October 18, 2017
Authored by: Mark Duedall, Leah Fiorenza McNeill and Jacob Johnson
Ok, if your attention span is anything like ours, all this wonky stuff about the ins and outs of the Affordable Care Act (or “ObamaCare,” as most of us know it) causes your eyes to glaze over and makes your mind wander to simpler topics, like who will win Dancing with the Stars, whether the Will & Grace reboot can make it, or how Luke may soon be revealed as the most evil Jedi of all.
But trust us, faithful reader, and you can, in about three short minutes, become a whiz on last week’s latest change to ObamaCare, which we think will lead to a lot more healthcare-related restructuring activity. So here is the 411 on last week’s termination of ObamaCare’s so-called “CSR Subsidies,” and its impact on our precarious, bankruptcy-prone, healthcare marketplace. All presented to you in easy-to-follow FAQs!
What is a CSR Subsidy?
The federal government calls them “Cost-Sharing Reduction Subsidies.” In short, a key part of ObamaCare had the federal government give cash to insurers. In turn, insurers used that money – the CSR Subsidy – to lower all ObamaCare premiums, and also reduce out-of-pockets and deductibles for low-income ObamaCare enrollees.
How much were these CSR Subsidies?
The CSR Subsidies cost the federal government about $7-$9 billion annually.
How much did the CSR Subsidies help?
A lot. The Kaiser Foundation – which has great coverage of this and other healthcare issues – estimates that the CSR Subsidies to insurance companies prevented certain rate hikes that would be borne by all ObamaCare enrollees. Also, each low-income ObamaCare enrollee’s annual medical and prescription deductibles decreased by over $3,000 and annual out-of-pocket maximums were lowered by over $5,500. We’re not making this up, click here to see the Kaiser Foundation study for yourself.
So what will happen without the CSR Subsidies?
Actually, low-income ObamaCare enrollees are entitled to discounts from their insurers whether the federal government subsidizes / reimburses the insurers or not. But that $7-$9 billion in lost government funding has to be made up somewhere – so insurers in the ObamaCare exchanges are expected to raise rates next year by 15-21% due to the loss of CSR Subsidies, according to the Kaiser Foundation study cited above.
But I thought Congress didn’t “Repeal or Replace” ObamaCare – So how did this change happen?
The CSR Subsidies were required under ObamaCare – but Congress never actually appropriated any money to make the CSR Subsidies to insurance companies. The prior administration paid the insurers anyway, leading to a very weird lawsuit by Congress against President Obama. Last week, President Trump simply decided to no longer send funding to insurance companies, and since the funding had never been appropriated by Congress, no congressional action was needed to end the federal government’s CSR Subsidies.
How does this relate to restructuring?
We’re lawyers, not economists. But even we can surmise that when the price of a good or service (here, ObamaCare) goes up 15-21% in one year, less people will buy it. Indeed, our friends at The Motley Fool estimate that the loss of CSRs will result in 7 million more uninsured Americans. So when folks said this was a real blow to ObamaCare, they weren’t kidding.
And of course, fewer patients with insurance means more unreimbursed care for hospitals and other healthcare providers. This precarious industry is getting ready for another terrific beating. Sure enough, when news of the end of the CSR Subsidy program broke last Thursday night, October 12, the next day saw all major healthcare stocks – insurers, hospitals, ambulatory centers, even benefits administrators – take serious losses. The strong ones will make it; as to the weak ones, get ready for more restructuring activity as more uninsured patients cause more losses.
So, is all lost when it comes to the CSR Subsidies?
People, Washington D.C. is a weird place. Even as we were writing this Bankruptcy Cave Blog post last night, news broke that a bipartisan effort was underway in the Senate to reinstate the CSR Subsidies for two years, and President Trump said he would support it! What?? But then, as we were editing this post today, President Trump tweeted that the CSR Subsidies were just a bailout for insurance companies – and he won’t support the new legislation. Anyway, we give up trying to figure out what is next, folks. Hey, is Will & Grace on? Is T.O. dancing a salsa tonight? And when is the next trailer for The Last Jedi going to drop?