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Analysis

Critics Warn Premiums Will Rise Under CMS' Tweaked 2020 Subsidy Formula

By Steven Porter  
   April 19, 2019

The agency said its methodology will better reflect the individual market. Critics said the change may not be legally justified.

A final rule released Thursday by the Centers for Medicare & Medicaid Services will change the way premium subsidies are calculated next year, and some stakeholders worry the policy will shift more costs onto beneficiaries.

The government's existing methodology accounts for premium growth by tracking premiums for employer-sponsored plans only. The new methodology will account for premium growth by incorporating data from private individual insurance as well. The idea, CMS said, is to adopt a methodology that reflects the individual market.

"This technical change in the premium adjustment percentage methodology will provide a more comprehensive and accurate measure of private market premiums," the agency said in its announcement. "This change will have little impact on gross individual market premiums, but it will provide savings for taxpayers."

Critics contend, however, that changing to the new approach will result in higher premiums, may not be legally justified, and fails to provide a meaningful way to track premium growth.

"Because individual market coverage changed radically between 2013 and 2014, with coverage more comprehensive and a very different population covered, comparing prices before and after those changes does not provide meaningful information about the change in the price of similar coverage—it is like comparing the price of apples in 2013 to the price of oranges today," Jason Levitis, a nonresident senior fellow at Yale Law School's Solomon Center for Health Law and Policy wrote for the Brookings Institution in February, after the proposed rule was released in January.

The change, Levitis wrote, would reduce the affordability of health insurance and result in fewer people having coverage.

In analysis for the Center on Budget and Policy Priorities (CBPP), Aviva Aron-Dine and Matt Broaddus wrote that the "seemingly minor change" would raise premiums for at least 7.3 million people on Marketplace plans and cause 100,000 people to drop their coverage each year, citing the Trump administration's own estimates. The rule also increases limits on total out-of-pocket costs.

Aron-Dine and Broaddus noted that this change is "an entirely discretionary choice" by the administration because neither the ACA nor any other statute requires it.

The American Hospital Association, too, had urged CMS to refrain from adopting this change in the final rule.

"The marketplaces have begun to demonstrate signs of stability, and this change could undo this progress by creating a cost barrier for consumers," the AHA wrote in a comment on the proposal.

The final rule—known formally as the Notice of Benefit and Payment Parameters for the 2020 benefit year, or the 2020 Payment Notice—also finalized a proposal that CMS said would result in lower premiums. The agency will cut user fees to 3%, from 3.5%, of premiums for federal exchange plans and to 2.5%, from 3.0%, for plans on state-based exchanges.

CMS Administrator Seema Verma said the rule "will give consumers immediate premium relief for 2020 by reducing the federal exchange user fees thanks to successful efforts to improve the efficiency of the exchange."

There's also a request for comment on silver-loading. The agency said it wants to end silver-loading, but it did not finalize anything on that topic at this time.

More detail is available in the CMS announcement, fact sheet, letter to issuers, list of key dates for 2020, and the final rule itself, which is scheduled to publish next week in the Federal Register.

—Steven Porter is an associate content manager and online news editor for HealthLeaders, a Simplify Compliance brand.

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