Six Embarrassing Headlines on Subsidies from October
By Marc Derendinger, Sr.
- President Trump Ends Healthcare Insurance Subsidy Program – Fortune [October 12, 2017]
- Ending Health Subsidies: ‘People Will Die’ New York Times-Oct 13, 2017
- Trump to halt subsidies to health insurers – ABC News [October 13, 2017]
- Trump’s strike on health insurance subsidies jolts markets, Washington [October 14, 2017]
- Trump will end ObamaCare subsidy payments | New York Post [October 12, 2017]
- White House to halt health insurance subsidies The Boston Globe-Oct 12, 2017
This small sample of headlines from October 12th to 14th emblematize a disappointing age in the history of American Journalism, where indifferent editors compete for reader “clicks,” for the purpose of increasing advertising revenue.
“Yellow Journalism” is based upon sensationalism and crude exaggeration (dictionary.com).
After answering several individual inquiries to explain Trump’s decision on subsidies, I feel compelled to put this explanation in public view (if for no other reason, than to catch my breath). The following paragraphs attempt to more accurately explain what Trump did to Subsidies, as it concerns Californians.
Background: The California individual health insurance market is segmented into two halves:
- Covered California plans e.g. Kaiser, Blue Shield, HealthNet, Anthem etc., which are potentially eligible for Subsidies
- Off-exchange (same plans as above, but purchased directly from the insurers)- Not Eligible for Subsidies
Further, there are two types of subsidies addressed in this article:
- The APTC (advance premium tax credit)- Most Covered CA policies enjoy this subsidy (about 5 billion dollars worth*), whether Minimum Coverage, Bronze, Silver, Gold or Platinum (*Source: Covered California Active Member Profile of March 2017, reported June 1, 2017: estimated using 828,973 policies, $499 average APTC)
- Cost-sharing Reductions (CSR)- only Silver Plan policies receive this subsidy
In contrast to recent headlines, Trump’s orders do not impact the APTC subsidy, which are funded specifically from a California health and dental insurance premium tax (of approx. 3.8%) on California insurance companies. (Truly, one could argue greater damage to the market place was done by Anthem, with its plans to pull out of all California counties except three).
“Trump’s recent order does not impact the APTC subsidy”
The APTC funding mechanism was enabled by the original PPACA legislation. However, Congress blew it when they neglected to include funding for the second subsidy, “CSRs,” leading to the current situation.
What are the CSRs? This misnomer is a buzzword for “coverage enhancements” made to a Silver Plan for applicants with household income from 133% to 250% of the Federal Poverty Level. It lowers copayments and deductibles (essentially making a Silver Plan into a Gold or Platinum+ Plan, at no additional premium). The cost for the coverage upgrade has been coming from the feds (until Trump’s orders).
“Enhanced Silver plans include more robust coverage for the price of the same Silver premium. These plans include lower copays, coinsurance and deductibles compared to normal Silver plans.” [Covered California, July 21, 2017]
Of the Silver plan policies issued in Covered California, about three-quarters qualify for CSRs. It is noteworthy that whether your Silver plan enjoys CSR status or not, the monthly insurance
premium and the APTC subsidy remain the same.
Interestingly, Trump’s order only impacts adults, because children of these households are taken out of Covered California automatically, and sent to a Medi-Cal case worker for possible coverage (all children in households with less than 250% FPL). So what happens to the remaining adults? Assuming Congress does not provide funding, they would likely receive a supplemental premium notice for the extra coverage, with the option to downgrade to the regular Silver 70 plan for no difference in premium. Yet this may be a worst-case scenario, and here the story gets interesting.
A Small Subsidies Surprise
The deeper we dig, the greater the surprise. The grand surprise follows this paragraph, but first, in a paper commissioned by the public healthcare exchange, Covered California** and published January 26, 2017, researchers estimated if CSR funding were cut-off (presumably by President Trump), overall Silver policy premiums would increase 16.6% for 2018, AND, rather than causing a multitude to lose insurance coverage, this Covered California-sponsored paper estimates Covered California would actually gain a net 20,000 new members! (**source: Evaluating the Potential Consequences of Terminating Direct Federal Cost-Sharing Reduction (CSR) Funding, By Wesley Yin, Ph.D., and Richard Domurat, Ph.D. candidate).
A Big Subsidies Surprise
Closer inspection of a Covered California report issued July 21, 2017 suggests a contingency plan was conceived last June, in the event CSR funding was ceased. Taken verbatim from this report:
What happens if the cost-sharing reduction payments are stopped?
“In June, Covered California’s board took steps to protect most consumers from any rate increases caused by the uncertainty surrounding cost-sharing reduction payments. The board acted to place any rate increases caused by the uncertainty only into Silver plans. If the federal government does not act to provide certainty that CSRs will be funded, Silver-level consumers would see an increase in the gross cost of their premiums, they will also see an increase in the amount of financial assistance they receive, leaving their net payment virtually the same.” [Source: “How Cost Sharing Reductions Work:” Covered California, July 21, 2017]
Reflecting on recent headlines, readers beware: Yellow Journalism is prejudiced, jaundiced, and lurks everywhere…even from the world’s most respected news organizations:
Ending Health Subsidies: ‘People Will Die’ New York Times-Oct 13, 2017
- “How Cost Sharing Reductions Work:” Covered California, July 21, 2017
- Covered California Active Member Profile of March 2017, reported June 1, 2017
- Consequences of Terminating Direct Federal Cost-Sharing Reduction (CSR) Funding, By Wesley Yin, Ph.D., and Richard Domurat, Ph.D. candidate).
- Healthy California Makes Strange Bedfellows
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