Federal subsidies, known as cost-sharing reductions (CSRs), have been critical to ensuring that over 2 million lower-income adults ages 50 to 64 who purchase coverage through health insurance Marketplaces can afford health care. Despite the subsidies’ crucial role, the Administration announced yesterday that it will terminate payments for CSRs. The announcement—which comes less than 3 weeks before millions of Americans who buy insurance on the individual market start shopping for 2018 health coverage— is bad news for older adults and people of all ages.
That’s because the move could leave people facing significantly higher premiums and fewer plan choices—regardless of their income or whether they get CSRs.
What are cost-sharing reductions?
The Affordable Care Act’s (ACA) better known premium tax credits help reduce the cost of monthly health insurance premiums for lower- and moderate-income individuals. CSRs address the other major expenses that can prevent people from being able to afford health care: out-of-pocket costs for health care services, such as deductibles, coinsurances and copayments. CSRs are available to lower-income people, with individuals of more modest incomes receiving greater subsidies.
CSRs are critical to making individual health insurance affordable for people with lower incomes. This is especially true for lower-income older adults because over a third of the people enrolled in CSR plans are ages 50 to 64. What’s more, older adults typically face higher out-of-pocket medical expenses and cost-sharing because they are more likely to have chronic conditions and health care needs. You can learn more about CSRs here.
Eliminating CSR payments will lead to significant increases in premiums.
Without the federal CSR payments, insurers will have to absorb an estimated $10 billion in costs. A recent analysis by the Congressional Budget Office (CBO) estimates that silver plan premiums would jump 20% next year and 25% by 2020 without the federal CSR subsidies.
Due to uncertainty in recent months over the continuation of CSR payments, insurers in some states have already factored premiums increases into their 2018 rates. Other insurers will likely increase premiums in order to account for this loss in federal payments.
Premium increase will hit middle-income people the most – especially those who do not receive premium tax credit subsidies, or who are only eligible for limited tax credits.
The CBO also expects that controversy around CSR payments will encourage some insurance companies to stop offering coverage altogether or deter them from entering the Marketplaces—leaving consumers with fewer, or potentially, no plan choices.
Terminating CSR payments would increase the federal deficit.
If you think stopping CSR payments would save federal dollars, think again. Doing so would actually increase the federal deficit by $200 billion, CBO estimates. This is because the government is required to fund premium tax credits for lower-income enrollees, and the premium increases resulting from ending CSR payments would mean the government must spend billions of dollars more in premium tax credits to lower those premium costs for lower-income enrollees.
Eliminating CSRs altogether would make health care unaffordable for lower-income older adults.
Recent proposals to replace the ACA would have eliminated cost-sharing reductions altogether. Without CSRs, lower-income older adults would face steep increases in their medical bills—putting needed health care services out of reach for millions. We estimate that eliminating CSRs would mean lower-income persons could face as much as $5,600 more in out-of-pocket costs for copays, co-insurances and deductibles. For someone earning $18,000 annually (about 150% of FPL), that’s nearly one-third of their income!
Here’s the bottom-line: Cost-sharing reductions are a critical financial protection for lower-income Americans, including many older adults. Terminating CSR payments will disrupt efforts to ensure a stable individual health insurance market and actually end up costing the government more.
Jane Sung is a senior strategic policy adviser with AARP’s Public Policy Institute, where she focuses on health insurance coverage among adults age 50 and older, private health insurance market reforms, retiree coverage, Medicare supplemental insurance and Medicare Advantage.
Olivia Dean is a policy analyst with the AARP Public Policy Institute. Her work focuses on a wide variety of health-related issues, with an emphasis on public health, health disparities, and healthy behavior.
Claire Noel-Miller is a senior strategic policy adviser for the AARP Public Policy Institute, where she provides expertise in quantitative research methods applied to a variety of health policy issues related to older adults.
 Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.
 Cost-sharing reductions are available for people who earn between 100% and 250% of the federal poverty level (FPL). In 2017, this corresponds to incomes between $12,060 and $30,150 for an individual and to incomes between $24,600 and $61,500 for a family of four. Only people enrolled in Silver plans (which pay for 70% of total health care costs on average) are eligible for cost-sharing reductions.
 Urban Institute, 2017 Health Insurance Policy Simulation Model, data for 2016 enrollment.
 Total CSR payments in 2017 are estimated at $7 billion.
 For people with incomes between 100-150% of the federal poverty level, or between $12,060 and $18,090 for an individual. Estimates are based on 2017 federal poverty levels and out-of-pocket limits.
A late-breaking attempt to repeal and replace the Affordable Care Act (ACA) threatens to weaken critical federal consumer protections and raise costs for older Americans ages 50-64 who purchase health insurance coverage in the individual market. Tucked into the sweeping legislation known as the Graham-Cassidy bill are provisions allowing states to receive waivers from crucial consumer protections. Such waivers could allow insurance companies to increase costs for older consumers based on their health, preexisting conditions, and age–potentially putting health coverage out of financial reach for millions.
