Tag Archives: Health Insurance Market Stability

Stabilizing and strengthening the individual health insurance market

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https://www.brookings.edu/research/stabilizing-and-strengthening-the-individual-health-insurance-market/?utm_campaign=Economic%20Studies&utm_source=hs_email&utm_medium=email&utm_content=64960143

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Stability has long been an issue for the individual health insurance market, even before the Affordable Care Act. While reforms adopted under the ACA initially succeeded in addressing some of these market issues, market conditions substantially worsened in 2016.

Insurers exited the individual market, both on and off the subsidized exchanges, leaving many areas with only a single insurer, and threatening to leave some areas (mostly rural) with no insurer on the exchange. Most insurers suffered significant losses in the individual market the first three years under the ACA, leading to very substantial increases in premiums a couple of years in a row.

For a time, it appeared that rate increases in 2016 and 2017 would be sufficient to stabilize the market by returning insurers to profitability, which would bring future increases in line with normal medical cost trends. However, Congress’s decision to repeal the individual mandate and the Trump Administration’s decision to halt “cost-sharing reduction” payments to insurers, along with other measures that were seen as destabilizing, created substantial new uncertainty for market conditions in 2018.

This uncertainty continues into 2019, owing both to lack of clarity on the actual effects of last year’s statutory and regulatory changes, and to pending regulatory changes that would expand the availability of “non-compliant” plans sold outside of the ACA-regulated market. These uncertainties further complicate insurers’ decisions about whether to remain in the individual market and how much to increase premiums.

In “Stabilizing and strengthening the individual health insurance market: A view from ten states” (PDF), Mark Hall examines the causes of instability in the individual market and identifies measures to help improve stability based off of interviews with key stakeholders in 10 states.

The condition of the individual market

In the states studied—Alaska, Arizona, Colorado, Florida, Iowa, Maine, Minnesota, Nevada, Ohio, and Texas—opinions about market stability vary widely across states and stakeholders.

While enrollment has remained remarkably strong in the ACA’s subsidized exchanges, enrollment by people not receiving subsidies has dropped sharply.

States that operate their own exchanges have had somewhat stronger enrollment (both on and off the exchanges), and lower premiums, than states using the federal exchange.

A core of insurers remain committed to the individual market because enrollment remains substantial, and most insurers have been able to increase prices enough to become profitable. Some insurers that previously left or stayed out of markets now appear to be (re)entering.

Political uncertainty

Premiums have increased sharply over the past two to three years, initially because insurers had underpriced relative to the actual claims costs that ACA enrollees generated. However, political uncertainty in recent years caused some insurers to leave the market and those who stayed raised their rates.

Insurers were able to cope with the Trump administration’s halt to CSR payments by increasing their rates for 2018 while the dominant view in most states is that the adverse effects of the repeal of the individual mandate will be less than originally thought. Even if the mandate is not essential, many subjects viewed it as helpful to market stability. Thus, there is some interest in replacing the federal mandate with alternative measures.

Because most insurers have become profitable in the individual market, future rate increases are likely to be closer to general medical cost trends (which are in the single digits). But this moderation may not hold if additional adverse regulatory or policy changes are made, and some such changes have been recently announced.

Many subjects viewed reinsurance as potentially helpful to market conditions, but only modestly so because funding levels typically proposed produce just a one-time lessening of rate increases in the range of 10-20 percent. Some subjects thought that a better use of additional funding would be to expand the range of people who are eligible for premium subsidies.Actions to restore stability

Concerns were expressed about coverage options that do not comply with ACA regulations, such as sharing ministries, association health plans, and short-term plans. However, some thought this outweighed harms to the ACA-compliant market; thus, there was some support for allowing separate markets (ACA and non-ACA) to develop, especially in states where unsubsidized prices are already particularly high.

Other federal measures, such as tightening up special enrollment, more flexibility in covered benefits, and lower medical loss ratios, were not seen as having a notable effect on market stability.

Measures that states might consider (in addition to those noted above) include: Medicaid buy-in as a “public option”; assessing non-complying plans to fund expanded ACA subsidies; investing more in marketing and outreach; “auto-enrollment” in “zero premium” Bronze plans; and allowing insurers to make mid-year rate corrections to account for major new regulatory changes.

