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If CSRs Cease, 'Silver-Gapping' Could Benefit Some

Analysis  |  By Gregory A. Freeman  
   August 23, 2017

Health plans are likely to raise premiums if cost-sharing reduction subsidies are halted. That would hurt many consumers, but some could actually benefit.

The Trump administration's recent concession on cost-sharing reduction (CSR) subsidies will not be enough to keep healthcare insurers from raising rates significantly for 2018, one analyst concludes.

That's because it would be way too to assume that the payments will continue. But it is possible some consumers could actually benefit from the dispute.

An effect called "silver-gapping" could result in some consumers receiving higher tax credits because of premium increases, which they could use to reduce expenditures for a basic health plan or help them splurge on a better plan.

That could mean that the predictions of millions of more uninsured Americans are overblown, says Dennis Deruelle, MD, FHM, national medical director for acute services with IPC Healthcare/TeamHealth. The company provides healthcare professional staff and integrated care providers in Tampa, FL.

Silver-gapping could even end up strengthening the insurance marketplaces, he says.

The administration agreed to pay the CSRs for August, but future payments will be decided on a monthly basis. Health plans can still change their rates up until Sept. 6, which means they must decide between now and then whether they can count on the CSRs continuing.

The Trump administration has threatened to withhold the subsidies as a way to put leverage on both Congress and insurers over healthcare reform, pointing out that Congress never appropriated money to fund the payments, which help compensate insurers for providing reduced premiums to low income people.

The monthly payment is welcome, but health plans need a long term commitment, says CEO John Baackes of L.A. Care, which covers more than 2 million Medi-Cal members.

"The ambiguity from Washington does not enable insurers to plan appropriately to ensure value and access to the quality health care that consumers deserve," he says.

"CSRs are a critical part of the exchanges that help to stabilize the markets, and without the CSR payments, millions of Americans will suffer from higher costs, reduced access to care, and many will simply have no choice but to go without coverage."

Just before the administration released payments for August, a report from the Congressional Budget Office (CBO) said premiums for silver plans offered through the Affordable Care Act marketplaces would be 20% higher in 2018 and 25% higher by 2020 if the CSRs are discontinued.

"They have to make a decision about hedging their bets for 2018, and some are just baking in a 20% increase because the CBO said that would be the impact of losing the CSRs," Deruelle says.

"Some are filing two rates, one for if the CSRs continue and one for if they don't, but eventually they will have to commit to one or the other. Overall, companies are increasing their rates."

Oddly enough, though, some people could benefit.

The subsidies are based on the cost of second-highest silver plan, and if discontinuing the CSRs leads insurers to raise premiums on only those silver plans, there could be unintended consequences.

The government could end up paying more through the premium tax credit, a refundable credit that helps eligible individuals and families cover the premiums for their health insurance.

"You're actually going to create some strange phenomena in which people could actually get a bigger subsidy and almost get a bronze plan for free or even afford a gold plan with the extra money they're going to get," Deruelle says.

"Believe it or not, this could be advantageous for some people. The CBO idea that all these people will lose insurance–that's not going to happen. In fact, the exchanges gain more people and overall there is no increase in uninsured."

That does not meant that no one will suffer when health plans increase premiums, Deruelle notes, and those potential benefits vanish if insurers raise premiums across the board instead of just on the silver plans affected by CSRs. Some states are likely to prohibit increasing premiums on just silver plans, Deruelle says.

"This is a complicated law with consequences that build on one another, and the effects are sometimes hard to predict," he says.

"This is a perverse situation in which there could be one group of people who benefit when premiums are raised, but there is still a lot of uncertainty."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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