A New Obamacare Proposal Might Not Be Legal–23lh., 13.14
part 1 of 4
The Obama administration proposed this week new rules for its Risk Adjustment program, a critical component of the Affordable Care Act. There are actually some better-late-than-never parts of the proposal. Most notably the new rules will try to compensate for the extra expense insurers incur when people exploit ACA regulatory and enforcement weaknesses to time their insurance purchases to cover only expensive medical emergencies.
Unfortunately, the better parts of the new Risk Adjustment proposal are contaminated by an illegal component : one that would transfer money among insurers in different states. Under this part of the proposed rules, which will take effect in 2018, insurers who sell policies in states where medical costs have gotten under a modicum of control such as Utah or Georgia will end up subsidizing insurers who sell policies in states where medical costs continue to be sky-high, such as Massachusetts or Connecticut. Although perhaps Congress might have authorized such inter-state subsidies as part of the Affordable Care Act, Congress declined to do so when it enacted the law. Motivated to resuscitate an ailing ACA, and recognizing that its Risk Adjustment program has failed to provide the desired stabilization, the Obama administration now forgets that restriction and, deep within its 293-page latest rule release, proposes to move money between states anyhow. Does the Obama administration not have lawyers that can read?
The illegality of the new plan will in fact turn Risk Adjustment into an even bigger mess than it is today. Already, some insurers are having trouble making Risk Adjustment payments, creating difficulties in some of the states. When all insurers have a reason not to pay–at least in full–the system will face additional stress. Not only will the federal government lack anticipated funds and be tied up in litigation, but other adjustments made to Risk Adjustment on the assumption that these inter-state transfers would exist will now make no sense.
The Obama administration has already acted illegally in efforts to salvage the ACA. Its unauthorized spending on cost-sharing reductions and its illegal diversion of money to provide free reinsurance to certain insurers are Exhibits A and B. To see why the latest plan is another example of executive lawlessness requires a journey into the text of the ACA, section 1343 to be specific (now codified at 42 U.S.C. § 18063
Using the criteria and methods developed under subsection (b), each State shall assess a charge on health plans and health insurance issuers (with respect to health insurance coverage) described in subsection (c) if the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year that are not self-insured group health plans (which are subject to the provisions of the Employee Retirement Income Security Act of 1974).
The key points are (1) it is the states that are to assess the charge, (2) the charge is to be made on plans “described in subsection (c),” and (3) the charge is based on the “actuarial risk of the enrollees of such plans or coverage.” You don’t look at the average actuarial risk of the enrollees of all plans everywhere: Rather, you compare the average actuarial risk of all enrollees of “such plans or coverage” to the average actuarial risk of all enrollees of all plans or coverage in such State.”
So, let’s look at the referenced subsection (c) and see what these “such plans” are about.
A health plan or a health insurance issuer is described in this subsection if such health plan or health insurance issuer provides coverage in the individual or small group market within the State. This subsection shall not apply to a grandfathered health plan or the issuer of a grandfathered health plan with respect to that plan.
In plain English, the “such plans” that form one part of the comparison are plans sold in the state levying the charge. And the plans to which the “such plans” are to be compared are the other plans (with an ERISA exception) sold within “such State,” i.e. the state levying the charge. Charges are not to be based on plans and health insurance issuers providing coverage in other states. The laws says each state is a self-contained unit. And, indeed, until the proposal released this week threatened otherwise, this is exactly how it has been operated.
The proposal by the Center for Medicare and Medicaid Services (CMS) ignores this state-by-state compartmentalization of the law, however, by creating what amounts to national reinsurance cooperative. CMS aggregates all claims from all insurers subject to Risk Adjustment across the nation. It tallies up 60% of those claims that to the extent they exceed $2 million. (Kind of a sad commentary on American healthcare that we have enough of these to warrant legal intervention!) So, if a claim was $3 million, CMS would add $600,000 to the tally (0.6 x (3,000,000-2,000,000)). Suppose, just for argument, that the total national tally ends up being $100 million. CMS would then divide that sum by the total premiums collected from these insurers across the nation. Say these total premiums ended up being $50 billion, just to use round numbers. So, after we do the division ($100 million divided by $50 billion), the amount per premium is 0.2%. CMS would then tax each insurer 0.2% of their premiums. It would give the insurers who had these high-cost cases 60% of the amount that exceeded $2 million. If large claims in, say, Delaware increased, then the tax on insurers throughout the nation would increase too.
CMS confesses that its scheme would involve interstate transfers of responsibility. On page 66 of its proposal, it writes: “Creating a uniform pool of high-cost enrollees, by risk pool or market, could result in some States or geographic areas subsidizing issuers with high-cost enrollees in other States or geographic areas, as we discussed at the conference and commenters to [an earlier] White Paper noted.” Exactly. The proposal means that an insurer in, say, Utah or Georgia or Texas or Arizona, who, say, has none of these extremely expensive cases ends up paying for the claims of an insurer in Massachusetts, Connecticut, Maine or Delaware who has a bunch. (Medical expenses in Massachusetts are about 84% higher than in Utah.) CMS then brazenly justifies the inter-state transfer by noting how this program would benefit insurers in states that have not managed to get their medical claims as well under control: “We believe pooling high-cost enrollees across all States on whose behalf we are operating the risk adjustment program could prevent certain States with high-cost enrollees from bearing a disproportionate amount of unpredictable risk.”
source–cms, the aporthecary, seth chandler, forbes, mccarran ferguson act