Options for Reinvesting Savings from Restored Federal Cost-Sharing Reduction Payments

Examining the Effects of Two Policy Alternatives on Spending and Enrollment in the Individual Health Insurance Market

by Sarah A. Nowak, Jodi L. Liu, Preethi Rao

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Research Questions

  1. What would happen to health insurance enrollment in the United States and California if federal lawmakers used the savings from restoring CSR payments to provide additional health insurance subsidies or to finance reinsurance?
  2. Who would benefit and who would be worse off if federal lawmakers used the savings from restoring CSR payments to provide additional health insurance subsidies or to finance reinsurance?

Under the Affordable Care Act (ACA), insurers are required to offer subsidies that reduce cost-sharing for eligible exchange enrollees who have incomes below 250 percent of the federal poverty level (FPL) and are enrolled in silver-tiered exchange plans. Under the original implementation of the ACA, the federal government made payments to insurers to cover the costs of the cost-sharing reduction (CSR) subsidies. CSRs reduce consumers' out-of-pocket health care costs (premiums, deductibles, and coinsurance), thereby increasing the actuarial value of plans.

In late 2017, the Trump administration decided that federal payments of CSRs were unlawful and halted the federal payments. A new congressional appropriation would be needed to reinstate federal CSR funding under the current administration's policy. Insurers are still required to provide CSR subsidies to qualifying enrollees, despite the fact that the federal government is no longer making CSR payments to insurers. As a result, most states and insurers adopted a practice known as "silver loading" to fund CSRs.

Earlier research established that the federal government would likely save money if federal CSR payments to insurers were restored, but total health insurance enrollment — and, in particular, enrollment on the individual market — would decrease. The authors of this report analyze what would happen if federal lawmakers used the savings from restoring CSR payments to provide additional health insurance subsidies or to finance reinsurance. Additionally, they examine how these scenarios would affect premiums and out-of-pocket premium spending both in California and at the national level.

Key Findings

Insurance enrollment nationally would increase, but coverage in California would decrease

  • In the alternative scenarios relative to the status quo, total enrollment increases in the United States but decreases in California.
  • In the enhanced subsidy scenario, individual market enrollment increases among those with incomes below 300 percent of the FPL and falls for those with incomes between 300–399 percent of the FPL.
  • In the reinsurance scenario, enrollment falls for most groups that qualify for advance premium tax credits relative to the status quo, and increases for those who are not subsidy-eligible.
  • Subsidy-eligible individuals with incomes below 138 percent of the FPL benefit in the enhanced subsidy scenario.

Out-of-pocket premium spending is different depending on the scenario

  • Silver premiums decrease in the alternative scenarios relative to the status quo in both the United States as a whole and in California.
  • Non-silver premiums increase by 2 percent in both the United States and California in the restored CSR payment with increased subsidy scenario.
  • Non-silver premiums decrease in the reinsurance scenarios.
  • In the enhanced subsidy scenario, we find that out-of-pocket premium spending will decrease for those 50 and younger in the national model and increase for those 50 and older.
  • In California, out-of-pocket premium spending will increase for all age groups in both the enhanced subsidy scenario and the reinsurance scenario.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Methods

  • Chapter Three

    Results

  • Chapter Four

    Discussion

  • Appendix A

    Detailed Methods

  • Appendix B

    Changes in Premium Payments to Maintain Coverage

  • Appendix C

    Sensitivity Results

Research conducted by

The research described in this report was sponsored by Families USA and conducted by the Payment, Cost, and Coverage Program within RAND Health Care.

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