What subsidies does the Affordable Care Act (ACA) provide to enrollees?
Many lower-income health care consumers may qualify for two types of financial assistance under the Affordable Care Act (ACA).
- Monthly premium subsidies (Advanced Premium Tax Credit or APTC) for any health plan sold through the Exchange: These subsidies result in a lower monthly premium or a refund on your taxes at the end of the year. The APTC is for individuals with household incomes between 100 percent and 400 percent of federal poverty level (FPL). For 2017, that’s between $12,060 and $48,240 for an individual.
- Cost-sharing reductions (CSRs): Cost-sharing reductions are only available to people who select a silver-level plan through the Exchange and who have a household income below 250 percent of the FPL (in 2017 that amount for an individual was $30,150). If you qualify, your cost-sharing amounts (copays, deductibles, coinsurance or out-of-pocket maximum) will be reduced.
What are cost-sharing reductions (CSRs)?
Cost-sharing reductions are funded by the federal government and are paid to insurers to reduce cost-sharing for lower-income people who select silver plans. These subsidies are paid directly to insurers to reduce deductibles, coinsurance, copays, or out-of-pocket maximum costs for people with income less than 250 percent of the FPL who select a silver Exchange plan. These reductions are in addition to premium subsidies.
How are CSRs funded?
The federal government has been making payments directly to insurers to offset lowering cost-sharing for eligible enrollees. Although the ACA requires the federal government to reimburse insurers for these reductions, a U.S. district court ruling in a challenge brought by the U.S. House of Representatives found that a congressional appropriation is required to make such reimbursements. The case is now on hold because both parties asked for a continuance to allow time for a resolution. As a result, the Trump administration continued to make payment decisions on a month-to-month basis. However, on Oct. 13, President Trump announced he would no longer make the payments to insurers, effective immediately.
What happens now that CSR payments are eliminated?
Ending CSR payments will significantly increase rates for some silver plans sold through the Exchange.
The ACA requires insurers to provide these subsidies to eligible enrollees even if the federal government stops making the payments. Insurers based their initial rates for 2018 on the assumption that they would be reimbursed for providing the cost-sharing subsidies. After President Trump’s recent announcement to end the payments, Washington state insurers have been notified that they must charge the higher rates for silver plans sold through the Exchange for 2018 to make sure their premiums are sufficient to cover the cost of care.
Who will be impacted by CSR funding ending in 2018?
The ACA requires insurers to charge premiums that are sufficient to cover the costs of the benefits included in a specific plan offered at each metal level (bronze, silver, gold). This means insurers set the rates for their silver plans to guarantee they receive sufficient premiums to cover the actual cost of coverage to their enrollees.
Since only enrollees in silver plans sold through Exchange are eligible to receive the CSR subsidies, insurers are allowed to apply the cost of those benefits only to their silver plans sold through the Exchange.
To provide clear direction for insurers, the Office of the Insurance Commissioner (OIC) had approved two sets of rates for all silver-level plans sold in the Exchange and those sold both inside and outside the Exchange. One set of rates assumed the CSRs would be funded, and the second set of rates assumed the CSR funding would end. As of today, all silver-level plans sold inside the Exchange or both inside and outside the Exchange will have an additional rate increase to reflect the end of the CSR payments.
How will insurers selling plans through the Health Benefit Exchange (HBE) implement the two sets of silver plan rates?
Now that the Trump administration has announced it will stop paying for the CSRs, the higher set of silver plan rates will take effect starting Jan. 1, 2018.
If the federal government starts making the CSR payments again, insurers will revert to the lower set of rates and all silver-level plan enrollees will be notified.
Now that CSRs are no longer funded, how will people receiving Advanced Premium Tax Credits (APTCs) be affected?
The amount of premium tax credit an enrollee receives is calculated based on the price of the second-lowest cost silver plan sold through the Exchange in that enrollee’s rating region. Therefore, an increase in all silver plan premiums sold through the Exchange results in an increase in the premium tax credit because the price of the second-lowest silver plan has gone up.
This might minimize potential negative impacts on people who receive premium tax credits or even increase the amount they receive. For people who receive a tax credit, their premium is a percentage of their income based on the second lowest-cost silver plan in their rating region.