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Insurers brace for possible absence of critical cost-sharing payments

Following threats that President Donald Trump may withhold critical cost-sharing reduction subsidies, insurers, states and Congress are weighing contingency plans to offset major losses that could ensue if the administration follows through.

Trump posted on social media July 29 and July 31 that his administration would stay payments to insurers if "a new HealthCare Bill is not approved quickly," referring to the U.S. Senate's refusal to pass a repeal of the Affordable Care Act.

In May, the White House indicated it may skip payments to insurers. Trump's latest posts mark the second time the administration has threatened to stay the payments, which are made on a monthly basis. The next payment, if preserved, is expected to occur by Aug. 21.

Cost-sharing reductions, or CSRs, are payments the government makes to insurers to keep costs low for low-income or intensive-care patients and to prevent such costs from ballooning for companies. Insurers, regulators and lawmakers have said that plans offered in the absence of CSRs would need to raise premiums to make up for the costs.

A recent Congressional Budget Office report stated that insurers are on track to receive $7 billion in payments in 2017. In 2018, the CBO estimated insurers will receive $10 billion.

Key insurers Anthem Inc., Humana Inc. and Molina Healthcare Inc. have stated they would withdraw from markets nationwide if the payments were to cease.

Larry Levitt, co-executive director of the Kaiser Family Foundation's Program for the Study of Health Reform and Private Insurance said in an interview that Anthem is the "most important insurer to watch" as an announcement comes from the White House.

"They have a big footprint … including many counties across the country where they're the only game in town," Levitt said.

In the company's second-quarter earnings call, Anthem Chairman, President and CEO Joseph Swedish warned that the company would pull out of more marketplaces if CSR payments are not distributed.

Swedish has followed through on his promise.

Anthem announced Aug. 1 that it was withdrawing from 16 of 19 pricing regions in California, citing uncertainty regarding cost-sharing reductions, the "deterioration" of the individual market and the restoration of taxes on insured coverage as factors for its decision.

In an internal memo from the BlueCross BlueShield Association seen by S&P Global Market Intelligence, insurance companies are filing rates assuming no CSR funding in at least 14 states.

The memo states that some insurers are submitting "dual" filings, one assuming CSR funding stays intact and one assuming it does not. Individual states' insurance departments set their own standards for the filings.

According to the memo, out of a total of 10 states, three required or allowed dual filings, three required or allowed filings with no CSR funding assumed, three required or allowed filings with full CSR funding assumed, and one indicated it will allow updated filings to accommodate uncertainty in CSR funding.

Experts agreed that insurers would seek other ways to offset the cost of withheld payments in the form of raising premium rates, as opposed to withdrawing from the market completely.

The Kaiser Family Foundation estimated earlier this year that insurers would have to hike rates at least 19% if subsidies are not funded by the government for benchmark "silver" plans.

But whether the Trump administration can legally withhold the payments has become the centerpiece of an ongoing debate.

The matter at hand is whether the payments are between appropriations and authorizations, said Bob Atlas, president of EBG Advisors, the consulting arm of the Washington, D.C.-based Epstein Becker & Green law firm.

"In legislative speak, there are authorizations and appropriations," Atlas said. "What we have here is an authorization of a sort but not an appropriation. And since this was a matter of dispute, it is at a head."

The administration of President Barack Obama felt that it was right to make the payments, and the Trump administration has approved the payments too in the past, Atlas said.

Meanwhile, states and insurers are likely to take matters into their own hands by filing lawsuits against the administration if payments, mandated under the law, are detained.

On Aug. 1, the U.S. Court of Appeals for the District of Columbia Circuit granted a motion filed by 16 attorneys general to defend CSR payments to insurers offering plans in their respective states.

Chris Sloan, senior manager at research firm Avalere Health said in an interview that a slew of lawsuits may be unleashed from insurers that want to keep offering plans without having to hike rates at unreasonable levels.

Sloan said states are likely to continue to keep applying for 1332 waivers, which would allow them to manage their own health systems independently of the government.

Only two states have received such approval from the Centers for Medicare and Medicaid Services, which would allow states to use reinsurance to cover higher-risk individuals.

Alaska, the second state to have its waiver approved, projected the program will cut premiums by 20% in 2018 and increase the number of covered residents. Premera Blue Cross Blue Shield of Alaska has filed for a 21.6% average decrease in rates in the state.

Meanwhile, Minnesota passed a law in early 2017 to use reinsurance to stabilize its individual market.

Levitt said efforts from states, including conservative ones like Minnesota, would ramp up as states try to avoid disruption in care for their citizens.

"This debate has been playing out in Washington, but ultimately, if people lose their insurance, state officials may bear the political brunt. So I would expect state departments to try to mitigate the impact if CSR payments are withheld," Levitt said.

At the national level, Sen. Lamar Alexander, R-Tenn., chairman of the chamber's Health, Labor and Pension Committee, has urged Trump to temporarily fund CSRs so Congress can work on a short-term solution to stabilize the individual market in 2018.

Alexander also announced a series of hearings to be held in September to take recommendations from all stakeholders to "stabilize and strengthen the individual health insurance market so that Americans will be able to buy insurance at affordable prices in 2018," he said in a statement.