CMS Poorly Manages ACA Exchange Subsidy Payments, Report Finds

CMS has unsuccessfully managed the Affordable Care Act's subsidies to help U.S. residents purchase exchange coverage, according to an HHS Office of Inspector General report released Tuesday, Modern Healthcare reports.

Report Details

For the report, OIG looked at a sample of the $2.8 billion the federal government paid in ACA subsidies to health insurers during the first four months of last year. According to Modern Healthcare, OIG was unable to examine individual subsidies because payment data are only available in aggregated form.

Report Findings

According to the report, payments totaling billions of dollars made to health insurers could be incorrect because CMS does not have a proper process in place to calculate and disperse the subsidies. The report noted, "Without effective internal controls for ensuring that financial assistance payments are calculated and applied correctly, a significant amount of federal funds are at risk." Further, the report stated CMS "did not always follow its guidance for calculating" the subsidies.

The report cited CMS' lack of electronic systems to communicate with state-run exchanges as part of the issue. To solve the problem, OIG suggested CMS:

• Better use its own guidance on calculating the subsidies instead of relying on data from insurers; and
• Install new computer systems that can track and verify individual subsidy payment data.

According to Modern Healthcare, CMS agreed with the report overall and said it is working to reconcile subsidy payments that already were made. An HHS spokesperson said, "Cost-sharing reductions and premium tax credits are a key part of providing more Americans with access to quality health care they can afford," adding that "CMS takes seriously our responsibility to make sure this financial assistance is paid accurately and that taxpayer dollars are protected" (Herman, Modern Healthcare, 6/16).

GOP Could Have Tough Time Addressing King Fallout

Meanwhile, Republicans in Congress could have a tough time addressing the potential fallout if the Supreme Court later this month strikes down federal exchange subsidies, the reports (Pear, New York Times, 6/17).

The subsidies are being challenged in the case King v. Burwell. At issue in the case is that while the Affordable Care Act says subsidies are available to help certain U.S. residents purchase coverage offered "through an exchange established by the State," a May 2012 IRS rule allows the subsidies to be used in an exchange administered either by a state or the federal government. The Supreme Court heard oral arguments in the case in March and will release a decision by the end of June. If the court rules against the federal government, it would eliminate about $28.8 billion in subsidies to 9.3 million individuals in 34 states in 2016, according to an Urban Institute analysis (California Healthline, 6/4).

Republican Lawmakers Working Toward a Plan

Some Republicans aides on Tuesday said House and Senate leaders are nearing a backup plan that would allow individuals to temporarily keep the subsidies. For example, Donald Stewart, a spokesperson for Senate Majority Leader Mitch McConnell (R-Ky.), said Republican leaders have been working toward "a responsible approach to protect families."

However, other observers have said GOP lawmakers have not come to an agreement on such a proposal.

According to the AP/San Francisco Chronicle, GOP House and Senate leaders on Wednesday will meet with members of their party to discuss potential contingency plans. Stewart said the meetings will be "the latest in a series of briefings with our members" (Fram, AP/San Francisco Chronicle, 6/16).

Some Worry About Potential Election Effects

According to the New York Times, some GOP lawmakers have expressed concern over the effects a ruling striking down the subsidies could have on the party in the 2016 election.

To address that issue, many Republican lawmakers have said they would support a backup plan that temporarily extends the subsidies until larger reforms can be put in place. Sen. John Barrasso (R-Wyo.), who is leading the Senate GOP's main effort to draft a backup plan, said, "Our goal is to protect people, not the law." He added that a contingency plan would not be "a long-term solution," noting, "We want to provide a temporary transition while this is relitigated in the 2016 elections -- and give the new president time to come in and bring a new solution forward" (New York Times, 6/17).

SCOTUS Ruling Invalidating Subsidies Would Mostly Hit Southern Residents

In related news, a Supreme Court ruling striking down the subsidies would have the greatest effect on U.S. residents living in the South, according to data released Tuesday by Families USA, the Washington Times reports.

According to the data, a ruling against the subsidies would have the largest effect on Florida, where about 20% of the 6.4 million U.S. residents who have subsidized federal exchange coverage live.

In addition, the report noted:

• 459,000 individuals could lose subsidies in North Carolina; and
• 412,000 individuals could lose subsidies in Georgia.

Families USA Executive Director Ron Pollack said the report highlights lawmakers' "responsibility to get this fixed." He added, "If the court rules against [t]he subsidies, devastation will strike both health care consumers and the health care system at large" (Howell, Washington Times, 6/16).       

Kaiser Family Foundation Associate Director of Health Reform Cynthia Cox said if the subsidies are ruled illegal, monthly premiums could increase by 200% to 300%. Some states could see larger increases, such as Georgia, which would see a 380% increase with average monthly premiums (Williams, Atlanta Journal-Constitution/Kaiser Health News, 6/17).

Further, mental health advocates in Florida warn that losing the subsidies could place additional hardship on the state's "underfunded [health care] system" because the subsidies have been crucial in helping residents with mental health issues purchase coverage.

Steven Ronik, CEO of Henderson Behavioral Health, said, "I think what's going to happen is most people -- without the subsidies, they won't be able to afford insurance. They will become uninsured, and their options would be, if they get sick, to essentially go to an emergency room." He added, "So it would be a terrible decision ... because we're going to pay for it in other ways" (Harrell, Politico, 6/12).