When a “Bailout” Isn’t a “Bailout”:
I really enjoy Twitter. Just a few days ago, after I tweeted about a particular federal program that helps poor people pay for their health insurance, I got this response above.
Sometimes seeing the raw, unvarnished truth about how people are feeling is quite valuable. Since Twitter is global, I always assume there are more people out there who would share the same sentiments. This is America, and they are totally entitled to their opinion.
My job, on the other hand, is to shed some light on the assumptions underlying such a Tweet and give the Straight Talk on healthcare costs.
This particular Tweet was about a federal program called Cost Sharing Reductions, CSRs for short. I’ve written about CSRs before here, and explained how important these payments are to make insurance more affordable for some 100,000+ people in Louisiana, including 50,000 of our own Blue Cross customers. They are your friends and neighbors, and mine too.
Where Does CSR Funding Go?
I’ll give a quick review of how CSRs help defray costs for lower-income customers. Here’s a picture that might help:
The slide above demonstrates the 2 types of federal assistance available to lower income folks on healthcare.gov
- Notice how a person’s premium contribution (the line graph) drops as their income drops.
- Notice how their cost sharing (deductibles, copays, etc.) are reduced based on their income as well (yellow arrows)
From the graph above, you can see that two streams of federal funding flow to lower-income folks who buy Silver plans on healthcare.gov for their individual health insurance needs: Advanced Tax Credits and CSRs.
Advanced Tax Credits subsidies are responsible for lowering the premiums from the base $761.21 per month to as low as $40.99 per month if a person’s income drops to about $16,400 a year as a single. People whose incomes fall lower than that would typically be eligible for Medicaid.
But, the complaint in the Tweet above, and what I’m addressing today, is about CSR subsidies that go directly to lower out-of-pocket costs (like copays and deductibles) for lower-income folks.
Notice this Silver Plan has (by federal design standards) a $3,000 deductible and a maximum out-of-pocket cost of almost $6,000 per year. On the lower-income part of this scale, we are talking about people making maybe $18,000 a year. What are the odds they will ever raise the money to cover a $3,000 deductible? Pretty slim. You can imagine that without the CSRs taking their deductibles down to as low as $50 a year, lower-income folks with private insurance would hardly ever use it.
That’s why the federal government included CSR subsidies in the plan designs under the Affordable Care Act (ACA) – to make health insurance more affordable for them, and to provide funding for insurers to offer CSRs in plan designs for eligible customers.
How Do Insurance Companies Use CSR Payments?
But, my irritated Twitter friend above does raise a valid point: Why do insurance companies need more money from the government to pay for care for these folks? Is it really a “bailout” to very profitable companies?
I can’t speak for every health insurance company in America, but I can tell your from the perspective of Blue Cross and Blue Shield of Louisiana, “profits” from healthcare.gov business have been pretty hard to come by the past few years — we’ve lost more than $200 million since 2014.
And, the fundamental design of how these CSRs actually work shows they are not a bailout for insurance companies. You see, a CSR payment from the federal government is essentially a pass-through.
An insurance company like Blue Cross can only use that money to pay the cost-sharing for things like copays and deductibles that real members use for real treatment.
In fact, every quarter, the federal government reconciles the CSR amount it sends to an insurance company with the amount that company’s eligible customers actually used. If there’s a difference, the federal government can take back any unused funds or move them on to the next person who needs it.
By law, insurance carriers cannot make one cent of profit from a CSR payment. Not one cent.
Does that sound like a “bailout” to you? Of course not.
So, the Straight Talk is, CSRs are a direct subsidy to the working poor that pass-through insurance companies to help make their coverage more affordable. Carriers may not profit from this pass-through, and federal audits guarantee that fact. Period.
Why The CSRs Are Such a Hot Topic
One other important point about CSRs: while the ACA is still the law of the land, Blue Cross and other insurers selling plans on healthcare.gov are legally bound to offer CSRs to eligible customers. In the event the government doesn’t fund them, we must absorb the higher costs and factor in those costs when setting premium prices.
That uncertainty is what’s driving a lot of the 2018 premium rate increases we’re seeing reported in the news these days. Here at Blue Cross, if there had been guaranteed CSR funding, we would have had a single-digit rate increase on average for 2018 plans, instead of filing a double-digit average rate increase.
That’s the Straight Talk: No “insurance company bail-outs” here.