Exclusive: Inside the Trump Administration’s Debate over Expanding Obamacare

Last August, I responded to a New York Times article indicating that some within the Trump administration wanted to give states additional flexibility to expand Medicaid under Obamacare. Since then, those proposals have advanced, such that staff at the Centers for Medicare and Medicaid Services (CMS) believe that they have official sign-off from the president to put those proposals into place.

My conversations with half a dozen sources on Capitol Hill and across the administration in recent weeks suggest that the proposal continues to move through the regulatory process. However, my sources also described significant policy pitfalls that could spark a buzz-saw of opposition from both the left and the right.

The Times reported that some within the administration—including CMS Administrator Seema Verma and White House Domestic Policy Council Chairman Andrew Bremberg—have embraced the proposal. But if the plan overcomes what the Times characterized as a “furious” internal debate, it may face an even tougher reception outside the White House.

How It Would Work

After the Supreme Court made Medicaid expansion optional for states as part of its 2012 ruling upholding Obamacare’s individual mandate, the Obama administration issued guidance interpreting that ruling. While the court made expansion optional for states, the Obama administration made it an “all-or-nothing” proposition for them.

Under the 2012 guidance—which remains in effect—if states want to receive the enhanced 90 percent federal match associated with expansion, they must cover the entire expansion population—all able-bodied adults with incomes under 138 percent of the federal poverty level (just under $35,000 for a family of four). If states expand only to some portion of the eligible population, they would only receive their regular Medicaid match of 50-76 percent, not the enhanced 90 percent match.

The Internal Debate

The August Times article indicated that, after considering partial expansion, the administration postponed any decision until after November’s midterm elections. Since that time, multiple sources disclosed to me a further meeting that took place on the topic in the Oval Office late last year. While the meeting was originally intended to provide an update for the president, CMS staff left that meeting thinking they had received the president’s sign-off to implement partial expansion.

Just before Christmas, during a meeting on an unrelated matter, a CMS staffer sounded me out on the proposal. The individual said CMS was looking for ways to help give states additional flexibility, particularly states hamstrung by initiatives forcing them to expand Medicaid. However, based on my other reporting, I believe that the conversation also represented an attempt to determine the level of conservative opposition to the public announcement of a decision CMS believes the president has already made.

Why Liberals Will Object

During my meeting, I asked the CMS staffer about the fiscal impacts of partial expansion. The staffer admitted that, as I had noted in my August article, exchange plans generally have higher costs than Medicaid coverage. Therefore, moving individuals from Medicaid to exchange coverage—and the federal government paying 100 percent of subsidy costs for exchange coverage, as opposed to 90 percent of Medicaid costs—will raise federal costs for every beneficiary who shifts coverage under partial expansion.

The Medicare actuary believes that the higher cost-sharing associated with exchange coverage will lead 30 percent of the target population—that is, individuals with incomes from 100-138 percent of poverty—to drop their exchange plan. Either beneficiaries will not be able to afford the premiums and cost-sharing, or they will not consider the coverage worth the money. And because 30 percent of the target population will drop coverage, the partial expansion change will save money in a given state—despite the fact that exchange coverage costs more than Medicaid on a per-beneficiary basis.

Why Conservatives Will Object

I immediately asked the CMS staffer an obvious follow-up question: Did the actuary consider whether partial expansion, by shifting the costs of expansion from the states to the federal government, would encourage more states to expand Medicaid? The staffer demurred, saying the actuary’s analysis focused on only one hypothetical state.

However, the CMS staffer did not tell me the entire story. Subsequent to my “official” meeting with that staffer, other sources privately confirmed that the actuary does believe that roughly 30 percent of the target population will drop coverage.

But these sources and others added that both the Medicare actuary and the Congressional Budget Office (CBO) agree that, notwithstanding the savings from current expansion states—savings associated with individuals dropping exchange coverage, as explained above—the partial expansion proposal will cost the federal government overall, because it will encourage more states to expand Medicaid.

For instance, the Council of Economic Advisers believes that spending on non-expansion states who use partial expansion as a reason to extend Medicaid to the able-bodied will have three times the deficit impact as the savings associated with states shifting from full to partial expansion.

Because the spending on new partial expansion states will overcome any potential savings from states shifting from full to partial expansion, the proposal, if adopted, would appreciably increase the deficit. While neither CBO nor the Medicare actuary have conducted an updated analysis since the election, multiple sources cited an approximate cost to the federal government on the order of $100-120 billion over the next decade.

One source indicated that the Medicare actuary’s analysis early last summer arrived at an overall deficit increase of $111 billion. The results of November’s elections—in which three non-expansion states voted to accept expansion due to ballot initiatives—might have reduced the cost of the administration’s proposal slightly, but likely did not change the estimate of a sizable deficit increase.

A net cost of upwards of $100 billion, notwithstanding potential coverage losses from individuals dropping exchange coverage in current expansion states, can only mean one thing. CBO and the Medicare actuary both believe that, by lowering the cost for states to expand, partial expansion will prompt major non-expansion states—such as Texas, Florida, Georgia, and North Carolina—to accept Obamacare’s Medicaid expansion.

Who Will Support This Proposal?

Based on the description of the scoring dynamic my sources described, partial expansion, if it goes forward, seems to have no natural political constituency. Red-state governors will support it, no doubt, for it allows them to offload much of their state costs associated with Medicaid expansion onto the federal government’s debt-laden dime. Once CMS approves one state’s partial expansion, the agency will likely have a line of Republican governors out its door looking to implement waivers of their own.

But it seems unlikely that Democratic-led states will follow suit. Indeed, the news that partial expansion would cause about 30 percent of the target population to drop their new exchange coverage could well prompt recriminations, investigations, and denunciations from Democrats in Congress and elsewhere. Because at least 3.1 million expansion beneficiaries live in states with Republican governors, liberals likely would object to the sizable number of these enrollees who could decide to drop coverage under partial expansion.

Conversely, conservatives will likely object to the high net cost associated with the proposal, notwithstanding the potential coverage losses in states that have already expanded. Some within the administration view Medicaid expansion, when coupled with proposals like work requirements, as a “conservative” policy. Other administration officials view expansion in all states as something approaching a fait accompli, and view partial expansion and similar proposals as a way to make the best of a bad policy outcome.

But Medicaid expansion by its very nature encourages states to discriminate against the most vulnerable in society, because it gives states a higher match for covering able-bodied adults than individuals with disabilities. In addition to objecting to a way partial expansion would increase government spending by approximately $100 billion, some conservatives would also raise fundamental objections to any policy changes that would encourage states to embrace Obamacare—and add even more able-bodied adults to the welfare rolls in the process.

