The Impact of Cost-Sharing Reductions on 2018 Insurance Premiums

Cost-Sharing Reductions Will Still Be Available in 2018, Despite Defunding

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On October 12, 2017, the Trump Administration announced that funding for cost-sharing reductions (CSR, sometimes referred to as cost-sharing subsidies) would end immediately. People who buy health insurance in the individual market were understandably anxious about the announcement, wondering whether their coverage and/or subsidies would still be available in 2018.

So let's take a look at what happened and what the effects will be.

First and foremost, all of this takes place in the context of the individual insurance market, where about 17.6 million Americans obtain their health insurance. If you get your coverage from your employer, or from Medicare or Medicaid, the CSR funding issue does not affect your health insurance.

But for those who do have individual health insurance, let's take a look at what to expect:

Cost-Sharing Reductions Will Still Be Available in 2018

The most important thing to understand is that CSR will still be available in 2018. As of February 2017, there were 10.3 million people enrolled in private health insurance plans through the exchanges in the United States, and 57 percent of them were benefitting from CSR, with lower out-of-pocket costs than they would have without CSR. Those benefits will continue in 2018.

84 percent of the exchange enrollees are receiving premium subsidies, which are not the same thing as CSR.

Premium subsidies lower the amount that you have to pay each month to have your coverage, while CSR lowers the amount that you have to pay when you need to use your health insurance to pay for health care. More people receive premium subsidies than CSR because the income limit for premium subsidies is higher, and because CSR is only available on silver plans, while premium subsidies can be used for bronze, silver, gold, or platinum plans.

Despite all the headlines in 2017, and despite the fact that the Trump Administration has cut off funding for CSR, nothing has changed about eligibility for CSR or premium subsidies. Both will continue to be available to all eligible enrollees in 2018.

The only way subsidies would cease to be available would be if all of the participating exchange insurers in a given area were to exit the market, and coverage itself were to become unavailable. That's not out of the question, but it hasn't happened yet in any areas of the country. Insurers had to commit to the federally-run exchange (HealthCare.gov, which is used in most states) by September 27, but their contract has an exit clause that allows them to pull out of the exchange if funding for CSR is cut.

The funding cut was announced on October 12, but insurers in the majority of the states had already based their 2018 premiums on the assumption that funding was going to be cut. And insurers in some other states were given a short window during which they could refile rates with the cost of CSR added to the premiums. This helps to prevent insurers from exiting the market, since they can offset the lack of federal funding with higher premiums, most of which will simply be covered by larger premium subsidies.

So What Is Happening to Premiums for 2018?

Average individual market premiums will be higher in 2018 than they would have been if CSR funding had been committed by the federal government early in 2017. Lack of CSR funding is looking like it will account for nearly half of the total average rate increase for 2018, although the direct impact will be mostly on silver plans, and will be mostly covered by the federal government in the form of larger premium subsidies.

The CSR funding cut was announced in October, but the uncertainty over whether that was going to happen has been a factor throughout the year.

Insurers initially filed rates for 2018 coverage back in the spring of 2017, and state regulators spent the summer reviewing them. In many cases, insurers filed updated rates later in the summer, and one of the most common changes was adding the cost of CSR to premiums, because there had still been no commitment from the federal government to fund them.

You can see rate filings, including actuarial memos that typically detail the reasons for the rate changes, at ratereview.healthcare.gov (select "ACA compliant products," then pick your state and put January 1, 2018 in both the start and end boxes for the effective date range, since all of the rates for 2018 are effective January 1). Looking at the rate filings will give you a good idea of the factors that are driving premiums for 2018. Uncertainty about CSR funding is a big part of the picture. And especially with the revised rates that were filed later in the summer, insurers were increasingly opting to assume that CSR funding simply would not continue, and were pricing their plans accordingly.

Not all states allowed this, however, so some states and insurers have been scrambling to adjust rates at the last minute. But the funding cut did not come out of the blue, and most insurers were already prepared for it with the rates they had filed for 2018.

When Premiums Increase, What Does That Mean for Premium Subsidies?

In most cases, insurers have added the cost of CSR to the premiums for silver plans, since silver plans are the only ones that include CSR. This strategy protects most consumers from the impact of the federal government cutting off CSR funding, since it ultimately just results in larger premium subsidies (premium subsidies are based on the cost of the second-lowest-cost silver plan in each area, so as silver plan premiums rise, so do subsidies).

