February 20, 2017 Leave a comment
I chased my kids through a museum yesterday. Part of the day had them go through a butterfly’s life cycle and there were parts where grown-ups were just too big for it. So I stepped aside and thought about health policy. Specifically the proposed rule that widens the actuarial value bands from +/-2 to -4/+2. A Silver plan under that rule could range from 66% AV to 72% AV instead of 68% to 72%.
We’ve looked at the distributional consequences of that rule last week. Now let’s think about the legislative consequences. The major distributional improvement is that low utilizing people who are not subsidized get slightly lower premiums. Most of the work of that rule will be increasing out of pocket maximums for either un-subsidized but expensive individuals or subsidized individuals.
In some markets (Indianapolis is a likely target), the premium of the second least expensive Silver which sets the subsidy benchmark will decrease as plans go from 68% AV to 66% AV. In those markets the benchmark premium (which no one besides Center for Medicare and Medicaid Services (CMS) and the Congressional Budget Office (CBO) cares about) will decrease. The federal premium tax credit subsidy is calculated as the gap filler between an individual’s capability to pay which is a function of the federal poverty line (FPL) and the benchmark premium. A lower benchmark premium shrinks this gap. This will lead to a lower CBO score for the same number of people covered.
Some of the lower premium tax credit payments will be counter-balanced by higher cost sharing reduction subsidies but on net anyone who is making between 250% FPL and 400% FPL and is receiving a subsidy will see a smaller subsidy.
Why does this matter for Cassidy Collins?
Their plan is to take the entire pool of ACA money that a state would have received from the ACA and take a 5% haircut. From that smaller pool of money, states could elect to continue with an opt-in ACA as is or move towards an opt-out HSA high deductible and catastrophic plan system in their alternative methodology.
This administrative rule shrinks the CBO score for the pool of money that states would be eligible for so it shrinks the pool of money available for Cassidy Collins by a few percentage points. This is critically true for the alternative methodology as their plan spreads the same amount of money (after the 5% haircut) over a much broader population (subsidized, un-subsidized and un-enrolled) so the baseline plans that can be paid for with either just the subsidy OR the subsidy plus the same ACA individual contribution are far skimpier with far higher deductibles. This rule will increase the deductibles that Cassidy-Collins would have to charge by several hundred dollars more per person.