Particularly given the Democratic takeover of the House last week, the multi-pronged opposition to this plan could prove its undoing. Democrats will have multiple venues available—from oversight through letters and subpoenae, to congressional hearings, to use of the Congressional Review Act to overturn any administration decisions outright—to express their opposition to this proposal.

A “strange bedfellows” coalition of liberals and conservatives outraged over the policy, but for entirely different reasons, could nix it outright. While some officials may not realize it at present, the administration may not only make a decision that conservatives will object to on policy grounds, they may end up in a political quagmire in the process.

This post was originally published at The Federalist.

Let the Individual Mandate Die

In May New Jersey imposed a health-insurance mandate requiring all residents to buy insurance or pay a penalty. More states will feel pressure to follow suit in the coming year as the federal mandate’s penalty disappears Jan. 1 and state legislatures reconvene, some with new Democratic majorities intent on “protecting” Obamacare. But conflicts with federal law will make state-level health-insurance mandates ineffective or unduly onerous, and governors and legislatures would do well to steer clear.

While states can require citizens to purchase health coverage, they will have trouble ensuring compliance. Federal law prohibits the Internal Revenue Service from disclosing tax-return data, except under limited circumstances. And there is no clear precedent allowing the IRS to disclose coverage data to verify compliance with state insurance requirements.

Accordingly, mandates enacted in New Jersey and the District of Columbia earlier this year created their own coverage-reporting regimes. But those likely conflict with the Employee Retirement Income Security Act, or ERISA, which explicitly pre-empts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” The point is to protect large employers who self-insure workers from 50 sets of conflicting state laws.

No employer has used ERISA to challenge Massachusetts’ 2006 individual mandate, which includes reporting requirements, but that doesn’t mean it’s legal. Last month a Brookings Institution paper conceded that “state requirements related to employer benefits like health coverage may be subject to legal challenge based on ERISA preemption.”

A 2016 Supreme Court ruling would bolster such a challenge. In Gobeille v. Liberty Mutual, the court struck down a Vermont law that required employers to submit health-care payment claims to a state database. The court said the law was pre-empted by ERISA.

Writing for a six-justice majority, Justice Anthony Kennedy noted the myriad reporting requirements under federal law. Vermont’s law required additional record-keeping. Justice Kennedy concluded that “differing, or even parallel, regulations from multiple jurisdictions could create wasteful administrative costs and threaten to subject plans to wide-ranging liability.”

Justice Kennedy’s opinion provides a how-to manual for employers to challenge state-level insurance mandates. A morass of state-imposed insurance mandates and reporting requirements would unnecessarily burden employers with costs and complexity. It cries out for pre-emptive relief.

Unfortunately, policy makers have ignored these concerns. Notes from the working group that recommended the District of Columbia’s individual mandate never mention the reporting burden or ERISA pre-emption. And in August the federal Centers for Medicare and Medicaid Services approved New Jersey’s waiver application that relied in part upon funding from that state’s new individual mandate, even though money from the difficult-to-enforce requirement may never materialize.

States already cannot require federal agencies to report coverage. This means their mandates won’t track the 2.3 million covered by the Indian Health Service, 9.3 million receiving health care from the Veterans Administration, 8.8 million disabled under age 65 who are enrolled in Medicare, 9.4 million military Tricare enrollees and 8.2 million federal employees and retirees.

If a successful ERISA challenge also exempts some of the 181 million with employer-based insurance from coverage-reporting requirements, state insurance mandates become farcical. States would have to choose between mandates that run on the “honor system”—thus likely rife with cheating—or taking so much time and energy to verify coverage that administration becomes prohibitively expensive.

States should take the hint and refrain from even considering their own coverage mandates. But if they don’t, smart employers should challenge the mandate’s reporting requirements. They’d likely win.

This post was originally published at The Wall Street Journal.

Is Donald Trump “Sabotaging” Obamacare?

Is Donald Trump “sabotaging” Obamacare? And are he and his administration violating the law to do so?

Democrats intend to make this issue a prime focus of their political messaging ahead of the November elections. And several developments over the month of August — a Government Accountability Office (GAO) report, a New York Times op-ed by two legal scholars, and a lawsuit filed by several cities — all include specific points and charges related to that theme.

1. The GAO Report

The most recent data point comes from the GAO, which at the behest of several congressional Democrats analyzed the administration’s outreach efforts during the most recent open enrollment period last fall. Those efforts culminated in a report GAO released Thursday.

The report made a persuasive case that the administration’s decision to reduce and re-prioritize funding for enrollment navigators utilized flawed data and methods. While the Department of Health and Human Services (HHS) based navigators’ 2018 funding on their effectiveness in enrolling individuals in coverage in prior years, GAO noted that HHS lacked solid data on navigators’ enrollment on which to base 2018 funding, and that enrollment was but one of navigators’ stated goals in prior years. HHS agreed with GAO’s recommendation that it should provide clearer goals and performance metrics for navigators to meet.

GAO also recommended that the administration reinstitute an overall enrollment target, as one way to determine the adequate distribution of resources during open enrollment. However, a cynic might note that Obamacare advocates, including the Democratic lawmakers who requested the report, may want the Trump administration to publicize an enrollment target primarily so they can attack HHS if the department does not achieve its goals.

Even though reporters and liberals like Andy Slavitt cried foul last year when HHS announced planned maintenance time for healthcare.gov in advance, actual downtime for the site dropped precipitously in 2018 compared to 2017. Which could lead one to ask who is sabotaging whom.

2. The New York Times Article

In The New York Times piece, law professors Nicholas Bagley and Abbe Gluck provide an overview of the lawsuit filed against the Trump Administration (about which more below). As someone who has cited Bagley’s work in the past, I find the article unpersuasive, even disappointing.

Take for instance some of the article’s specific allegations:

Here’s one: “To make it harder for people to enroll in Obamacare plans, for example, the administration shortened the open enrollment period on the health care exchanges from three months to six weeks.”

This charge would have evaporated entirely had Bagley specified which Administration first proposed shortening the open enrollment period to six weeks. The Obama Administration did just that.

This rule also establishes dates for the individual market annual open enrollment period for future benefit years. For 2017 and 2018, we will maintain the same open enrollment period we adopted for 2016—that is, November 1 of the year preceding the benefit year through January 31 of the benefit year, and for 2019 and later benefit years, we are establishing an open enrollment period of November 1 through December 15 of the year preceding the benefit year.

