Cutting off CSR is a war on the near-poor

Most coverage of the Trump administration's threats to stop paying Cost Sharing Reduction (CSR) subsidies focuses on the effect of withdrawal on insurers. And rightly so: insurers can't foot the bill for those subsidies on their own without massively raising premiums. If the federal funding is withdrawn, they will exit the ACA marketplace en masse.

It's worth stepping back to notice, though, that from an enrollee point of view, the marketplace can't function without CSR -- at least, not for the 50% of current enrollees who access strong doses of it. Without CSR, the marketplace wouldn't be even marginally serviceable for prospective customers with incomes below 200% of the Federal Poverty Level -- as 55% of uninsured Americans were in 2013, before the marketplace opened.

The average employer-sponsored plan has an actuarial value (AV) of about 82% -- that is, it covers about 82% of the average enrollee's medical costs. CSR raises the AV of a silver plan to 94% for enrollees with incomes below 150% FPL, and to 87% for enrollees in the 150-200% FPL range.& Over 60% of current marketplace enrollees are below the 200% FPL threshold, and about 85% of them select silver plans and so access the benefit, which is available only with silver.

At AV 94%, CSR generally reduces the deductible of a silver plan to the $0-250 range, and at AV 87%, to the $500-1000 range. Deductibles for silver plans without CSR average over $3,500 in 2017.

The AHCA, Paul Ryan's ACA "replacement" bill, is grossly inadequate to the needs of lower income customers, not only because its premium subsidies don't adjust for income and don't adjust adequately for age, but because it also does not adjust exposure to out-of-pocket costs according to income. That's a main reason why, for someone with an income below 150% FPL, the ACA picks up between 2 and 5.5 times as much of the total cost of healthcare (premium plus out-of-pocket expense) as does the AHCA. Because subsidies are available to people higher up the income scale in the Ryan plan, the individual market would shed lower income enrollees and pick up higher income ones should the bill be enacted (it would also shed older enrollees and pick up younger ones).

CSR has been particularly vital to enrollees in states that have refused to expand Medicaid. In those states, eligibility for the ACA marketplace begins at 100% FPL, as opposed to 138% FPL in expansion states -- where below that threshold, residents qualify for Medicaid. For those in the 100-138% FPL band, moreover, silver plans are subsidized so that the premium is just 2% of income, as opposed to 3-4% in the 138-150% FPL band. And low-income enrollees in nonexpansion states have poured in: 36% of enrollees in those states in 2016, over 2 million overall, had incomes that should have qualified them for Medicaid.

You can argue that CSR is jerry-rigged, half-hidden from shoppers, and poorly designed, in that it leaves lower income shoppers without a viable tradeoff between premium and out-of-pocket costs. Why shouldn't it give a  boost to the AV of bronze proportionately to that it gives silver? You might counter that AV-enhanced bronze would expose lower income buyers to more OOP than is appropriate to their income. True, but many eligible for strong CSR find silver premiums unaffordable -- and too many end up in bronze plans with deductibles north of $6,000.

Nonetheless, while ACA marketplace subsidies overall are too skimpy, CSR has broadly succeeded in scaling OOP to income (while leaving those over 200% FPL with too much OOP). That's why I call it the ACA's uncertain shield against underinsurance.  The marketplace would be a ghost town without the benefit.

Update, 4/16/17:: The National Health Interview Survey (NHIS) dubs people with incomes between 100-200% FPL the "near poor."  As I've noted before, it's this income group that got crushed by a drop in employer-sponsored coverage in the first decade of this century -- and it's this group that's served best by the ACA marketplace, thanks to CSR. With that thought in mind I've re-titled the post.

Update 2, 4/16/17: As insurance analyst Wesley Sanders roughs out in a tweet series, insurers could theoretically adapt to a cutoff of federal CSR funding effective in 2018 by pricing in the cost of funding it themselves, boosting premiums perhaps 20-25%. That would render marketplace plans unaffordable for anyone who didn't qualify for a subsidy. As for off-marketplace selling, insurers who participate in the marketplace in a given area have to maintain a single risk for all their plans offered in that area, and price accordingly. The only way to price lower off-marketplace is to sell only off-marketplace. The market could thus bifurcate. This scenario assumes rational behavior, however, in an irrational environment -- that is, a market governed by incoherent law. Insurers are obligated by statute to offer CSR on the assumption that the federal government will fund it. Leaving the obligation in place without funding means deliberately maintaining a set of skewed incentives. And needless to say, forcing insurers to price CSR in for subsidized plans means grossly increasing the federal government's subsidy bill.

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* For enrollees in the 200-250% FPL range, CSR weakens sharply to AV 73%, compared to AV 70% for silver plans with no CSR attached. CSR takeup is accordingly much lower in this income range. No CSR is available to enrollees with incomes over 250% FPL

Releated:
The ACA's uncertain shield against underinsurance: A CSR compendium