Vermont insurance companies say they’ve found a way to offset the effects of an executive order issued last year that would otherwise cost the state $12 million annually in lost revenue.
Last October, President Donald Trump issued an executive order that ended a federal program designed to stabilize health insurance rates. The decision immediately stopped the flow of “cost-sharing reductions,” which had, since the creation of the federal Affordable Care Act, been going to insurance companies, so they could lower rates for their low-income customers.
The decision has ramifications even for people that don’t make enough to qualify for cost sharing reductions. That’s because insurance companies are still legally required to provide low-cost plans to eligible households. And Mike Fisher, chief health care advocate for the state of Vermont, says if you take away the federal subsidies that were supposed to pay for that requirement, then “the insurance companies, with no other change, will be forced to spread those costs out through the marketplace.”
Spreading those costs through the marketplace, according Vermont's two largest private health insurers - MVP and Blue Cross Blue Shield of Vermont - could put substantial upward pressure on all customers’ rates.
Both insurers, however, say they have a plan to avoid any impact at all, by adopting what’s known as the “silver solution.”
“We’re doing what’s called silver loading," says Sara Teachout, with Blue Cross Blue Shield.
It’s a complicated scheme, but here’s the basic concept: The Affordable Care Act has something called premium tax credits. They’re another kind of federal subsidy, and they’re designed to put health plans within financial reach for people of modest means.
By rejiggering premium costs for certain health plans, Blue Cross and MVP can game the formula that determines how much Vermonters will get in premium tax credits.
“This is a strategy to maximize federal funding through the advanced premium tax credits to more than offset the loss of federal funding through the cost sharing reductions,” Teachout says.
In other words, increase premiums, and insurance companies increase the amount of money Vermonters collectively are taking in in premium tax credits. Nobody pays any more than they would otherwise, but the system gets an additional $12 million in tax credits, thereby neutralizing the loss of the cost-sharing reductions.
It is not a new concept. Teachout says 37 other states have used the same accounting maneuver to offset the loss of the cost-sharing reductions. Blue Cross and MVP arrived at the plan as part of a working group that includes the Office of the Health Care Advocate and the Department of Vermont Health Access.
Fisher says there is one potential problem: The plan only works if customers buy the precise health plans that will trigger the increased in premium tax credits.
Fisher is worried customers are going to look at the new, higher premium, not understand that they’ll be getting premium credits to offset the increase, and decide to buy a cheaper plan, or go without.
He says his office supports the idea, but that insurance companies, and the state, will need to launch a massive outreach effort, to make sure Vermonters know what plans to buy.
This post was edited at 7:25 on 1/10/18 to correct an error that misstated a projected increase in premiums at MVP.
Disclosure: Blue Cross Blue Shield and MVP are underwriters of VPR.