Sir Isaac Newton may have been the greatest genius of the last thousand years. Rivaled only by Einstein, he is best known for discovering gravity and quantum mechanics. But what he is less well known for was trying to turn lead into gold. As crazy as that sounds you can’t really blame him for trying. Had he been successful, he would have invented the ultimate arbitrage system providing all the riches that eluded him during his more productive years.

Metallic Tears

Fast forward 316 years to Thursday last week, President Trump issued an executive order to withhold the Federal subsidies for the Cost-Sharing Reductions. Having struck out at earlier attempts to reform/repeal the Affordable Care Act, this was one of the cards he could play without needing Congressional approval or authority. It is controversial because the amount of money is significant and it will force the states to either remove the CSR subsidies or come up with the money some other way.

The other controversy associated with the CSR is that in the opinion of many respected legal scholars, the way the funds were allocated was unconstitutional. That specific portion of the law was already under appeal. Normally, it would be Congress’ job to dispense money but the last administration left it up to the Executive Branch, hence the EO.

Turning Silver into Platinum

This will hurt people in mainly two ways. First, the funds were used to provide an additional subsidy for people whose incomes were between 100 – 250% of the Federal Poverty Level.

What the funds did in effect, was to upgrade the benefits from a silver plan to a platinum or richer to help these folks be better able of affording their medical care. For some people, it was like hitting the trifecta while others either fell short and ended up in Medi-Cal or earned too much and ended up with just the generic silver plan.

In order to make for the shortfall, beginning in 2018 the State of California will impose a surtax averaging 12.4 % on all silver plans in the exchange.

Two sets of books

While the dust has not completely settled, we now have a much better idea of what the individual/family plans through the exchange will look like in 2018. The Covered California website is now quoting and will presumably be ready for business when open enrollment begins on November 1st. As of this morning, the non-exchange plans are still not on the quoting engines, but we can infer what they will be based on the on-exchange plans. We are getting close.

Due to the uncertainty, the California Department of Insurance had requested the carriers participating in the exchange provide two sets of proposed rates, one based on the state receiving the funds and the other of them not. They held off saying which ones they would go with as long as they could but they finally ran out of time and pulled the trigger.

California could have also dropped the CSR or raised taxes some other way but chose not to go this route. Had the original Ryan Bill been successful (understanding it was not perfect), it would have had the tax credits go directly to tax payers rather than be funneled exclusively through the exchanges. This is not the last time we will hear about this and on an optimistic note, this could be the initial bargaining chip for a bipartisan solution down the road. One can always hope.

(As of Yesterday, several states have now sued the federal government regarding the CSR subsidy.)

Philosopher’s Stone

Right after President Trump’s announcement, David Jones, California’s insurance commissioner fired off a letter telling the public on how best to react. The irony is that many individuals who are receiving the APTC will hardly be affected because the higher premiums will just be largely absorbed by the federal government. The people who will be hit hardest will be the ones in the exchange on a silver plan who are not receiving the APTC.

For them, their best choice will be to either get off the exchange potentially jeopardizing their APTC or what is more likely turning their on-exchange silver into a gold or bronze. Having looked at the plans, the silver rates in the exchange without the APTC are very close to what a consumer will pay for a gold.

Call us if you need help

The best thing to do if you have questions is to call our office. We will be glad to help you get through the confusion. Thank you for reading my posts.

Sincerely,

John

John Helms & Associates Insurance Brokers
2940 Camino Diablo Ste. 205
Walnut Creek, CA 94597 (925) 287-8600

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