We still need to see more details, but there’s a pretty good chance the bipartisan health deal announced Tuesday by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) is not going to stabilize markets as advertised.
The gist of the deal, which covers only the next two years, is an agreement for Congress to fund so-called cost-sharing reductions (CSRs) in exchange for a relatively vague promise of flexibility for states to manage their health-insurance markets. The CSRs are subsidies for insurance companies to subsidize out-of-pocket expenses for lower-income Americans buying health insurance on Obamacare exchanges; the Trump administration last week announced it would not continue to fund them without a congressional appropriation as the Obama administration had been doing unlawfully.
But the bark of taking away CSRs was going to be worse than its bite. For one, as I pointed out last week when the Trump administration announced it wouldn’t fund them, the amount of premiums most exchange shoppers actually paid wouldn’t have changed. That’s because, according to a Congressional Budget Office projection in August, the higher premiums would have been offset by larger tax credits, which are tied to premiums. That was a bad deal for taxpayers, because the CSRs were less costly to the government than the higher tax credits would have been. And it was a bad deal for the roughly 15 percent of exchange shoppers who don’t receive the tax credits, some of whom might have decided to drop their insurance and pay the tax for not complying with the individual mandate. But the vast majority of those with Obamacare plans wouldn’t have noticed a difference — and some of them, according to CBO, might have been better off. So it’s unclear that taking away CSRs would have reduced the number of people buying plans on the exchange — CBO said the number buying Obamacare plans would have fallen slightly in the short term and increased slightly in the medium term — which is what would have been most destabilizing since it would have accelerated the nascent death spiral we already see.
Second, the big jump in premiums this year, according to the health insurers themselves, wasn’t related to the uncertainty about CSRs. In Georgia, insurance plans on the exchange were going to go up by 23 percent to 41 percent for next year, depending on the insurer, independent of any decision about CSRs. Those amounts were even larger than the increase for 2017. To the extent higher premiums drive away those non-subsidized buyers, it was most likely going to happen regardless of what happened with CSRs, because premiums were going to soar either way.
If the Alexander-Murray deal is going to stabilize markets, the best chance has to do with the state regulation. The one bit of detail we have about that comes in this piece by Politico, which reports there will be a new “copper” level of insurance on the exchanges, amounting to catastrophic coverage, available to those over 30 years old (those under 30 were already allowed to buy such plans, along with others who qualified for certain exemptions from the individual mandate). This could encourage people who have stayed away from, or recently left, the exchanges to buy coverage because it would be more affordable. Combined with something like a direct primary care arrangement, such plans would allow most people enough coverage to prevent their health from becoming a financial burden. Still, it’s unclear if this deal comes too late for most insurers to offer such a product for 2018, given that open enrollment starts in a couple of weeks. So, it might not offer much stabilization in the immediate future. (Other proposed changes, such as increased flexibility in the waivers states can seek for insurance offered on their exchanges, are too vague at this point to evaluate.)
In all, I still believe Alexander-Murray was never going to be the kind of deal to either save or reform Obamacare’s individual market. Whether it provides even enough breathing room for Congress to work out something better also remains to be seen.