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Can the Collins Compromise Save the Affordable Care Act?

Health-care expert Linda Blumberg weighs in on whether re-insurance can mitigate mandate repeal.
Senator Susan Collins talks to reporters following a Republican caucus meeting in the U.S. Capitol on July 27th, 2017, in Washington, D.C.

Senator Susan Collins talks to reporters following a Republican caucus meeting in the U.S. Capitol on July 27th, 2017, in Washington, D.C.

Yesterday, Republicans scored a big win with the Senate Budget Committee's party-line vote to advance the party's tax reform legislation. The outcome of the vote had been in doubt earlier in the day; committee members Bob Corker (R-Tennessee) and Ron Johnson (R-Wisconsin) had expressed concerns with, respectively, the plan's effects on the deficit and treatment of pass-through businesses. Senate leadership reportedly made deals with both Corker and Johnson to ensure their support.

Senate leadership and President Donald Trump reportedly cut another deal yesterday with Senator Susan Collins (R-Maine). Collins has raised a number of concerns about the tax legislation, particularly the proposed repeal of the Affordable Care Act's individual mandate. The moderate senator, who cast a key vote against ACA repeal over the summer, had said she would not vote for tax legislation that included mandate repeal unless Congress also passed both the bipartisan Alexander-Murray stabilization legislation negotiated earlier this year and a separate re-insurance bill, proposed by Collins and Senator Bill Nelson (D-Florida). Yesterday, Trump reportedly assured Collins he would back both bills.

Democrats like both the Alexander-Murray bill and the idea of a re-insurance program, but it's unclear whether the Collins compromise will be enough to mitigate the effects of an individual mandate repeal. (The Congressional Budget Office projects that repealing the individual mandate would result in 13 million fewer Americans having health insurance, and would increase premiums in the non-group market by 10 percent most years, over the next decade.)

To find out more, we asked Linda Blumberg, a senior fellow at the Health Policy Center at the Urban Institute (and one of our favorite health-care wonks) to weigh in.


Let's first talk about this re-insurance bill, which Collins and Nelson proposed back in September but didn't get much attention at the time. What do you think of it?

Re-insurance is a legitimate way to deal with higher premiums in the non-group market. It was a transitional piece in the original ACA that was unfortunately not permanent. But the idea was that, in the first three years of the ACA—if there's going to be some adverse selection, some movement of higher cost people into the private non-group market because of all of these market regulations that we're going to put in place to protect people with health problems ... then we want to do something to take those excess costs of people with higher health-care needs and spread them more broadly across the population, and not just in the non-group market itself.

Under the ACA, it was financed through an assessment on all health insurers so that, in essence, what was happening was dollars were moving from the employer-sponsored market into the non-group market to offset the fact that people who were enrolling in the non-group were, on average, higher cost than in the much larger employer sponsored insurance market. You could use a mechanism like that, but you could finance it however you want—you could do it through general revenue, etc. So you could use re-insurance to help bring the premiums down, theoretically, to where they would have been otherwise.

Linda J. Blumberg.

Linda J. Blumberg.

When you eliminate the mandate, you are going to lose coverage from both the direct effect of eliminating the mandate—those people who are only buying it because of the penalty will stop buying it—and the indirect effect—the people who leave immediately tend to be healthier, on average, so when they leave the risk pool, premiums go up, and you lose some more people. What re-insurance would do is offset the indirect effect, to some extent, but it does nothing about the direct effect of people not buying because the mandate penalty goes away.

So re-insurance is a good idea. But is the Nelson-Collins proposal, as originally written, enough to mitigate the effects, even just the indirect effects you just spoke to, of repealing the individual mandate?

The issue that I have with the approach that she has taken, from what I understand of it, is that, No. 1, she's put very little money in. It's $2.25 billion a year over two years. I haven't had a chance to have my people actually model this yet, but let's talk about magnitude, just to give you a sense here.

In 2014, the first year of the transitional re-insurance policy under the ACA, there was $10 billion put into that pot for 2014. And that $10 billion was estimated by the American Academy of Actuaries to lower premiums in the non-group market by 10 to 14 percent. And you have to think about this as 2014-level claims, and claims have increased somewhat then. In 2015, that pot of money went down to $6 billion, in that year. And that was estimated by the American Academy of Actuaries to lower premiums by 6 to 11 percent.

And the $4 billion in 2016 was estimated to lower the premiums by 4 to 6 percent.

We're talking about an estimate by the CBO of a 10 percent increase in premiums in that market, which is in line with our model. To get in the neighborhood of a 10 percent decrease, it took $10 billion in 2014. Now the reason it's complicated, and it has to be actually modeled out is that, without the individual mandate, coverage is going to be lower because some people are not going to buy, and so because the pot of insurers is going to be somewhat smaller, you don't need quite as much in re-insurance dollars in order to cover them because there are fewer of them. But there's been growth in costs since then.

But it just gives you kind of a sense of the order of magnitude that's required. If they were talking about $10 billion a year, I'd be saying, well, you know, you're roughly in the neighborhood of where you need to be to offset this premium increase. But when you're talking about $2.25 billion a year, you're not in the ballpark.

The other issue is that it's only for two years, and any adverse selection effects from repealing the mandate would have a permanent effect on this market. To say that you could just do this for two years, and then walk away is folly, because it just puts you back to where you started again.

Let's also talk about Alexander-Murray. It's unclear to me that this re-insurance proposal could get through the House of Representatives, so what happens if they repeal the mandate and pass Alexander-Murray, but not re-insurance?

Alexander-Murray, while it has merit on its own, doesn't address the removal of the individual mandate. That's just not what it's designed to do. You need the re-insurance to do that, to deal with the risk pool.

So Alexander-Murray gives you more money for outreach and enrollment assistance, which would hopefully help on the enrollment side the next time around, and that's a positive.

But the other big piece of it—the cost-sharing reductions—has already been built into the silver premiums in most states, in the marketplaces. [In most states] the cost-sharing issue is really only affecting the people who are buying with subsidies, and they're not paying the excess costs because their subsidies are increasing. It would kind of undue that weirdness of having the silver premiums in a lot of these states be much higher than they would have otherwise. There is some merit to Alexander-Murray, but it's really not going to have much effect at all on this risk pool issue that's being created by the elimination of the mandate, except you'll get something from outreach and enrollment assistance.

This interview has been edited for length and clarity.