So although the Trump Administration has cut off CSR funding, the federal government will spend more on the resulting growth of premium subsidies than they will save on CSR payments.

According to an August 2017 Congressional Budget Office analysis of the effect of cutting off CSR funding, the federal deficit will increase by $194 billion over the next ten years, due to the larger premium subsidies and the increased number of people who would qualify for premium subsidies (as silver plan rates increase, more people need subsidies in order to get the after-subsidy premium down to the percentage of their income that's considered affordable).

What Do I Need to Do During Open Enrollment?

The Trump Administration has cut off CSR funding, and the result is going to be sharply higher federal spending on premium subsidies. But individual market consumers will need to pay close attention to the plans that are available for 2018, both on and off-exchange.

The higher premiums due to CSR defunding will mostly apply to the rates for silver plans, but not in every case. In Indiana and Colorado, the added cost is being spread across all metal levels, rather than just silver plans; there are some states where each insurer took a different approach, which means that one insurer might have spread the cost across all plans, while another insurer opted to apply it only to silver plans.

For people who get premium subsidies, the subsidies will offset all or most of the premium increase. Premium subsidies extend up to 400 percent of the poverty level, which is $48,240 for a single individual in 2018, and $98,400 for a family of four.

But it will still be important to comparison shop during open enrollment. CSR is only available if you pick a silver plan, but CSR is also only available to people with income up to 250 percent of the poverty level ($30,150 for a single individual, and $61,500 for a family of four in 2018). If you're eligible for CSR, particularly if your income is below 200 percent of the poverty level, you'll probably want to select a silver plan so that you can get the benefits of CSR.

However, if you're not eligible for CSR but you are eligible for premium subsidies (ie, your income is between 250 percent and 400 percent of the poverty level), you might find that a bronze or gold plan will offer the best value for 2018.

That's because the premium subsidies will be based on the cost of a silver plan, which will increase by a larger percentage in many cases than the bronze and gold plans available in that same area. But those premium subsidies can then be used to purchase plans at any metal level—not just silver plans. That makes the bronze and gold plans (and platinum plans, in areas where they're available) a relatively better value after the application of the premium subsidy.

In some cases, silver plans will actually be more expensive than gold plans, which will make them a clearly better value for people who don't get CSR, since the benefits of gold plans are more robust than the benefits of non-CSR silver plans.

For people who don't get premium subsidies, it will be important to see how plans at each metal level compare with each other. If silver plans end up being more expensive than gold plans in a given area, it will make sense to pick a gold plan instead of a silver plan (or a bronze plan, which will be less expensive).

And people who have ACA-compliant individual market coverage outside the exchange (ie, purchased directly from the insurance company, rather than through the exchange) will also need to pay attention to this issue. Off-exchange silver plans in many areas (and off-exchange plans at all metal levels in states like Indiana and Colorado) will have the cost of CSR factored into their premiums. This will be the case for off-exchange plans that are also sold on-exchange, since the price has to be the same for the same plan, regardless of whether it's sold through the exchange or directly to consumers.

A Word From Verywell

Headlines about healthcare reform have been constant throughout 2017, and the announcement that CSR funding would end immediately has caused understandable anxiety in people who buy their own health insurance.

But while CSR funding has been cut off, the availability of CSR itself has not changed. Premium subsidies will also continue to be available in 2018, and will be considerably larger than they would have been if CSR funding had been committed earlier in 2017.

Because of the larger premium subsidies, most consumers will be protected from the brunt of the rate increases that are necessary to cover the cost of CSR. But it will be more important than ever for individual market consumers—both on and off-exchange—to carefully compare the available options during open enrollment, keeping in mind that open enrollment will be much shorter than it's been in prior years.

If you need help figuring out what plan to pick, reach out to a navigator or broker in your community, or call the exchange in your state (start at HealthCare.gov, and if your state has its own exchange, you'll be directed there when you select your state).

Sources:

Centers for Medicare and Medicaid Services. 2017 Effectuated Enrollment Snapshot. June 12, 2017.

Congressional Budget Office. The Effects of Terminating Payments for Cost-Sharing Reductions. August 1, 2017.

Mark Farrah Associates. A Brief Look at the Turbulent Individual Health Insurance Market. July 19, 2017.

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