Upon release of the Congressional Budget Office (CBO) analysis of the “stability” bill he and Sen. Patty Murray (D-WA) introduced last week, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) issued a statement claiming that “we have language in our proposal to make sure that benefits go to consumers and to taxpayers and not to insurance companies” and that “the Congressional Budget Office has found that our proposal benefits taxpayers and benefits consumers, not insurance companies. The specific benefit to the taxpayers is $3.1 billion.”
Unfortunately, Alexander is only half correct. The CBO score reveals that the Alexander-Murray bill would provide some benefit to consumers, but it would also provide a direct, taxpayer-funded bailout to insurers that will likely match, and could well exceed, the benefit to consumers. Overall, insurers could receive a windfall of $4 to $5 billion—more than the “specific benefit” to taxpayers.
A single sentence, buried in the middle of page five of the CBO score, highlights that language in the bill providing an appropriation for cost-sharing reduction (CSR) payments will increase overall federal spending: “Simply comparing outcomes with and without funding for CSRs, CBO and [the Joint Committee on Taxation] expect that federal costs in 2018 would be higher with funding for CSRs because premiums for 2018 have already been finalized and rebates related to CSRs would be less than the CSR payments themselves. [Emphasis mine.]”
In other words, overall federal spending will rise because insurers will pocket some portion of the CSR payments rather than rebating that money back to taxpayers and consumers.
Allowing Health Insurers’ ‘Double Dipping’
The report addresses language in Section 3(b) of the Alexander-Murray bill (pages 13-18), intended to prevent “double dipping” for plan year 2018 as it relates to cost-sharing reduction payments. As CBO noted, premiums for the 2018 plan year have already been finalized, with open enrollment starting next week.
In most states, insurers submitted significantly higher premium rates, because they assumed they would not receive CSR payments from the federal government. However, including a CSR appropriation at this late date would allow insurers to “double dip”—receiving both the direct CSR payments and the higher premiums that they calculated in the belief that they would not receive CSR funding.
While Section 3(b) of the bill includes language requiring insurers to provide a “direct financial benefit to consumers and the federal government,” CBO’s analysis indicates that those benefits would not equal the spending on subsidies to insurers:
- In a September report, CBO concluded that spending on CSR payments would total $9 billion for fiscal year 2018.
- In that same September report, CBO assumed that, if CSR payments went away, premiums would rise “by an average of roughly 15 percent.” Based on a total of $52 billion in federal insurance subsidies ($47 billion in premium subsidies, plus $5 billion for the basic health program), a 15 percent increase would equal roughly $7.8 billion in higher subsidy payments.
- Conversely, CBO said yesterday the federal government would receive only $3.1 billion in rebates back from insurers relating to CSR payments for plan year 2018.
Under their best-case scenario, insurers could pocket up to $4 to $5 billion—nearly $8 billion in “excess” premium subsidies, offset by only $3.1 billion in rebates. (Because insurers have to reduce cost-sharing for qualified enrollees regardless, the $9 billion in CSR payments would be considered a “wash.”)
That best-case scenario appears somewhat unrealistic. Some states specifically instructed insurers to assume CSR payments continue, so carriers would not receive “excess” premium subsidies in those states. Regardless, the fact that the $7 to $8 billion in “excess” subsidies dwarfs the $3.1 billion in rebates provided to taxpayers indicates the extent to which insurers would pocket the extra government spending.
A Better Solution: No Bailouts
Given CBO’s conclusions with respect to the Alexander-Murray bill, it is difficult to see how any legislation can resolve the problem of giving windfalls to insurers for the 2018 plan year. Because plan premiums are already set for the upcoming year, and in most cases assume that the federal government will not make CSR payments, there is no feasible way to make those payments yet prevent “double dipping” by insurers. In other words, any bill providing cost-sharing reduction payments for 2018 will by definition give insurers a massive bailout.
Given this dynamic, some conservatives may believe Congress would be better off spending the next few months scrutinizing the questionable behavior and decisions by insurers and insurance regulators that brought the CSR debate to this point. Better yet, Congress could repeal the onerous regulations that necessitated massive payments to insurers to partly offset the costs of these mandates in the first place.