The Trump administration merely took the shorter open enrollment period that the Obama team proposed for 2019 and accelerated it by one year. If shortening the enrollment period would make it so much “harder for people to enroll in Obamacare plans,” as Bagley and Gluck claim, then why did the Obama Administration propose this change?

Another allegation: “To sow chaos in the insurance markets, Mr. Trump toyed for nine months with the idea of eliminating a crucial funding stream for Obamacare known as cost-sharing payments. After he cut off those funds, he boasted that Obamacare was ‘being dismantled.’”

This charge seems particularly specious — because Bagley himself has admitted that Obamacare lacks a constitutional appropriation for the cost-sharing reduction payments to insurers. Bagley previously mentioned that he took no small amount of grief from the left for conceding that President Obama had exceeded his constitutional authority. For him to turn around and now claim that Trump violated his constitutional authority by ending unconstitutional payments represents a disingenuous argument.

Here and elsewhere, Bagley might argue that Trump’s rhetoric — talk of Obamacare “being dismantled,” for instance — suggests corrupt intent. I will gladly stipulate that presidential claims Obamacare is “dead” are both inaccurate and unhelpful. But regardless of what the President says, if the President does what Bagley himself thinks necessary to comport with the Constitution, how on earth can Bagley criticize him for violating his oath of office?

A third allegation:

This month, the Trump administration dealt what may be its biggest blow yet to the insurance markets. In a new rule, it announced that insurers will have more latitude to sell ‘short-term’ health plans that are exempt from the Affordable Care Act’s rules. These plans … had previously been limited to three months.

Under Mr. Trump’s new rule, however, such plans can last for 364 days and can be renewed for up to three years. … In effect, these rules are creating a cheap form of ‘junk’ coverage that does not have to meet the higher standards of Obamacare. This sort of splintering of the insurance markets is not allowed under the Affordable Care Act as Congress drafted it.

This claim also fails on multiple levels. First, if Congress wanted to prohibit “short-term” health plans as part of Obamacare, it could have done so. Congress chose first to allow these plans to continue to exist, and second to exempt these plans from all of Obamacare’s regulatory regime. If Bagley and Gluck have an objection to the splintering of insurance markets, then they should take it up with Congress.

Second, the so-called “new rule” Bagley and Gluck refer to only reverts back to a definition of short-term coverage that existed under the Obama Administration. This definition existed for nearly two decades, from when Congress passed the Health Insurance Portability and Accountability Act (HIPAA) through 2016. The Obama administration published a rule intended to eliminate much of the market for this type of coverage — but it did so only in the fall of that year, more than two years after Obamacare’s major coverage provisions took effect.

As with the shortening of the open enrollment period discussed above, if Bagley and Gluck want to scream “Sabotage!” regarding the Trump administration’s actions, they also must point the finger at Barack Obama for similar actions. That they did not suggests the partisan, and ultimately flawed, nature of their analysis.

3. The Lawsuit

The 128-page complaint filed by the city plaintiffs earlier this month makes some of the same points as the New York Times op-ed. It also continues the same pattern of blaming the Trump administration for actions previously taken by the Obama administration.

The lawsuit criticizes numerous elements of the administration’s April rule setting out the payment parameters for the 2019 Exchange year. For instance, it criticizes the removal of language requiring Exchanges to provide a direct notification to individuals before discontinuing their eligibility for subsidies, if individuals fail to reconcile the subsidies they received in prior years with the amount they qualified for based on their income. (Estimated subsidies, which are based on projected income for a year, can vary significantly from the actual subsidy levels one qualifies for, based on changes in income due to a promotion, change in life status, etc.)

As part of this charge, the lawsuit includes an important nugget: The relevant regulation “was amended in 2016 to specify that an Exchange may not deny [subsidies] under this provision ‘unless direct notification is first sent to the tax filer.’” As with the New York Times op-ed outlined above, those claiming “sabotage” are doing so because the Trump administration decided to revert to a prior regulatory definition used by the Obama administration for the first several years of Obamacare implementation.

The lawsuit similarly complains that the Trump administration is “making it harder to compare insurance plans” by eliminating support for “standardized options” from the Exchange. Here again, the complaint notes that “prior rules supported ‘standardized options,’” while mentioning only in a footnote that the rules implementing the “standardized options” took effect for the 2017 plan year. In other words, the Obama administration did not establish “standardized options” for the 2014, 2015, or 2016 plan years. Were they “sabotaging” Obamacare by failing to do so?

The suit continues with these types of claims, which collectively amount to legalistic whining that the Trump administration has not implemented Obamacare in a manner the (liberal) plaintiffs would support. It even includes this noteworthy assertion:

Maryland has been cleared by state legislators to petition CMS to ‘establish a reinsurance program that would create a pot of money for insurers to cover the most expensive claims,’ but a health economist ‘said he would be shocked if the Trump administration approved such a request, given its efforts to weaken Obamacare’: ‘It just seems very unlikely to me that Trump would approve this. … Maryland is easily saying we want to help prop up Obamacare, which the Trump administration doesn’t want to have anything to do with.’

Fact: The Trump administration just approved Maryland’s insurance waiver this week. So much for that “sabotage.”

A review of its “prayer for relief” — the plaintiffs’ request for actions the court should take — shows the ridiculously sweeping nature of the lawsuit’s claims. Among other things, the plaintiffs want the court to order the defendants to “comply with their constitutional obligation to take care to faithfully execute the ACA,” including by doing the following:

  • “Expand, rather than suppress, the number of individuals and families obtaining health insurance through ACA exchanges;
  • “Reduce, rather than increase, premiums for health insurance in the ACA exchanges;
  • “Promote, rather than diminish, the availability of comprehensive, reasonably-priced health insurance for individuals and families with preexisting conditions;
  • “Encourage, rather than discourage, individuals and families to obtain health insurance that provides the coverage that Congress, in the ACA, determined is necessary to protect American families against the physical and economic devastation that results from lesser insurance, with limits on coverage that leaves them unable to cover the costs of an accident or unexpected illness…
  • “Order Defendants to fully fund advertising under the ACA;
  • “Enjoin Defendants from producing and disseminating advertisements that aim to undermine the ACA;
  • “Order Defendants to fully fund Navigators under the ACA;
  • “Enjoin Defendants from incentivizing Navigators to advertise non-ACA compliant plans;
  • “Order Defendants to lengthen the open enrollment period;
  • “Order Defendants to resume participation in enrollment events and other outreach activities under the ACA…
  • “Order Defendants to process states’ waiver applications under the ACA so as to faithfully implement the Act.”