People with Preexisting Conditions Could Face Significantly Higher Premiums
Current law prohibits health insurance companies from denying people coverage or charging higher rates based on a person’s health. Under the Graham-Cassidy bill, however, states could obtain a waiver to allow insurers to vary premiums based on people’s health or preexisting condition. This means that consumers with a health condition such as diabetes, cancer, or heart disease could face significantly higher premiums.
This would hit older adults hard: 40 percent of 50- to 64-year olds have a preexisting condition. Prior to the ACA, most states allowed insurers to charge higher premiums based on preexisting conditions. That meant consumers with preexisting conditions were often unable to purchase affordable coverage. The Graham-Cassidy bill would force consumers to, once again, worry about whether their health status will keep them from being able to afford coverage or the care they need.
Less Coverage and Higher Costs for Older Adults and People with Preexisting Conditions
The Graham-Cassidy bill would also allow states to waive current law requirements that health insurance plans cover 10 categories of services (known as Essential Health Benefits). Similar to earlier proposals, states could eliminate some or all of the required benefits. Without these requirements, insurers could choose to exclude or limit important health benefits such as hospital care, prescription drugs, and mental health or substance abuse treatment. For people with health concerns and preexisting conditions, finding adequate, affordable coverage with the benefits they need would very likely become challenging and expensive.
These waivers may also allow states to weaken or eliminate the ACA’s prohibition against dollar limits on benefits people may get in a year or over their lifetime. Such annual and lifetime caps were unfortunately common practice prior to the ACA—forcing some consumers into medical bankruptcy when they got sick. Weakening these key protections is a step backwards for consumers.
Insurance Companies May be Allowed to Discriminate Against Older Americans
Under the ACA, insurers cannot charge older adults more than three times what they charge others for the same coverage (known as 3:1 age rating). Under Graham-Cassidy, however, states may be able to waive this critical protection for older adults. Older adults living in states that have waived that protection would face significantly higher rates simply on the basis of age– potentially as high as five, six or more times what they charge others for the same coverage, depending on the state.
In short, the Graham-Cassidy bill is harmful for older adults and people with preexisting conditions. It would undermine critical consumer protections, making health insurance coverage unaffordable and denying people with health conditions the care they need.
Implantable devices, such as hip replacements and heart valves, are a central part of medical treatment today. Americans receive about 370,000 cardiac pacemakers and about 1 million total hip and knee replacements per year. Despite how common the use of implantable devices is, little information is publicly available on the prices paid for these devices in the United States. Limited information about prices and performance of many implantable devices has raised concerns that providers, consumers and insurers may be paying too much for these devices.
Insight on an Important Issue
A recently published AARP Public Policy Institute Insight on the Issues examines the market for implantable devices. It looks at financial incentives for manufacturers, hospitals, physicians, and payers, and the impact of the current market structure—especially the lack of price transparency—on competition.
The report, “Understanding the Market for Implantable Devices,” finds that a dearth of relevant information makes it difficult for buyers to assess the value of many implantable devices. While hospitals are the primary direct purchasers of most high-cost implantable devices in the United States, consumers and insurers pay for these devices indirectly as part of the procedure to implant them and thus, are also concerned about the cost of these devices.
Lack of price transparency makes it difficult for buyers to get comparative data on prices and limits their leverage to negotiate lower prices. Through the use of restrictive contract provisions that act as “gag clauses,” manufacturers can obscure device prices.
Meanwhile, buyers are often unable to get data on quality and clinical outcomes associated with implantable devices. This means that hospitals, physicians, and patients are unable to compare the performance or value of comparable devices.
The issue is more complex than one might think. Some have suggested that mandatory public price disclosure would strengthen the bargaining position of buyers and help drive down the prices of implantable devices. Advocates argue that the public availability of real cost and quality information can affect the market, promoting competition that can lower costs and improve quality. Critics have suggested transparent pricing could result in higher device prices. Manufacturers, some experts say, could use publicly available price data to collaborate and raise prices, especially in highly concentrated markets for implantable devices. To address these concerns, approaches like restricting access to pricing data to buyers may prove more successful that full public disclosure. However, even restricted price data could leak out to manufacturers. In any case, without more information about prices and performance, buyers are likely to remain in the dark about the value of implantable devices.
Further, the incentives of hospitals and physicians often diverge, sometimes sharply. Although hospitals typically pay for implantable devices, the surgeons who insert them in patients typically make decisions about which devices to use. Physicians frequently have a close working relationship with a device manufacturer and may exhibit strong personal preferences for devices sold by the manufacturer.
