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On October 12, President Trump announced that the government would no longer make Cost-Sharing Reduction (CSR) payments to health insurance companies. What are CSR payments? And what effect does their cancellation have on my health insurance coverage. Will the cost of my policy go up? How about deductibles and co-pays — will they increase? How does this affect my purchase of insurance coverage for 2018?

What are CSR Payments? The Patient Protection and Affordable Care Act (ObamaCare) made health care affordable to lower and middle income Americans who purchase insurance on the individual market in two primary ways. First, it provides direct premium subsidies in the form of tax credit payments to individuals and families who earn between 100 percent and 400 percent of the federal poverty level (FPL). These premium subsidies effectively reduce the cost of policy premiums. Second, ObamaCare requires that insurers provide reduced deductibles, copays and other out-of-pocket costs on policies purchased by consumers whose income is between 100 percent and 250 percent of the FPL. Cost-Sharing Reduction (CSR) payments made by the federal government to the insurers, rather than directly to consumers themselves pays for these reductions.

The following chart will give you an idea of who is eligible for direct premium subsidies and who indirectly benefits from CSR payments by qualifying for lower deductibles, copays and out-of-pockets. To simplify the chart, it only includes families of one person or four persons.

 

 

 

 

 

100% of FPL

250% of FPL

400% of FPL

Number of persons in family

 

 

 

1

$12,000

$30,150

$48,210

4

$24,600

$61,500

$98,000

So a single person earning between $12,000 and $48,210 per year (or a family of four earning between $24,600 and $98,000 per year) will qualify for direct premium subsidies under ObamaCare. The specific amount of subsidy that you qualify for will be greater (as a percentage of income) at the lower income levels. For example, a single person who earns about $24,000 per year will have his or her monthly premium capped at $130 per month for a benchmark plan. Likewise, a single person earning between $12,000 and $30,150 per year (or a family of four earning between $24,000 and $61,000 per year) will be charged lower deductibles and copays under their plan. The specific reductions in deductibles and copays will be greater at the lower income levels. For example, a person at the lowest qualifying income levels may have a deductible of $250 per year rather than $3,000 per year.

How Will the Trump Administration’s Cancellation of CSR Payments Affect the Terms of my Insurance? There are three aspects of this problem to consider:

            Will the scoop of my coverage change? No. The Trump Administration action on CSR payments does not change in anyway the ACA requirements on coverage under your health policy. (The Trump Administration did issue a different executive order at about the same time that might, if put into effect, allow the sale of health insurance policies with less guaranteed coverage. But such policies will not be available for some time, if ever).

            Will my rights to premium subsidies change? No. The administration’s action on CSR payments does not effect in any way the ACA requirements that persons who earn between 100 percent and 400 percent of the FPL must receive direct subsidies to cover the cost of health insurance premiums. And the amount of the subsidies is not affected by withholding of CSR payments.

            Will my rights to reduced cost-sharing (deductibles and copays) change? Again, no. The Trump Administration action halts CSR payments to health insurance companies, but in no way changes the legal obligation of those insurers to provide reduced deductibles and copays to qualifying customers, that is, those customers whose incomes are between 100 percent and 250 percent of the FPI.

It is obvious that this creates a major problem for health insurance companies — they are obligated to provide cost-reduction benefits to their customers, but will no longer receive CSR payments from the government in reimbursement. It is reasonable to expect that insurers will react to this problem in one of two ways; they will either drop out of the individual insurance market or they will increase their premiums to recover the terminated CSR payments. How the insurance companies react will effect your insurance options for 2018. Fewer insurers in the market will limit your options, and higher premiums will increase your overall costs. Not good.

How Will the Trump Administration’s Cancellation of CSR Payments Effect the Cost of my Insurance? The answer to this question depends to a large extent on what state you are in. Not all states have approached the ACA in the same way. Some have been more receptive and proactive. Others less so. Some have naturally larger, more robust and active insurance markets than others. The remainder of this article will refer to the individual health insurance market in California, where I live and am licensed as an insurance broker. It is the market I know.

First, there are eleven insurance companies active in this market in California in 2017, and all eleven have announced that they will remain in the market in 2018. However, two of those insurers will reduce the geographical areas within California in which they will offer policies. So there will continue to be a competitive market in California, but there will be some reduction in competition and coverage in some regions.

The second area of concern is price. Will premium increase in California as a result of the administration’s decision to withhold CSR payments from insurers? Because the Trump Administration has been threatening to withhold CSRs for some time, Covered California (the ACA marketplace for insurance in California) and the California Insurance Commissioner (who regulates such insurance) required all participating insurers to submit premium pricing proposals for 2018 in two forms - one assuming that CSR payments would continue and the other assuming that the administration would terminate those payments. As a result of this foresight, California consumers know exactly what premium prices will be in 2018 now that the administration has decided to end CSR payments. Silver tier policies will be assessed a special premium surcharge of 12.4 percent, on average, to offset the fact that insurance companies will no longer receive CSR payments from the federal government. This is an average; some policy premiums will increase in a greater amount, some in a lesser amount.

Family of four

As mentioned above, if you are entitled to cost reduction benefits (lower deductibles and copays) because your income level is between 100% and 250% of the FPI, that has not changed. You will get that same benefit in 2018. Furthermore, if you are entitled to premium subsidies because your income level is between 100% and 400% of the FPI, that has not changed. You will get that same benefit in 2018. Now here is the tricky part. Even though some premiums (those on Silver tiered plans) will increase in 2018 due to the special CSR surcharge, customers who qualify for premium benefits will, for the most part, not see an increase in actual costs to them because the premium subsidy will offset the premium increase. Covered California has estimated that 78 percent of those customers who qualify for premium subsidies in 2018 will either see no net increase in their premium payments as a result of the CSR surcharge or will actually see a small reduction. The remaining 22 percent of such customers will experience a net increase in premium due to the CSR surcharge, but in about half of those cases the increase will be under $25 per month.

If, however, you are not qualified for premium subsidies because you expect to earn more than 400 percent of the FPI in 2018, you will bear the full burden of the administration's decision to withhold the CSR payments from insurers and the resulting increase in policy premiums. But you are not without options. You should consider lower (Bronze) or higher (Gold or Platinum) tiered plans, which are not subject to the CSR premium surcharge. In addition, you should consider purchasing a policy directly from an insurer rather than through the Covered California marketplace. Expanding your options in these ways could result in good coverage at a better price for you and your family.

The bottom line is that the administration’s decision to withhold CSR payments from insurance companies has thrown a curveball into the marketplace for 2018. Things just got a bit more complicated. Those customers who qualify for premium assistance need to figure out whether the CSR surcharge will affect their existing policies, and if it does, what their alternatives are. And those customers who do not qualify for assistance will probably need to look at a broader range of available options to maintain the quality of their insurance coverage while limiting cost increases. Pfeifer Insurance Brokers has the experience and expertise to help you sort through these complex issues. And our assistance is available at no cost to you.

 

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