Administration Softens Sequester Impact on Health Reform Again
A new rule proposed by the administration's Department of Health and Human Services (HHS) would effectively eliminate the sequester for another portion of the Affordable Care Act (ACA), just days after the administration exempted the health care law's cost-sharing subsidies from the sequester. Identified by Inside Health Policy [gated], the rule proposes to interpret the sequester of risk adjustment and reinsurance payments as effectively delaying the cuts by a few months rather than cutting the payments – as the sequester does to other mandatory spending programs.
Specifically, the rule states that the "funds that are sequestered in fiscal year 2015 from the reinsurance and risk adjustment programs will become available for payment to issuers in fiscal year 2016 without further Congressional action." (p. 17) That is, the $1 billion that the administration had just announced will be cut from these two programs in FY 2015 because of the sequester will instead be temporarily withheld until "as soon as possible" in FY 2016. Because the payments were scheduled to go out in the summer of 2015, they would end up only delayed a few months, until after the new fiscal year starts in October. As long as the sequester of mandatory programs remains in place (it is currently in law through 2024), this delay would occur each year instead of an actual cut.
Notably, both the risk adjustment and reinsurance programs were set up to be budget-neutral. Risk adjustment is explicitly intended to transfer money from insurance plans who end up with a healthier risk pool to those with a less healthy one. And reinsurance payments are explicitly limited to the amount of contributions from insurance companies and self-insured plans. With the payment delay, the full contributions are still ultimately available to be distributed.
Unlike the legal decision to exempt the ACA's cost-sharing subsidies (which increased the size of sequestration cuts to other programs, including risk adjustment and reinsurance), however, this change would reduce the total size of the sequester and therefore increase deficits.
If the change had been an exemption, other mandatory programs would face slightly larger reductions to make up for the amounts no longer being cut from risk adjustment and reinsurance payments. However, the sequester calculation will remain the same under this new rule since the programs are not technically exempted.
Ultimately, the proposed rule erases the savings from the cuts that would have occurred without replacing them with cuts made to other mandatory programs. By our estimate, the sequester's budget savings will be reduced by about $6 billion over ten years.
Just weeks ago, the Affordable Care Act was facing roughly $16 billion in sequester cuts. But with this regulation and the legal decision to declare the cost-sharing subsidies exempt, the Affordable Care Act will now be almost entirely shielded from the sequester. Despite Congress' growing propensity to continue extending the mandatory sequester (now in effect through 2024), administrative action has made sure the ACA stays out of harm's way.