In other words, the lawsuit asks a court to micro-manage every possible element of implementation of a 2,700-page law — tell HHS what it must say, what it must do, how much it must spend, and on and on. It would create de facto entitlements, by stating that HHS could never reduce funding for advertising and outreach, or lower spending on navigators, or reject states’ waiver applications — potentially even if those applications violate the law itself. And it asks for impossible actions — because HHS cannot unilaterally “expand, rather than suppress” the number of people with coverage, just as it cannot unilaterally “reduce, rather than increase, premiums.”

Despite its questionable claims, and the highly questionable remedies it seeks, the lawsuit may yet accomplish some of its goals. The complaint spends much of its time alleging violations of the Administrative Procedure Act, claiming that HHS did not “meaningfully” or “adequately” consider comments from individuals who objected to the regulatory changes in question. While I have not examined the relevant regulatory dockets in any level of detail, the (pardon the pun) trumped-up nature of elements of the complaint makes me skeptical of such assertions. That said, the administration has suffered several setbacks in court over complaints regarding the regulatory process, so the lawsuit may force HHS to ensure it has its proverbial “i”s dotted and “t”s crossed before proceeding with further changes.

Words Versus Actions

On many levels, the “sabotage” allegations try to use the president’s own words (and tweets) against him. Other lawsuits have done likewise, with varying degrees of success. As I noted above, the president’s rhetoric often does not reflect the actual reality that Obamacare remains much more entrenched than conservatives like myself would like.

But for all their complaints about the administration’s “sabotage,” liberals have no one to blame but themselves for the current situation. Obamacare gave a tremendous amount of authority to the federal bureaucracy to implement its myriad edicts. They should not be surprised when someone who disagrees with them uses that vast power to accomplish what they view as malign ends. Perhaps next time they should think again before proceeding down a road that gives government such significant authority. They won’t, but they should.

This post was originally published at The Federalist.

Will the Trump Administration Help Republicans Expand Obamacare?

For all the allegations by the Left about how the Trump administration is “sabotaging” Obamacare, a recent New York Times article revealed nothing of the sort. Instead it indicated how many senior officials within the administration want to entrench Obamacare, helping states to expand the reach of one of its costly entitlements.

Thankfully, a furious internal battle took the idea off the table—for now. But instead of trying to find ways to increase the reach of Obamacare’s Medicaid expansion, which prioritizes able-bodied adults over individuals with disabilities, the Trump administration should instead pursue policies that slow the push towards expansion, by making the tough fiscal choices surrounding expansion plain for states to see.

What ‘Partial Expansion’ Means

Following the court’s decision, the Obama administration determined expansion an “all-or-nothing” proposition. If states wanted to receive the enhanced match rate for the expansion—which started at 100 percent in 2014, and is slowly falling to 90 percent for 2020 and future years—they must expand to all individuals below the 138 percent of poverty threshold.

However, some states wish to expand Medicaid only for adults with incomes below the poverty level. Whereas individuals with incomes above 100 percent of poverty qualify for premium and cost-sharing subsidies for plans on Obamacare’s exchanges, individuals with incomes below the poverty level do not. (In states that have not expanded Medicaid, individuals with incomes below poverty may fall into the so-called “coverage gap,” because they do not have enough income to qualify for subsidized exchange coverage.)

States that wish to cover only individuals with incomes below the poverty line may do so—however, under the Obama administration guidance, those states would receive only their regular federal match rate of between 50 and 74 percent, depending on a state’s income. (Wisconsin chose this option for its Medicaid program.)

How ‘Partial Expansion’ Actually Costs More Money

The Times article says several administration supporters of “partial expansion”—including Health and Human Services (HHS) Secretary Alex Azar, Centers for Medicare and Medicaid Administrator (CMS) Seema Verma, and Domestic Policy Council Director Andrew Bremberg—believe that embracing the change would help to head off full-blown expansion efforts in states like Utah. An internal HHS memo obtained by the Times claims that “HHS believes allowing partial expansion would result in significant savings over the 10-year budget window compared to full Medicaid expansion by all.”

In reality, however, “partial expansion” would explode the budget, for at least three reasons. First, it will encourage states that have not embraced expansion to do so, by lowering the fiscal barrier to expansion. While states “only” have to fund up to 10 percent of the costs of Medicaid expansion, they pay not a dime for any individuals enrolled in exchange coverage. By shifting individuals with incomes of between 100-138 percent of poverty from Medicaid to the exchanges, “partial expansion” significantly reduces the population of individuals for whom states would have to share costs. This change could encourage even ruby red states like Texas to consider Medicaid expansion.

Second, for the same reason, such a move will encourage states that have already expanded Medicaid to switch to “partial expansion”—so they can fob some of their state costs onto federal taxpayers. The Times notes that Arkansas and Massachusetts already have such waiver applications pending with CMS. Once the administration approves a single one of these waivers, virtually every state (or at minimum, every red state with a Medicaid expansion) will run to CMS’s doorstep asking for the federal government to take these costs off their hands.

Medicaid expansion has already proved unsustainable, with exploding enrollment and costs. “Partial expansion” would make that fiscal burden even worse, through a triple whammy of more states expanding, existing states offloading costs to the federal government through “partial expansion,” and the conversion of millions of enrollees from less expensive Medicaid coverage to more costly exchange plans.

What Washington Should Do Instead

Rather than embracing the fiscally irresponsible “partial expansion,” the Trump administration and Congress should instead halt another budget gimmick that states have used to fund Medicaid expansion: The provider tax scam. As of last fall, eight states had used this gimmick to fund some or all of the state portion of expansion costs. Other states have taken heed: Virginia used a provider tax to fund its Medicaid expansion earlier this year, and Gov. Paul LePage (R-ME)—who heretofore has steadfastly opposed expansion—recently floated the idea of a provider tax to fund expansion in Maine.

The provider tax functions as a scam by laundering money to generate more federal revenue. Providers—whether hospitals, nursing homes, Medicaid managed-care plans, or others—agree to an “assessment” that goes into the state’s general fund. The state uses those dollars to draw down new Medicaid matching funds from the federal government, which the state promptly sends right back to the providers.

For this reason, politicians of all parties have called on Congress to halt the provider tax gimmick. Even former vice president Joe Biden called provider taxes a “scam,” and pressed for their abolition. The final report of the bipartisan Simpson-Bowles commission called for “restricting and eventually eliminating” the “Medicaid tax gimmick.”

