CSRs and an Obamacare primer

I’ve touched briefly on the basic structure of the ACA (Obamacare) before, but with the latest attack on it, it’s worth visiting in more detail.

If there is one message to take away from this post, it is this: the ACA rests on a tripod composed of 1) the mandates, 2) the subsidies, and 3) the essential health benefits. If you take out any of those supports, the ACA doesn’t work. Period.

The first pillar are the mandates. There’s the individual mandate, which requires everyone to have insurance or pay a fine. There’s also the employer mandate, which required employers with 50 or more employees to offer health insurance to their employees. (This is probably a good time to point out that the majority of people obtain health insurance through their employer or through a family member’s employer and therefore are not subject to the individual mandate.) The mandates combine to expand the pool of customers for the insurance companies. That, in turn, has the effect of 1) increasing their potential profits, and to expanding the risk pool.

The risk pool is the potential risk for high cost health care in a given population. That’s really important for insurance companies, especially given that the essential benefits force them to cover a riskier pool. Having a larger pool with people who normally wouldn’t by insurance – young, healthy people who will contribute way more in premiums than they bill in services – makes it feasible to cover the sicker population added to the pool.

The second pillar, the subsidies, makes it affordable for people who are now required to buy insurance to do so on the open market. The subsidies are designes for people who earn between 138% and 400% of the Federal Poverty Level (FPL). The 138% marker comes from Medicaid expansion, which was supposed to cover the gap between 100% FPL and 138% FPL. In states that chose not to expand Medicaid to cover this population, there are people who earn too much for Medicaid and not enough for the subsidies. But, for those who do qualify, the subsidies work directly to reduce the premium cost of the health insurance plan. The subsidies operate on a sliding scale based on income, but it is possible for people to purchase a policy that it covered wholly by the subsidy.

The third pillar of the ACA is the essential health benefits. This pillar benefits consumers in a number of ways. Per Healthcare.gov, the ten essential health benefits are:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Pregnancy, maternity, and newborn care
  • Mental health and substance use disorder services, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

The essential health benefits also include preexisting conditions, birth control, and annual physicals. Basically, these essential benefits set a floor on the policies that can be offered to ensure that when people get coverage, its coverage they can actually use.

The ACA’s tripod sets up a balance where insurance companies have to cover services that cost them more money, but in exchange, they get a larger pool of customers to draw on and may be able to reduce the risk in their overall pool. It sets up a balance where consumers have to buy health insurance, but subsidies exist to help people buy that insurance and the policies they purchase cover them for preventative care as well as emergency or acute care. So, it’s a compromise, but one where everyone gives and gets something.

I feel at this time I should declare that, no, I don’t think the ACA is perfect, and yes, I think there’s room for improvement, particularly in the essential health benefits, fixing the Medicaid gap, exchange competitiveness, and premiums / deductibles. But I think it’s significantly better than what we had before and I’m not willing to go back there without a fight. Anyway, back on topic.

CSRs, or cost-sharing reductions, are part of the second pillar, subsidies. They work by providing a discount on deductibles and out-of-pocket spending to qualified people. Qualification is 250% of the federal poverty line. For the curious, that’s $61,500 for a family of four. Median household income was $56,516 in 2015. In other words, this helps a lot of families. It is also separate and distinct from the standard subsidies that are offered to help people purchase insurance by lowering their premiums on the exchange. But this help in reducing the out of pocket expenses and deductibles can make the difference between affordable care.

CSRs, like the subsidies, are paid by the federal government and, in this case, are paid directly to the insurance companies. But this isn’t free money for them. Insurers have to offer the discounts to qualified consumers. Failure to do so may mean that that insurer cannot offer their plans in the healthcare exchanges. But, as David Anderson pointed out, there’s also language to allow insurers to leave the exchanges if these CSRs are cancelled.

If we look at this in view of the tripod approach, cancelling CSRs is nothing less than an attempt to kneecap the ACA. And if insurers can withdraw from the exchanges over it, it will have the effect of unraveling the ACA where repeated attempts to repeal and replace have failed. So, right now, if you depend on the exchanges for health care, do what you have to do to encourage your state’s AG to join the lawsuit pile on to get a preliminary injunction to force continued CSR payments. And, if you are not already on top of it, get registered to vote and on top of your state and local elections. If there’s one thing 2016 should’ve taught us all is that elections matter. Consider this a prime example.

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