Conflicts of interest can undermine competition in other areas as well. High-volume surgeons may receive payments from device manufacturers for activities, such as consulting and promotional speaking engagements. For instance, from August 2013 to December 2015, 10 larger implantable devices manufacturers and their subsidiaries paid over $1.3 billion to physicians and hospitals for consulting and research, promotional talks, and similar services according to federal government statistics. These financial relationships can cross the line to become illegal kickbacks to promote the use of a manufacturer’s device. While some industry trade groups have adopted a code of ethics that prohibits manufacturers from paying physicians for expenses that are unrelated to scientific and educational purposes, compliance is voluntary.
Toward Greater Competition
This PPI Insight on the Issues concludes that, for the benefit of consumers, buyers, and payers, policymakers should consider a number of options that would help strengthen competition in the market for implantable devices. Some policy options include:
- Increasing device price transparency by restricting gag clauses and requiring manufacturers to disclose prices.
- Improving availability of information on implantable device performance and clinical outcomes.
- Requiring disclosure or imposing restrictions on abusive marketing practices.
- Encouraging containment of device prices through payment and delivery reforms.
- Increasing competition among device manufacturers.
No question, policymakers’ careful consideration of the topic is in order.
In another blog post, I discuss another Insight on the Issues that explores the FDA’s process for approval and oversight of implantable devices. That paper suggests policy options that could both strengthen and streamline the process to better protect public health and safety while also encouraging the development and marketing of devices that will benefit patients.
Keith Lind is a Senior Strategic Policy Adviser for the AARP Public Policy Institute, where he covers issues related to Medicare and medical devices.
Photo courtesy of iStock
Families and close friends are the most important source of support to older people and adults with a chronic, disabling or serious health condition. They already take personal responsibility for providing increasingly complex care to the tune of $470 billion (as of 2013). That figure, representing family caregivers’ unpaid contribution in dollars, roughly equals the combined sales of the four largest U.S. tech companies (Apple, IBM, Hewlett Packard and Microsoft, $469 billion) in 2013.
The out-of-pocket hit
Caregiving families feel great uncertainty and high anxiety about how they will continue to pay for long-term services and supports (LTSS) for a relative or close friend with increasing self-care needs. And for good reason. Family caregivers not only provide help with daily activities and carry out complex medical and nursing tasks, they also spend a considerable amount of money out of pocket for caregiving.
Out-of-pocket spending for caregiving generally refers to the purchase of goods and services on behalf of the person the family caregiver is helping. This can include housing, medical and medication premiums, copays, meals, transportation, mobility and other assistive devices, supportive services (such as adult day services and paid home care), and other goods and services.
A recent AARP research study finds that more than 3 in 4 family caregivers (78 percent) report incurring out-of-pocket costs as a result of caregiving. In 2016, family caregivers of adults on average spent nearly $7,000 on out-of-pocket costs related to caregiving, amounting to 20 percent of their total income. Among racial or ethnic groups, out-of-pocket spending for caregiving was highest among Hispanic/Latino family caregivers. They spent an average of $9,022, representing 44 percent of their total income in 2016.
Caregiving, therefore, can have a major impact on one’s current and future financial situation. A consensus report from the National Academies of Sciences, Engineering, and Medicine concludes that family caregiving for older adults poses substantial financial risks for some family caregivers. Especially vulnerable to financial harm are families caring for older relatives with significant physical impairments or dementia, low-income family caregivers, and those who live with or live far away from their older relative who needs care.
Family caregivers can ill afford to shoulder more of the human and financial costs of caregiving.
Burdened by these expenses, family caregivers may even need to decrease spending on themselves, and that can undermine their health and well-being and put them in greater financial peril. The new AARP research shows that as a result of out-of-pocket costs, family caregivers of adults report dipping into savings, cutting back on personal spending, saving less for retirement, taking out loans to make ends meet, and forgoing treatment for their own health problems to cover caregiving costs.
Most family caregivers today work at a paying job, and they make up an increasing proportion of the labor force. Yet family caregivers may lose income, Social Security and other retirement benefits, health insurance, and career opportunities if they have to cut back on work hours or leave the workforce because they cannot afford to pay for outside help for their relative.
These financial burdens, as well as the emotional and physical strains of unpredictable and prolonged LTSS, are beyond the capacity of many caregiving families.
While the unpaid contributions of family caregivers fill big gaps in health care and LTSS, policies that view LTSS as only a personal responsibility do not work anymore. The degree to which our society cares for its older citizens and persons with disabilities is one of the most consequential issues of our time as our population ages and we face a growing care gap.
It is time to provide access to dignified, compassionate and affordable care. Better financial relief is sorely needed to help address the financial challenges of caregiving. This is the right thing to do and a social and economic imperative.
Lynn Friss Feinberg is a senior strategic policy adviser for the AARP Public Policy Institute. She has conducted policy analysis and applied research on family caregiving and long-term services and supports for more than 30 years.