If Republicans in Congress really want to oppose Obamacare—the law they ran on repealing for four straight election cycles—they should start by imposing a moratorium on any new Medicaid provider taxes, whether to fund expansion or anything else. Such a move would force states to consider whether they can afford to fund their share of expansion costs—by diverting dollars from schools or transportation, for instance—rather than using a budget gimmick to avoid those tough choices. It would also save money, by stopping states from bilking the federal government out of billions in extra Medicaid funds through what amounts to a money-laundering scam.

Rhetoric vs. Reality, Take 5,000

But of course, whether Republicans actually want to dismantle Obamacare remains a very open question. Rather than opposing “partial expansion” on fiscal grounds, the Times quotes unnamed elected officials’ response:

Republican governors were generally supportive [of “partial expansion”], but they said the change must not be seen as an expansion of the Affordable Care Act and should not be announced before the midterm elections. Congressional Republican leaders, while supportive of the option, also cautioned against any high-profile public announcement before the midterm elections.

In other words, these officials want to expand and entrench Obamacare, but don’t want to be seen as expanding and entrenching Obamacare. What courage!

Just as with congressional Republicans’ desperate moves to bail out Obamacare’s exchanges earlier this year, the Times article demonstrates how a party that repeatedly ran on repealing Obamacare, once granted with the full levers of power in Washington, instead looks to reinforce it. Small wonder that the unnamed politicians in the Times article worry about conservative voters exacting a justifiable vengeance in November.

This post was originally published at The Federalist.

24 New Federal Requirements Added to the Graham-Cassidy Bill

Last week, I outlined how a white paper Sen. Bill Cassidy (R-LA) released essentially advocated for Obamacare on steroids. That plan would keep the law’s most expensive (and onerous) federal insurance requirements, while calling for more taxpayer dollars to make that expensive coverage more “affordable.”

Unfortunately, Cassidy also would extend this highly regulatory approach beyond mere white papers and into legislation. A recently disclosed copy of a revised Graham-Cassidy bill—originally developed by Cassidy and Sen. Lindsey Graham (R-SC) last fall—imposes two dozen new requirements on states. These requirements would undermine the bill’s supposed goal of “state flexibility,” and could lead to a regime more onerous and expensive than Obamacare itself.

18 New ‘Adequate and Affordable’ Coverage Rules

Specifically, that coverage must:

  • Include four categories of basic services defined in the State Children’s Health Insurance Program (SCHIP) statute:
    • Inpatient and outpatient hospital services;
    • Physicians’ surgical and medical services;
    • Laboratory and X-ray services, and
    • Well-baby and well-child care, including age-appropriate immunizations;
  • Include three categories of additional services also defined in the SCHIP statute:
    • Coverage of prescription drugs;
    • Vision services; and
    • Hearing services;
  • Include two other categories of services as defined by Obamacare:
    • Mental health and substance use disorder services, including behavioral health treatment; and
    • Rehabilitative and habilitative services and devices;
  • Comply with actuarial value standards set by the SCHIP statute:
    • Cover at least 70 percent of estimated health expenses for the average consumer; and
  • Comply with requirements included in eight separate sections of the Public Health Service Act, as amended by Obamacare:
    • Section 2701—Rating premiums only based on age (with older applicants charged no more than three times younger applicants), family size, geography, and tobacco use;
    • Section 2702—Required acceptance for every individual or employer who applies for coverage (i.e., guaranteed issue);
    • Section 2703—Guaranteed renewability of coverage;
    • Section 2704—Prohibition on pre-existing condition exclusions;
    • Section 2705—Prohibition on discriminating against individuals based on health status;
    • Section 2708—Prohibition on excessive waiting periods;
    • Section 2711—Prohibition on annual or lifetime limits; and
    • Section 2713—Requiring first-dollar coverage of preventive services without cost-sharing (i.e., deductibles and co-payments).

As noted above, “adequate and affordable health insurance coverage” would include many of Obamacare’s insurance requirements, and in at least one way would exceed them. Whereas Section 1302(d) of Obamacare requires selling insurance with an actuarial value—that is, the percentage of medical expenses paid for the average individual—of at least 60 percent, the revised Graham-Cassidy would require “adequate and affordable” coverage with an actuarial value of at least 70 percent.

If asked, Graham and Cassidy might state that these requirements would only apply to a certain subset of the population. After all, the revised bill text indicates that each state “shall ensure access to adequate and affordable health insurance coverage (as defined in clause (ii))”—the clause referring to the 18 separate requirements listed above—“for [high-risk individuals].” The bill lists the brackets in the original, which might indicate that Cassidy’s office intends to apply these 18 separate coverage requirements only to plans that high-risk persons purchase.

Thankfully, the new draft removes the “population adjustment factor” allowing CMS to rewrite the block grant formula unilaterally. But even as it took away CMS’ power to alter the funding formula, new language on page 15 of the revised draft allows CMS to cancel states’ block grant funds for “substantial noncompliance.” That provision, coupled with the revised bill’s lack of definition regarding “affordable” coverage and “high-risk individual” provides a future Democratic administration with two clear ways to hijack the block grant program.

For instance, a new administration could define “high-risk individual” so broadly that it would apply to virtually all Americans, subjecting them to the 18 costly coverage requirements. A new administration could also define “affordable” in such a manner—for instance, premiums may not exceed 5 percent of an individual’s income—that states would have to subsidize insurance with sizable amounts of state funds, in addition to the federal dollars included in the block grant. Any state failing to comply with these edicts could see its entire block grant yanked for “substantial noncompliance” with the bureaucratically imposed guidelines.

It seems paradoxical to assert that a bill can be both too prescriptive, imposing far too many requirements on states that undermine the supposed goal of “state flexibility,” and too vague, giving vast amounts of authority to federal bureaucrats. Yet somehow the section on “adequate and affordable health coverage” manages to do both.

Two New Required Uses of Block-Grant Funds

Supporters of the bill would argue that these supposed “guardrails” will prevent states from subsidizing Medicaid coverage, or creating some other government-run health program. But as I noted last week, Obamacare has its own “guardrails” regarding state waivers, which undermine any attempt to deregulate insurance markets.

By adding these new “guardrails,” Graham-Cassidy would essentially replicate Obamacare, albeit with slightly different policy objectives: “The Cassidy plan would give states the ‘flexibility’ to do what Bill Cassidy wants them to do, and only what Bill Cassidy wants them to do. That isn’t flexibility at all.”

Block Grant Reductions with Multiple Risk Pools

On Page 31, the bill includes new language requiring a reduction in block-grant funds, by a percentage not specified, for states electing to create multiple risk pools. Under current law, Section 1312(c) of Obamacare requires insurers to place all individual insurance market enrollees—whether they purchase coverage through the exchange or not—in a single risk pool.

