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Summary of health insurer cost-sharing reduction payments in CY 2014 and CY 2015

CSR Funding – Full Report (.pdf)

The Patient Protection and Affordable Care Act (ACA) provides a federal subsidy, known as a cost-sharing reduction (CSR), to qualifying low-income households that purchase silver-level coverage in the insurance marketplaces. Qualifying low-income households are those at 100% to 250% of the federal poverty level (FPL). Members eligible for this federal subsidy receive CSR plan variants of standard silver-level coverage, which reduce a household’s out-of-pocket healthcare cost-sharing expenditures (deductibles, copays, coinsurance, out-of-pocket maximums). Insurers do not factor a CSR plan’s reduced member cost-sharing into their premium rate development; rather, the federal government makes payments to insurers for the estimated cost of the CSR payments throughout the year, with a final reconciliation process occurring after year-end.[1] On average for the first half of 2016, the Centers for Medicare and Medicaid Services (CMS) announced, nearly 5.9 million individuals received CSR plan variants, which equals approximately 56% of average monthly marketplace enrollment during the six-month period.[2] Households qualifying for CSR plan variants may also be eligible to receive federal premium assistance, which reduces the out-of-pocket cost of purchasing health insurance coverage in the insurance marketplaces.

Due to pending litigation (House v. Burwell),[3] the legal status of the federal government making direct payments to insurers to offset costs related to CSR plans has come into question. Milliman, Inc. (Milliman) was contracted by the Association for Community Affiliated Plans (ACAP) to analyze the potential impact to the health insurance industry and ACAP-member insurers to the extent federal CSR payments were not paid to insurers for the 2017 coverage year in the individual health insurance market.[4] By analyzing publicly available insurer financial data from the 2014 and 2015 medical loss ratio annual reporting form (MLR data), we have summarized the actual CSR payment amounts received by insurers in each calendar year and the impact to insurers’ financial results in the individual health insurance market. While it is certain that 2017 financial results will vary from prior years, we believe our analysis of 2014 and 2015 data illustrate the potential significance of a loss of CSR payments to insurers in the current calendar year.

Total reported cost-sharing reduction payments
The health insurance industry reported $2.83 billion and $4.90 billion in CSR payments in 2014 and 2015, respectively. Consistent with the significant growth in the insurance marketplace between 2014 and 2015, the number of average monthly CSR recipients is estimated to have grown by approximately 64%. For the average 12-month enrollment period, the subsidy is estimated to have equated to approximately a $901 (2014) to $948 (2015) reduction in out-of-pocket healthcare cost-sharing expenditures[5]. For the chronically ill and individuals with significant healthcare expenditures, the value of the CSR plan may have been significantly greater than the average yearly values. Conversely, the value of the CSR would be $0 for an individual with no healthcare expenditures during the year.

[1] Insurers are permitted to make an induced utilization assumption for enrollees in CSR plans.

[2] CMS.gov (October 19, 2016). First Half of 2016 Effectuated Enrollment Snapshot. Retrieved January 27, 2017, from https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[3] House v. Burwell (November 21, 2014). Retrieved January 27, 2017, from http://online.wsj.com/public/resources/documents/HouseACAcomplaint112014.pdf.

[4] ACAP insurers participating in the marketplace are identified at http://www.communityplans.net/about/our-plans/.