The Affordable Care Act (ACA) continues to be challenged. The new Senate tax proposal includes a repeal of the individual mandate that requires most Americans to have at least a basic level of health insurance.
Yet despite ongoing activity to repeal, replace and challenge the ACA, evidence suggests that public insurance exchanges are thriving and achieving a level of sustainability that will probably see them continue for the foreseeable future.
However, removing the individual mandate in addition to Cost Sharing Reduction payments will definitely make the market less attractive to payers, put further pressure on premiums, and introduce more risk. Here’s what we can expect.
Removing CSR Payments will cause premiums to rise but the impact is limited
On October 20, Cost Sharing Reduction payments (CSR) were not paid to health insurance payers for the first time since they were established. They have been discontinued indefinitely and attempts so far to challenge the decision have been blocked.
The direct impact of removing CSR payments is limited. Only Silver plan participants that are between 100% and 250% of the federal poverty level receive the reductions to their out of pocket expenses through direct payments from the government to payers. This equates to approximately 5.8 Million out of roughly 11.4 Million with a qualified exchange health plan (QHP).
The response from individual states so far has been significant. In a few states, impacted members are being encouraged to migrate into cheaper Bronze plans with lower premiums. In other states, people are taking advantage of increased APTC tax credits (Advance Premium Tax Credit) to move into Gold plans with lower out of pocket costs. Overall, 17 states and the District of Columbia were granted the ability to step in themselves if CSR was ended for example by backfilling payments to payers. One SBM (State Based Marketplace) is pushing through a ‘market stability’ package that includes a fall back individual mandate, fall back CSR funding, local reinsurance and a wrapper around the APTC tax credit to offset higher premiums.
The removal of CSR payments to payers however will undeniably cause premiums on the exchange to rise and uncertainty around both CSR and the individual mandate has been a factor in recent price increases. Avalere Health has estimated that the average price of Silver plans sold on the FFM (Federally Funded Marketplace) has increased approximately 34% for the 2018 plan year. However these price increases are likely to be offset in part through higher APTC tax credits for enrollees that are calculated using the price of the lowest cost silver plan in a state. The Kaiser Family Foundation have put the overall increase in cost of implementing the ACA as a result of removing CSR payments (and impact to the national deficit) to be around 23%.
Taking out the individual mandate has a limited impact but introduces uncertainly and premium increases
The tax bill that was passed by the House last week did not call for removing the individual mandate, however the Senate version that is currently being debated does. The CBO has estimated that 4 million fewer people are likely to be covered in the first year that the removal takes effect. They have also directly attributed an additional 10% rise in premiums as mostly healthy, young people elect not to be covered and exit the individual risk pool. This, in combination with the elimination of CSR payments, may result in additional payers exiting the insurance exchange market.
Less predictable is the psychological impact on a public that has by and large accepted over time the notion that everyone should be insured. A removal of the mandate may have a significant impact on people’s perception on the utility of health insurance, causing more people to exit the market and applying pressure on premiums.
We will continue to see states challenge both CSR and mandate elimination through litigation. Whether they will have any success is yet to be seen.
The New England Journal of Medicine published a study that hints toward a natural market volatility that is often observed within very new and evolving marketplaces, yet over time the market will stabilize. Historically, it was quite normal for states to have a limited number of payers focusing on specific market segments, and for fewer choices in some areas than others.
In the end, payers will continue to exit but new payers will emerge and the market will stabilize over time. In 2017, 21% of ACA recipients live in an area with only one insurer. Having less choice in the market also has the potential to put an upwards pressure on premiums due to reduced competition. Rules and policy continue to change and there is huge payer uncertainty on their ability to remain profitable in this risky segment. There are two potential responses: raise premiums or exit the market. Several high profile and very active payers have exited over the last two years, and it is anticipated that the removal of CSR payments and the individual mandate may result in more doing so. However for every company that exits the market we are seeing the entry of newer, leaner, regionally focused, niche insurance companies that offer narrow network and carefully managed plans.
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