If a state elects to choose multiple risk pools and uses a “substantial portion” of its block grant to subsidize insurance with an actuarial value of under 50 percent, then the state would see an unspecified reduction in its block grant. This language contains many of the flaws of the other provisions described above: It nowhere defines what comprises a “substantial portion” of the block grant, and penalizes states that may choose to create multiple risk pools and subsidize only catastrophic insurance coverage, thus belying Graham-Cassidy’s promise of “state flexibility.”

3 New Requirements for State Waivers

The revised Graham-Cassidy text moves and alters language regarding state waivers of Obamacare’s federal insurance requirements, and in so doing makes three substantive changes. (The original language started in the middle of page 143 of the bill; the new language begins on the top of page 42 of the revised bill.)

First, and perhaps most disturbingly, the revised bill requires the Department of Health and Human Services to waive Obamacare’s insurance requirements for a state only if “such state establishes an equivalent requirement applicable to such coverage in such state.” Taken literally, this provision could mean that states could “opt-out” of Obamacare’s federal requirements if and only if they enshrine those exact same requirements in state law—rendering any supposed “flexibility” under Graham-Cassidy completely nonexistent.

Graham and Cassidy may not have meant to craft language with such a literal interpretation. They may mean to say, for instance, that a state can waive out of Obamacare’s age-rating requirements (which prohibit insurers from charging older people more than three times what they charge younger people) if they establish a more permissive regime—for instance, five-to-one age rating—on the state level.

But taken literally, that’s not what the current bill text says. That vague language raises serious questions about the authors’ intent, and why they chose such unclear, and arguably sloppy, bill language.

Second, the section imposes two new requirements on states selecting multiple risk pools. As noted above, those states would have to comply with the 18 new requirements regarding “adequate and affordable” health coverage, and states creating multiple risk pools could see their block grant reduced as a result.

In addition, however, states must also guarantee that insurers offering coverage in one risk pool offer coverage in all of them. Moreover, premiums charged “by a health insurance issuer for the same health coverage offered in different risk pools in the state [may] not vary by more than 3 to 1.”

The first requirement echoes the Consumer Freedom Amendment offered by Sen. Ted Cruz (R-TX) last year. That amendment allowed insurers to offer plans that did not comply with Obamacare’s requirements, so long as they continued to offer one Obamacare-compliant plan. The second requirement would effectively limit the extent to which insurers could charge individuals more on the basis of pre-existing conditions or health status.

Two Dozen (More) Reasons for State Concern

Both individually and collectively, these two dozen new requirements inserted into the most recent version of Graham-Cassidy present problems for conservatives. The myriad requirements would sharply limit the bill’s ability to deliver lower premiums to consumers—one major goal of “repeal-and-replace” legislation.

More broadly, though, the revised bill drifts further away from any semblance of conservative objectives. While Graham-Cassidy purports to provide more flexibility to states, the revised bill would instead ensnare them in numerous requirements that would impede any attempt at innovation.

Like the proverbial Lilliputians who attempted to tie down Gulliver, the new bill looks to rob states of their ability to manage their own insurance markets and lower premiums for residents, one federal requirement at a time.

This post was originally published at The Federalist.

Bill Cassidy’s New Health Plan Is Obamacare on Steroids

On Tuesday, Sen. Bill Cassidy (R-LA) released a policy white paper with ideas he claimed would “make health care affordable again.” By and large, however, the plan would do no such thing.

Some of the plan’s ideas—promoting consumer transparency in health care, for instance, promoting primary care, and cracking down on monopolistic practices that impede competition—have merit, although people can quibble with the extent to which Washington can, or should, solve those problems.

Fake Flexibility

Cassidy bases his plan on a state-based block-grant funding model, similar to the legislation he and Sen. Lindsey Graham (R-SC) developed last fall. Cassidy cites various state experimental programs to argue that a block-grant approach would allow more room for innovation.

However, the last sentence of the proposal undermines the rest of the discussion: “Flexibility to states would not jeopardize protections for individuals with pre-existing conditions.” That phrase implies that Cassidy believes, as the Graham-Cassidy bill indicated, that Obamacare’s federal insurance requirements regarding pre-existing conditions should remain in place.

That sentence belies the idea that states would get true flexibility to construct their insurance markets however they like. Instead, the Cassidy plan would represent a variation on Obamacare, whose state waiver program essentially lets them add more requirements and more government to their insurance markets, but not take requirements away. Put another way, the Cassidy plan would give states the “flexibility” to do what Bill Cassidy wants them to do, and only what Bill Cassidy wants them to do. That isn’t flexibility at all.

Costly Requirements Remain in Place

For instance, loosening Obamacare’s essential health benefits while keeping the pre-existing condition requirements will encourage insurers to stop covering treatments like chemotherapy. Because they must continue to accept all sick patients, and charge them the same rates as healthy ones, insurers will try to limit their losses by not covering cancer drugs, thereby discouraging cancer patients from applying for coverage.

The combination of these two policy dilemmas could result in the worst of all possible worlds, from both a political and policy standpoint: A plan that does not reduce premiums appreciably—because it keeps the most costly federal insurance requirements intact—yet still encourages insurers to discriminate against the sick.

Throwing Money at the Problem

Rather than trying to solve the problems Obamacare’s federal insurance requirements have caused, as I previously suggested, Cassidy’s plan goes to great lengths to avoid them. He endorses the health insurance “stability” (read: bailout) measure proposed by Sens. Susan Collins (R-ME) and Lamar Alexander (R-TN) earlier this year. Rather than lowering premiums by removing the federal insurance requirements, that plan would lower premiums—albeit only temporarily—by throwing more taxpayer funds at insurers.

Moreover, the need for more federal funding belies Cassidy’s claim that his plan would “make health care affordable again.” States should not need any more funding to encourage insurance enrollment, particularly if they receive sufficient flexibility from federal requirements to bring down premiums. Cassidy knows that any flexibility will prove illusory. As with a “stability” package, he proposes making coverage more “affordable” by throwing other people’s money at the problem.

Neither Repeal Nor Reform

I wrote last April, well before lawmakers ever contemplated the Graham-Cassidy measure, that “Republicans have a choice: They can either retain the ban on pre-existing condition discrimination—and the regulations and subsidies that go with it—or they can fulfill their promise to repeal Obamacare.” Judging from the ideas in his policy paper, Cassidy has made his choice: He supports Obamacare.

