discrepancy at the time, writing that, “Alexander seems to be engaged in a bidding war with himself about the greatest amount of taxpayers’ money he can shovel insurers’ way.”

It turns out I was (slightly) mistaken. Alexander wasn’t in a bidding war with himself over giving the greatest amount of taxpayer funds to insurers — he is in a bidding war with Collins. Just this week, both Collins and Alexander issued press releases touting a (flawed and overhyped) premium study by Oliver Wyman. The press releases claimed that “Oliver Wyman released an analysis today showing that the passage of a proposal based on … the Collins-Nelson Lower Premiums through Reinsurance Act will lower premiums … by more than 40 percent.” [Emphasis mine.]

But the release went on to note that, “Oliver Wyman based its analysis on a proposal that would fund [cost-sharing reductions] … and provide $10 billion annually for invisible risk pool/reinsurance funding in 2019, 2020, and 2021.” Not $2.25 billion for fiscal years 2018 and 2019, as the actual Collins-Nelson bill would provide — but more than four times as much annually, for a 50 percent longer duration.

Not even Common Core math can explain the gaping chasm between the funding amounts in the two bills. Does Alexander really want to make a straight-faced claim that an estimate assuming $30 billion in funding is “based on” a bill providing only $5 billion in funding? And if so, then why should a Senator who fails a math test even a first-grader could comprehend chair the committee with jurisdiction over federal educational policy?

Collins and Alexander went to all this trouble because they want to have their cake and eat it too. Collins expects McConnell to abide by his commitment from December — she reportedly cursed out a senior White House aide when the “stability” package failed to pass late last year. But she has no place criticizing McConnell or others for not keeping their word when she has proved unable to keep hers, by upping the ante on her asks for a “stability” bill — and putting out misleading press releases to hide the fact that she ever asked for “only” $5 billion in taxpayer funds.

Collins has no place attacking the White House, or anyone else, for “reneging on the deal.” She reneged on the deal herself — by not sticking to her original commitments, and then putting out misleading press releases to cover her tracks. The White House, and McConnell, should never have made an agreement on a “stability” bill with Collins in the first place. But if they did, the unscrupulous way in which she has handled herself since then should have nullified it.

This post was originally published at The Federalist.

“Stability” Bill Supporters’ Flawed Premium Study

One week after a flawed premium study tried to make the case that premiums would nearly double over the next three years, another study claims that a “stability” bill in Congress would lower premiums by “more than 40 percent.” Or so claimed Republican Sens. Susan Collins and Lamar Alexander.

As with many things Alexander claims, however, there’s more to this story than meets the eye. In reality, the study itself admits that most of the supposed premium “reduction” for 2019 likely will not materialize — and most if not all of the remainder would be offset by the effects of repealing the individual mandate while keeping Obamacare’s onerous regulatory regime.

However, in the very next paragraph, Oliver Wyman called its own assumptions unrealistic, conceding that most states will not have time to enact their own reinsurance proposals for 2019:

In our modeling, we are presuming that states will take advantage of these pass-through savings in 2019. In reality, states that have not already begun working on a waiver will be challenged to get a 1332 waiver filed and approved under the current regulatory regime in time to impact 2019 premiums.

Oliver Wyman went on to point out that applying for such waivers currently requires states to pass their own laws, undergo a 30-day public comment period at the state level, and then navigate a federal approval process that can last nearly eight months. While Collins and Alexander might argue in reply that one potential element of “stability” legislation could speed the waiver approval process, it remains far from certain that all states 1) even have an interest in this type of reinsurance proposal, 2) have the authority they need to establish such a program, and 3) could get federal approval in time to affect the plan year that starts with open enrollment on November 1 — under eight months from now.

If states don’t request a 1332 reinsurance waiver to supplement the federal insurance dollars, or can’t get one approved in time for the 2019 plan year, a likely scenario for many states — what does Oliver Wyman think would happen? “We estimate that premium [sic] would decline by more than 20 percent” — 10 percent from funding of cost-sharing reductions, and 10 percent coming from reinsurance.

But keep in mind that President Trump cancelled the cost-sharing reductions just last October, and Congress repealed Obamacare’s individual mandate, while keeping its costly regulations — a combination of decisions which, all else equal, will raise premiums. In other words, even after dumping tens of billions into bailouts for insurers, premiums could well end up right about where they were last year — and, after taking medical inflation into account, even increase.

Why would Oliver Wyman, let alone Collins and Alexander, put out such shoddy work? Politico got at the issue Tuesday morning: “Oliver Wyman often does analysis for insurers.” Which might explain why the actuaries there put out a headline premium number that by their own admission relies on unrealistic and fanciful assumptions. The analysts seem to have searched for the largest possible premium reduction number they could find, and then made up assumptions to match.

It also explains the statement by Collins and Alexander. If Oliver Wyman takes money from health insurers on a regular basis, as Politico noted, so too does Alexander. So much so that Alexander — who called reinsurance the “Great Obamacare Heist” not eighteen months ago, and pledged to get taxpayers’ billions back from health insurers — now instead wants to shovel more of your hard-earned dollars to insurers’ corporate welfare payments.

This post was originally published at The Federalist.