Trump administration officials shook health insurers, and healthcare providers, late Thursday by announcing they will cut offAffordable Care Act cost-sharing reduction (CSR) subsidy programpayments.

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The $7 billion cost-sharing reduction subsidy program is helping7 million ACA exchange plan users with income from 100% to 250% ofthe federal poverty level handle health plan deductibles,co-payments and coinsurance amounts for silver-level coverage. Themoney goes straight to the health insurers. The next payment to insurerswas due next week.

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Eric Hargan, the new acting secretary of the U.S. Department ofHealth and Human Services, and Seema Verma, the administrator ofthe Centers for Medicare and Medicaid Services, said in a memo thattheir legal advisors believe the government lacks a validcongressional appropriation to make program payments.

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The U.S. Chamber of Commerce is backing the health insurers'plea for cost-sharing reduction program funding.

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"In light of that opinion — and the absence of any otherappropriation that could be used to fund CSR payments — CSRpayments to issuers must stop immediately," Verma and Hargan saidin the memo. "CSR payments are prohibited unless and until a validappropriation exists."

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Here's a look at three things agents, brokers and otherfinancial professionals need to know about the CSR program, andabout the possible effects of a mid-year termination of CSRpayments.

1. Milliman analysts put out a great analysis ofthe cost-sharing reduction subsidy program in March.

The Obama administration tended to skimp on offering detailsabout the operations of the CSR program.

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About 58% of current Affordable Care Act exchange plan enrolleesare using the subsidies to reduce their out-of-pocket health carecosts, according to figures the government has published.

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Analysts at Milliman, an actuarial consulting firm, providedsome other CSR program details in March, by publishing a report on Affordable Care Act subsidy programsthat includes data on how the CSR program and other subsidyprograms worked in 2014 and 2015, and probably worked in 2016.

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The biggest Affordable Care Act subsidy program is the advancepremium tax credit program. That program helps exchange plan userswith income from 100% to 400% of the federal poverty level paytheir premiums.

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Continued on next page >>>

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In the Milliman report, the analysts estimate that the premiumsubsidy accounted for about $5.7 billion, or 7%, of health coverageissuers' $80 billion in 2016 individual major medical coveragerevenue.

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Analysts at Oliver Wyman recently estimated that insurers willcollect about $88 billion in individual major medical premiumrevenue this year. Insurers may have been expecting to get a totalof about $6 billion to $7 billion in CSR payments from the federalgovernment for 2017, or about $500 million in payments permonth.

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The U.S. Chamber of Commerce is backing the health insurers'plea for cost-sharing reduction program funding.

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The CSR program has been paying exchange plan issuers an averageof about $1,000 per month per enrollee eligible for thesubsidy.

2. The friends and foes of the Affordable Care Act havebeen fighting over the legality of the cost-sharing reductionsubsidy payments for years.

Insurers have known about Republicans' concerns about thelegality of the cost-sharing reduction payment stream foryears.

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Democrats held so many seats in the House and the Senate whenthey worked on the Affordable Care Act that they were able to passit with no Republican support.

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Once they lost their "super majority" in the Senate, they wereunable to win enough Republican support to pass any additionalAffordable Care Act bills, aside from a few measures that happenedto have strong Republican support.

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Democrats included a permanent appropriation for the premium taxcredit subsidy program in the legislation that createdthe Affordable Care Act. The Obama administration saidthat the cost-sharing reduction subsidy program was reallypart of the premium tax credit subsidy program, and thatthe permanent premium tax credit subsidy appropriation in theAffordable Care Act also covered the CSR payments.

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Republicans have objected to the idea that the premium taxcredit appropriation applies to the CSR subsidy program.

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Members of the U.S. House authorized a lawsuit over the CSRappropriation issue in July 2014, and they sued in November 2014. Adistrict court judge ruled in favor of the House in May 2016.

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Obama administration officials were fighting the ruling.

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When the Trump administration came in, its lawyers took steps tohave the courts put off action on the matter.

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Since at least as far back as July, the administration has leftinsurers uncertain as to whether it would make each month'sscheduled CSR payments.

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Continued on next page >>>

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Health insurance company officials have talked openly about thepossibility that subsidy payments could disappear in 2018, or evenin the middle of this year.

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Earlier this month, Dr. Rene Lerer, the president of GuideWellMutual Holding Corp., the parent of Florida Blue, said at aconference organized by Standard & Poor'sGlobal Ratings that he had no answer about how the Trumpadministration might handle CSR payments.

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The U.S. Chamber of Commerce is backing the health insurers'plea for cost-sharing reduction program funding.

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"We don't know if we'll get paid for the CSRs for October,"Lerer said.

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3. Predicting the effects of the subsidy paymenttermination announcement is complicated.

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There are many reasons analyzing the effects of a suddenend of the CSR stream could be difficult.

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One is that whether the Trump administration can really shut offthe payment stream in midyear is unclear. A court could require theadministration to keep up the payments, at least during atransitional period. In theory, Congress could also act to keep thepayment stream in place.

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A second source of uncertainty is whether the Trumpadministration will be comfortable with the effects of a CSRpayment termination on managed Medicaid programs, private Medicareplan programs, on the group health market, and other markets andprograms other than the individual major medical program.

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The annual enrollment period for Medicare Advantage and MedicarePart D plans starts Sunday, for example. Insurers need paymentsfrom Medicare to make their Medicare plan operations work, but theTrump administration needs for private insurers to be cooperative,and solvent, for the Medicare Advantage and Medicare Part Dprograms to work as expected. All of the major Republican proposalsfor changing the Affordable Care Act debated in Congress this yearhave included provisions for continuing CSR payments, or equivalentsubsidy program payments, at least until the end of 2019.

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A third source of uncertainty is how well coverage issuersanticipated a possible CSR payment suspension. Mark FarrahAssociates, for example, found that individual major medicalissuers had an average ratio of claims to premium revenue of just77% in the second quarter. The statutory minimum medical loss ratiofor individual major medical is 80%. The low second-quarter MLRcould be a sign that typical issuers built a CSR suspension cushioninto their 2017 rates.

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In the long run, if the Trump administration cuts off CSRpayments for 2018, and insurers find ways to adjust rates toreflect that change, the effects of the change could be minimal. Intheory, the Affordable Care Act premium tax credit subsidy wouldeliminate the effect of the change on actual out-of-pocket premiumbills for most exchange plan users, and consumers who do notqualify for premium subsidies would be able to shift tobronze-level plans, gold-level plans, or off-exchange plans notdirectly affected by the elimination of the subsidy, according toan analysis Congressional Budget Office analystsreleased in August.

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Allison Bell

Allison Bell, ThinkAdvisor's insurance editor, previously was LifeHealthPro's health insurance editor. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached at [email protected] or on Twitter at @Think_Allison.