But more of the same—more spending to finance the same costly insurance because of the same costly federal insurance requirements—doesn’t constitute a repeal of Obamacare. It doesn’t even come close. Would that Cassidy, and his colleagues in Congress, actually thought about keeping their word and enacting the repeal they promised.

This post was originally published at The Federalist.

New Precedent Allows Congress to Dismantle (Some of) Obamacare

What does a ruling about automobile financing have to do with Obamacare? As it turns out, plenty.

This week the Senate acted to repeal a piece of regulatory guidance the Consumer Financial Protection Bureau (CFPB) issued back in March 2013. As a Politico report Wednesday noted, that precedent allows Congress to nullify other regulatory actions the federal government took years ago—including those on Obamacare.

1996 Law Allows for Expedited Process

Until this week, Congress has generally enacted CRA resolutions of disapproval following a change in administration, when one party controlled both houses of Congress and the presidency. In 2001, Republicans passed, and President George W. Bush signed, a resolution of disapproval negating an ergonomics rule promulgated in the waning days of the Clinton administration. Last year, the Republican Congress passed and President Trump signed 14 resolutions of disapproval undoing Obama administration actions.

Action on CRA resolutions of disapproval undoing Obama administration actions had largely ended last year. The CRA provides that Congress can consider resolutions of disapproval under expedited procedures only within 60 legislative days of the rule’s “submission or publication date.” Because the Obama administration’s final regulatory actions occurred early in 2017, the 60 legislative-day clock ran out last year—or so it appeared.

However, as the Heritage Foundation’s Paul Larkin has argued for many years, the CRA contains a big catch. According to the law, the expedited procedures apply for the 60 legislative days following “the later of the date on which” Congress receives a required report on the regulatory action, or the action is published in the Federal Register. If an administration never officially submitted a report to Congress, the 60 legislative-day clock never began, and the current Congress can still pass a resolution of disapproval under the CRA-expedited procedures.

Because the Obama administration did not consider the CFPB document a “rule,” it never submitted it to Congress, as required by the CRA. The 60 legislative-day clock never expired, because the Obama administration never started it by submitting the document to Congress. That meant the Senate could, and did, pass a resolution of disapproval negating the CFPB guidance this week, more than five years after CFPB first issued it.

Now Congress can do the same thing regarding Obamacare.

This Opens Lots of Doors for Obamacare Regs

To be sure, Congress cannot pass resolutions of disapproval regarding Obamacare rules that the Obama administration officially submitted years ago, which is most of them. But in some cases, the last administration may not have formally submitted sub-regulatory guidance, giving Congress an opening to repeal at least part of Obamacare’s regulatory structure.

I wrote early last year that the Trump administration should unilaterally revoke that guidance, but unfortunately, it has not done so yet. However, if the Obama administration never submitted that guidance to Congress, then Congress—using the precedent set this week—can pass a resolution of disapproval negating it. Alternatively, Congress can consider starting action on a resolution of disapproval, to get the Trump administration off the proverbial dime in revoking the guidance themselves.

The CRA precedent set this week also serves as a cautionary tale for the Trump administration, a warning to act thoroughly with its own regulatory actions. For instance, the guidance to state Medicaid programs issued earlier this year regarding work requirements likely meets the definition of a “rule” for CRA purposes. If the Trump administration never submits that action to Congress, a future Democratic administration and Democratic Congress could—and if given the chance, certainly would—act to undo the guidance, and thus the Medicaid work requirements.

But even as the Trump administration should act to cement its own regulatory legacy, Congress can act to negate portions of Obamacare through resolutions of disapproval. I know from experience that staff in Congress, and during the transition, compiled lists of rules that they can use CRA to target. During my time on Capitol Hill following Obamacare’s passage, staff kept a spreadsheet containing all the rules and notices the law generated—the source of the “Red Tape Tower” that used to appear around the Capitol.

This post was originally published at The Federalist.

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

A PDF version of this document is available online here.

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.

Legislative Bulletin: Updated Summary of Obamacare “Stability” Legislation

On Monday, Sen. Lamar Alexander (R-TN) and others introduced their latest version of an Obamacare “stability” bill. In general, the bill would appropriate more than $60 billion in funds to insurance companies, propping up and entrenching Obamacare rather than repealing it.

Also on Monday, the Congressional Budget Office released its analysis of the updated legislation. In CBO’s estimate, the bill would increase the deficit by $19.1 billion, while marginally increasing the number of insured Americans (by fewer than 500,000 per year).


Stability Fund
: Provides $500 million in funding for fiscal year 2018, and $10 billion in funding for each of fiscal years 2019, 2020, and 2021, for invisible high-risk pools and reinsurance payments. The $500 million this year would provide administrative assistance to states to establish such programs, with the $10 billion in each of the following three years maintaining them.

Grants the secretary of Health and Human Services (HHS), in consultation with the National Association of Insurance Commissioners, the authority to allocate the funds to states—which some conservatives may be concerned gives federal bureaucrats authority to spend $30.5 billion wherever they choose.

Includes a provision requiring a federal fallback for 2019 (and only 2019) in states that choose not to establish their own reinsurance or invisible high-risk program. Moreover, these federal fallback dollars must be used “for market stabilization payments to issuers.” Some conservatives may be concerned that this provision—which, like the rest of the $30 billion in “stability funds,” did not appear in the original Alexander-Murray legislation—undermines state flexibility, by effectively forcing states to bail out insurers, whether they want to or not.

Cost-Sharing Reduction Payments: The bill appropriates roughly $30-35 billion in cost-sharing reduction (CSR) payments to insurers, which subsidizes their provision of discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance exchanges.

Last October, President Trump announced he would halt the payments to insurers, concluding the administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the final quarter of 2017, and $9-10 billion for each of years 2019, 2020, and 2021, based on CBO spending estimates. This language represents a change from the original Alexander-Murray bill, which appropriated payments for 2018 and 2019 only.

For 2018, the bill appropriates CSRs only for 1) states choosing the Basic Health plan option (which gives states a percentage of Obamacare subsidies as a block grant to cover low-income individuals) and 2) insurers for which HHS determines, in conjunction with state insurance commissioners, that the insurer assumed the payment of CSRs when setting rates for the 2018 plan year. This language represents a change from the original Alexander-Murray bill, which set up a complicated system of rebates that would have allowed insurers potentially to pocket billions of dollars by retaining “extra” CSR payments for 2018.

Some conservatives may be concerned that, because insurers understood for well over a year that a new administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future.

