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The worst-case scenario is easy to imagine because we've imagined it many times before: Health plans flee the marketplace and millions lose coverage.
But analysts at Oliver Wyman just did something different. They imagined one of the best-case scenarios if Trump does indeed stop making these Obamacare payments, which help insurers afford to meet the federal rules requiring that they offer cheaper copays and deductibles for low-income people buying insurance through the Obamacare marketplaces.
And it's actually … not so terrible. They see a path toward a future where Trump stops paying cost-sharing reduction (CSR) subsidies but the marketplaces remain stable, and premiums for some people actually decrease.
"What we identify is the marketplace might change, but not fall apart," says Kurt Giesa, a principal at Oliver Wyman and co-author of the report.
The report thinks about what kind of decisions insurance plans and Obamacare enrollees would make in a world where CSR funding ended. That thinking is helpful to understand the potential fallout of such a decision.
You might say: it's time for some game theory
Let's think about a scenario where the Trump administration announces this month or next it will halt CSR funding in 2018. Some insurance plans would likely leave the exchanges, fearing the uncertain future, while others stick around.
The CSR program right now pays insurance plans $8 billion annually, so the health plans that do stay would be looking for a way to recoup that loss. And what does an insurance plan do when it needs more revenue? It raises premiums.
Obamacare enrollees could only use their CSR subsidies — which lower the cost of things like copays and deductibles for low-income patients — to purchase silver-level Obamacare plans. Oliver Wyman and analysts elsewhere expect that insurance plans would, therefore, only raise premiums on their silver plans. They wouldn't change the cost of less generous bronze plans or more generous gold plans because those products never got CSR funding in the first place.
Here's where things get interesting: if the price of silver level plans go up, Obamacare's premium subsidies become more generous too
Obamacare has two ways to help people buy health insurance. There are the premium subsidies — tax credits that help lower the monthly premium — and the CSR subsidies, which lower other costs. The tax credits are separate from the CSR subsidies and will continue in 2018. The Affordable Care Act tethers the size of premium subsidies to the price of the second-cheapest silver plan in an Obamacare enrollee's area. Obamacare enrollees get a subsidy to ensure that they only have to pay a certain percent of their income to afford this mid-level health plan.
So, let's walk through a hypothetical: Let's say the Kliff Health Plan sells Obamacare coverage. This year I offer a gold plan, the best available, for $140, a silver plan for a $100 monthly premium, and a bronze plan, with less generous coverage, for a $60 monthly premium.
Trump announces he won't fund the CSR payments in 2018, so I need to raise my premiums to cover that loss. I jack up the price of my silver plan to $120, but don't change the price of the bronze or gold plans, because the subsidies don't apply there.
One of my enrollees earns $17,820 (150 percent of the poverty line). Under Obamacare, the government will give her a subsidy big enough that she needs to only spend 4 percent of her income — $60 each month — on a premium for a silver plan.
In 2017, this person got a $40 subsidy to afford my $100 plan. In 2018, she'll get a $60 subsidy to ensure her monthly payment stays the same.
But this enrollee doesn't have to stay in the silver plan. She could take her new, bigger subsidy and use it to help afford the $140 gold plan. Or she could buy the $60 bronze plan and pay nothing out of pocket at all.
Welch and Giesa actually modeled out what this could look like in real life. They expect that ending subsidies would drive up the cost of silver plans but, for subsidized Obamacare enrollees, drive down the cost of other options.
"We think enrollees would buy up to gold, because it's suddenly not that much more expensive, or buy down to bronze because it would be free," Welch says.
Here's an example of what they think it would look like in Phoenix:
For some Obamacare enrollees who have tax credits, the bronze plans might become more affordable as they receive more financial help.
This is the best-case scenario, one where enrollment could stay relatively steady, although Obamacare enrollees would likely shift into different health plans.
Is the best-case scenario the likely scenario? There are certainly big obstacles. Welch and Giesa are not gazing into a crystal ball; they know the future of this issue is unpredictable. They identified a few things that could throw this all off the rails:
- Trump could abruptly end CSR payments sometime this year. Insurance plans have already set their rates for 2017, and it would be awfully hard to adjust them mid-year to account for the loss of funding.
- Insurance regulators could veto insurer proposals to jack up silver plan premiums. These state-level regulators might look at a plan that only raises the cost of a silver plan and ask insurers to distribute the premium hike across all products.
