Thursday, October 21, 2010


If anyone ever doubted the extent to which Congressional committees could turn good intentions into a bureaucratic nightmare, they need only to look at PPACA’s premium subsidy provisions and their potential impact on insurance exchanges.

PPACA offers premium and enrollee cost-sharing subsidies for lower-income people not eligible for Medicaid or SCHIP as one of the three key components—along with liberalizing Medicaid income restrictions and requiring everyone to have coverage—of reform’s attempt to solve the affordability problem that’s resulted in fifty million Americans being uninsured.

How will the subsidy process work? It takes up 25 pages of the final reform legislation, so the following is a vastly simplified description. It’s also one that assumes that the final regulations will not deviate significantly from the law itself.

First, anyone wishing to be eligible for a subsidy must submit an application to an exchange. The application must include all information necessary to determine if the applicant is eligible for Medicaid or SCHIP, as well as for the PPACA subsidies. (Massachusetts’ Connector—the prototype exchange—requires a 12-page page form to convey this information.)

Second, the exchange transfers the applicant’s information to the state Medicaid and SCHIP agencies to determine possible eligibility for those programs. If either is the case, and depending whether all or just some family members are affected, the applicant must be notified, and may no longer be eligible for exchange enrollment.

Third, assuming no eligibility for Medicaid or SCHIP, the exchange must determine if the applicant’s income appears to meet PPACA subsidy rules. If not, the applicant must be notified that no subsidy is available.

Fourth, the applicant’s information is forwarded to HHS, which will—in conjunction with the IRS and other federal agencies—verify the submitted information. (The Congressional Budget Office estimates that the cost to the IRS of implementing the eligibility determination, documentation, and verification processes would be between $5 billion and $10 billion over 10 years.)

Fifth, HHS will notify the exchange of the results of verifying the submitted information. The exchange must then notify the applicant, including whether any discrepancies were found and must be corrected.

Sixth, assuming the application meets PPACA subsidy rules, the applicant can finally select an insurance plan from the exchange. However, in order to receive a cost-sharing subsidy as well as a premium subsidy, only Silver plan selection is allowed. Thus, lower-cost Bronze plans cannot be chosen by anyone wanting to reduce their out-of-pocket costs. The exchange must also notify the applicant of the reduced premium amount and the impact of any reduced cost-sharing.

Seventh, the exchange must notify HHS of the applicant’s choice of plan.

Eighth, HHS must notify the Treasury Department, which will then make the monthly premium subsidy and reduced cost-sharing payments to the selected insurer.

Of course, the above describes the most straightforward situation in which a well-organized individual applies for subsidies well ahead of the start of coverage deadline, during an annual open enrollment period, with timely and accurate communication among the various agencies involved.

Unfortunately, there are likely to be many cases when a subsidy application is incomplete or inaccurate, or when it is submitted only just before a deadline, or when information supposed to be forwarded from one agency to another goes astray, or when an individual moves from one state to another in mid-year, or when any of the myriad of other problems occur associated with 11 million people (CBO’s premium subsidy population estimate for 2015) encountering a new government program on January 1, 2014, the same date that an estimated 15 million others will become newly eligible for Medicaid or SCHIP, with every one of these 26 million individuals’ applications being processed by the same state agencies.

Could it be that reform’s attempt to solve American’s health care problems by applying a giant Band-Aid to the existing system is going to lead to an even more incomprehensible muddle?

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