Hyde Amendment: With respect to the issue of taxpayer dollars subsidizing federal insurance plans covering abortion, the bill does not apply the Hyde Amendment protections retrospectively to the 2017 CSR payments, or to the (current) 2018 plan year. With respect to 2019 through 2021, the bill prohibits federal funding of abortions, except in the case of rape, incest, or to save the life of the mother. However, the bill does allow states to use state-only dollars to fund other abortions, as many state Medicaid managed care plans do currently.

According to the pro-abortion Guttmacher Institute, with respect to coverage of abortions in state Medicaid plans:

  • 32 states and the District of Columbia follow the federal Hyde Amendment standard, funding abortion only in the cases of rape, incest, or to save the life of the mother;
  • One state provides abortion only in the case of life endangerment; and
  • 17 states provide coverage for most abortions—five voluntarily, and 12 by court order.

State Waiver Processes: The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the bill would:

  • Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  • Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver”;
  • Require HHS to release guidance to states within 60 days of enactment regarding waivers, including model language for waivers—a change from the 30 days included in the original Alexander-Murray bill;
  • Shorten the time for HHS to consider waivers from 180 days to 120—a change from 90 days in the original Alexander-Murray bill;
  • Allow a 45-day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year”; 3) waivers that are “the same or substantially similar” to waivers previously approved for another state; and 4) waivers related to invisible high-risk pools or reinsurance, as discussed above. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  • Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance: On the substance of innovation waivers, the bill would rescind regulatory guidance the Obama administration issued in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/exchange waiver to offset higher costs to Medicaid, and vice versa.

While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump administration can revoke it at any time—indeed, should have revoked it last year. Additionally, the bill amends, but does not repeal, the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  • “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  • “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  • “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  • “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans: The bill would allow all individuals to purchase “catastrophic” health plans, beginning in 2019. The legislation would also require insurers to keep those plans in a single risk pool with other Obamacare plans—a change from current law.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding: The bill requires HHS to obligate $105.8 million in exchange user fees to states for “enrollment and outreach activities” for the 2019 and 2020 plan years—a change from the original legislation, which focused on the 2018 and 2019 plan years. Currently, the federal exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers.

In a rule released in December 2016, the outgoing Obama administration admitted that the exchange is “gaining economies of scale from functions with fixed costs,” in part because maintaining the exchange costs less per year than creating one did in 2013-14. However, the Obama administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of biweekly reports from HHS on metrics like call center volume, website visits, etc., during the 2019 and 2020 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing: Requires HHS to issue regulations (in consultation with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines.

However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Consumer Notification: Requires states that allow the sale of short-term, limited duration health coverage to disclose to consumers that such plans differ from “Obamacare-approved” qualified health plans. Note that this provision does not codify the administration’s proposed regulations regarding short-term health coverage; a future Democratic administration could (and likely will) easily re-write such regulations again to eliminate the sale of short-term plans, as the Obama administration did in 2016.

CBO Analysis of the Legislation

As noted above, CBO believes the legislation would increase the deficit by $19.1 billion, while increasing the number of insured Americans marginally. In general, while CBO believed that changes to Obamacare’s state waivers program would increase the number of states applying for waivers, they would not have a net budgetary impact.

However, the bill does include one particular change to Obamacare Section 1332 waivers allowing existing waiver recipients to request recalculation of their funding formula. According to CBO, only Minnesota qualifies under the statutory definition, and could receive $359 million in additional funding between 2018 and 2022. Some conservatives may be concerned that this provision represents a legislative earmark that by definition can only affect one state.

With respect to the invisible high-risk pools and reinsurance, CBO believes the provisions would raise spending by a net of $26.5 billion, offset by higher revenues of $7 billion. The budget office estimated that the entire country would be covered by the federal fallback option in 2019, because “it would be difficult for other states [that do not have waivers currently] to establish a state-based program in time to affect premiums.”

For 2020 and 2021, CBO believes that 60 and 80 percent of the country, respectively, would be covered by state waivers; “the remainder of the population in those years would be without a federally-funded reinsurance program or invisible high-risk pool.” The $7 billion in offsetting savings referenced in CBO’s score comes from lower premiums, and thus lower spending on federal premium subsidies. In 2019, CBO believes “about 60 percent of the federal cost for the default federal reinsurance program would be offset by other sources of savings.”

CBO believes that, under the bill, premiums would be 10 percent lower in 2019, and 20 percent lower in 2020 and 2021, compared to current law. Some conservatives may note that lower premiums relative to current law does not equate to lower premiums relative to 2018 levels. Particularly because CBO expects elimination of the individual mandate tax will raise premiums by 10 percent in 2019, many conservatives may doubt that premiums will go down in absolute terms, notwithstanding the sizable spending on insurer subsidies under the bill.

CBO noted that premium changes would largely affect unsubsidized individuals—i.e., families with incomes more than four times the federal poverty level ($100,400 for a family of four in 2018)—a small portion of whom would sign up for coverage as a result of the reductions. However, “in states that did not apply for a waiver, premiums would be the same under current law as under the legislation starting in 2020.”

Moreover, even in states with a reinsurance waiver, CBO believes that insurers will “tend to set premiums conservatively to hedge against uncertainty” regarding the reinsurance programs—meaning that CBO “expect[s] that total premiums would not be reduced by the entire amount of available federal funding.”

As noted in prior posts, CBO is required by law to assume full funding of entitlement spending, including cost-sharing reductions. Therefore, the official score of the bill included no net budget impact for the CSR appropriation. However, Alexander received a supplemental letter from CBO indicating that, compared to a scenario where the federal government did not make CSR payments, appropriating funds for CSRs would result in a notional deficit reduction of $29 billion.

The notional deficit reduction arises because, in the absence of CSR payments, insurers would “load” the cost of reducing cost-sharing on to health insurance premiums—thus raising premium subsidies for those who qualify for them. CBO believes these higher subsidies would entice more families with incomes between two and four times the federal poverty definition ($50,200-$100,400 for a family of four in 2018) to sign up for coverage. Compared to a “no-CSR” baseline, appropriating funds for CSRs, as the bill would do, would reduce spending on premium subsidies, but it would also increase the number of uninsured by 500,000-1,000,000, as some families receiving lower subsidies would drop coverage.

Lastly, the expanded sale of catastrophic plans, coupled with provisions including those plans in a single risk pool, would slightly improve the health of the overall population purchasing Obamacare coverage. While individuals cannot receive federal premium subsidies for catastrophic coverage, enticing more healthy individuals to sign up for coverage will improve the exchanges’ overall risk pool slightly, lowering federal spending on those who do qualify for exchange subsidies by $849 million.

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.