- Insurance companies could quit. Enough insurance plans could take the defunding of CSRs as a sign this market is going to fall apart, and quit selling coverage altogether. This could leave some parts of the country with no insurance plan selling coverage at all.
The future of Obamacare is uncertain, as it always has been under the governance of an administration that wants to repeal it. That being said, the Oliver Wyman brief suggests that cutting off this source of Obamacare payments might not be the apocalypse that most analysis expects, either.
Chart of the Day:
What does it look like when Obamacare explodes? These graphics explain. I worked with Kathy Hempstead at the Robert Wood Johnson Foundation and Vox's in-house map guru Sarah Frostenson to visualize the areas most at risk of having zero Obamacare insurance plans in 2018. Read more here.
Your daily top health care reads, with research help from Caitlin Davis
News of the day
- "Senators hold back-channel talks on bipartisan Obamacare fix" “As Republicans try to repeal Obamacare on party lines, there are flickers of bipartisanship in the Senate — and they could become a lifeline if the GOP’s party-line efforts collapse and lawmakers come under pressure later this year to respond to crippled insurance markets and rising premiums. Though Republicans guarantee there will be a partisan repeal vote at some point this year, some senators and aides believe the chances of failure are greater than success. Crafting a Plan B, they say, is wise.” —Burgess Everett and Elana Schor, Politico
- "Behind the scenes, GOP working group runs into early obstacles" "After last week's negotiations, which included two official GOP health care working group meetings — one on the future of Medicaid and another on Obamacare regulations — one Republican aide familiar with the talks said point blank they were "much less optimistic that something will get done" despite public statements about "productive meetings" coming from GOP senators." —Lauren Fox and Phil Mattingly, CNN
- "Americans disapprove of American Health Care Act 2 to 1, NBC/Wall Street Journal poll shows" "A new NBC/Wall Street Journal poll shows the American public has a less than favorable view of the GOP's American Health Care Act, with results showing 48 percent of Americans said the AHCA was a "bad idea," and 43 percent believe that "strongly." —Jeff Lagasse, Healthcare Finance
- "White House will let small businesses circumvent healthcare.gov" “The Trump administration will allow small businesses to sign up for insurance coverage directly through an insurance agent or broker instead of through ObamaCare's healthcare.gov. The change, slated to take effect for plans beginning on Jan. 1, 2018, allows small businesses to circumvent the Affordable Care Act's Small Business Health Options Program (SHOP) marketplaces, which haven't been very successful.” —Jessie Hellmann, The Hill
- "Senate conservatives look to slash Medicaid" "The plan being pushed by lawmakers such as Sen. Mike Lee (R-UT) is likely to face resistance from centrist GOP senators who are already concerned a health overhaul bill passed by House Republicans would leave too many people uninsured." —Stephanie Armour and Kristina Peterson, The Wall Street Journal
- "Why some people can't wait for a repeal of Obamacare" "People who support repealing the Affordable Care Act pointed to their long-simmering resentment of its mandate that most Americans have health insurance or pay a tax penalty. Many also said that they could no longer afford the comprehensive coverage available on the individual market, and that they were eager to once again be allowed to choose skinnier policies without a penalty." —Abby Goodnough, The New York Times
Analysis and longer reads
- "The paniful truth about teeth" "High-end cosmetic dentistry is soaring, and better-off Americans spend well over $1 billion each year just to make their teeth a few shades whiter. Millions of others rely on charity clinics and hospital emergency rooms to treat painful and neglected teeth. Nearly 1 in 5 Americans older than 65 do not have a single real tooth left." —Mary Jordan and Kevin Sullivan, The Washington Post
- "In swing districts, voters vent over health care, fear Trump" “Republicans in some districts faced a backlash at raucous town halls over their votes for the House health care bill. There were plenty of complaints about a provision that would allow insurers to charge seriously ill people higher rates if they let their coverage lapse. Other lawmakers avoided holding forums.” —Bill Barrow and Sarah Burnett, Associated Press
- "Amid ACA Uncertainty, Covered California’s Risk Profile Remains Stable" “The most recent open enrollment period for 2017 suggests that Covered California continues to maintain a risk mix of healthy and less healthy individuals that is similar to prior years and, thus, remains stable and strong.” —John Bertko, Andrew Feher, and Jim Watkins, Health Affairs