Conclusion

The ACA’s individual market is in generally the same shape now as it was at the end of 2016. Prices are high and insurer participation is down, but these conditions are not fundamentally worse than they were at the end of the Obama administration. For a variety of reasons, the ACA’s core market has withstood remarkably well the various body blows it absorbed during 2017, including repeal of the individual mandate, and halting payments to insurers for reduced cost sharing by low-income subscribers.

The measures currently available to states are unlikely, however, to improve the individual market to the extent that is needed. Although the ACA market is likely to survive in its basic current form, the future health of the market—especially for unsubsidized people—depends on the willingness and ability of federal lawmakers to muster the political determination to make substantial improvements.

Read the full paper here

 

 

Republicans release new plan to lower health premiums, stabilize Obamacare markets

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https://www.usatoday.com/story/news/politics/2018/03/19/republicans-release-new-plan-lower-health-premiums-stabilize-obamacare-markets/439216002/

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 Sen. Lamar Alexander and other congressional Republicans are pressing forward with their latest plan to stabilize Obamacare health insurance markets and help provide coverage for patients with high medical costs.

But while previous versions have had bipartisan support, Democrats are refusing to back the latest bill.

Alexander and three key Republicans filed legislation Monday that they said could provide coverage for an additional 3.2 million individuals and lower premiums by as much as 40 percent for people who don’t get their health insurance through the government or their employer.

Beginning in 2019, the bill would reinstate for three years the government subsidies paid to insurers that provide health-care coverage to low-income clients. It also would provide $30 billion in funding – $10 billion a year over three years – to help states set up high-risk insurance pools to provide coverage for people with high medical costs.

The proposal also would revise the Obamacare waiver process so that states will have more flexibility to design and regulate insurance plans. In addition, it would require the Department of Health and Human Services to issue regulations allowing insurers to sell plans across state lines.

“Our recommendations are based upon Senate and House proposals developed in several bipartisan hearings and roundtable discussions,” the proposal’s Republican sponsors said in a statement.

The bill is sponsored in the Senate by Alexander, who chairs the Senate Health, Education, Labor and Pensions Committee, and Sen. Susan Collins, R-Maine. The sponsors in the House are Rep. Greg Walden, R-Ore., who chairs the House Energy and Commerce Committee, and Rep. Ryan Costello, R-Penn.

The lawmakers are hoping to include the bill in a massive spending package that Congress is expected to take up by the end of the week. President Donald Trump told Alexander and Collins in a conference call over the weekend that he wants money to lower health insurance premiums included in the spending package.

The bill marks the latest attempt by lawmakers to offer short-term fixes that could bring some stability to the volatile health insurance markets created under the Affordable Care Act and help offset the higher insurance premiums expected to result from the repeal of the Obamacare requirement that most Americans buy insurance.

Alexander and the Senate health committee’s top Democrat, Sen. Patty Murray of Washington, struck a deal last fall to extend the cost-sharing subsidies for two years. Trump has halted the payments, established under the Affordable Care Act, which are worth around $7 billion each year.

But Murray and other Democrats are refusing to sign onto the latest proposal because it includes language that they say would expand the restrictions on federal funding of abortions.

“Senator Murray is disappointed that Republicans are rallying behind a new partisan bill that includes a last-minute, harmful restriction on abortion coverage for private insurance companies instead of working with Democrats to wrap up what have been bipartisan efforts to reduce health care costs,” said Murray’s spokeswoman, Helen Hare.

Murray “hopes the unexpected release of this partisan legislation isn’t a signal from Republicans that they have once again ended ongoing negotiations aimed at lowering families’ health care costs in favor of partisan politics, and that they come back to the table to finally get this done,” Hare said.

Republicans, meanwhile, pointed to an analysis by health care experts at the management consulting firm Oliver Wyman that compared the new proposal to what people in the individual market will pay if Congress fails to act.

The analysis showed that the package would reduce premiums by up to 40 percent in the individual market for farmers, small business owners and others who don’t buy their insurance from the government or their employer.

A self-employed plumber making $60,000, for example, may be paying $20,000 for health insurance now, but over time that insurance bill could be cut up to $8,000, the lawmakers said.

Preliminary projections from the Congressional Budget Office indicated that the plan could be adopted without adding to the federal debt.

 

Back to the Health Policy Drawing Board

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The Affordable Care Act needs help. After scores of failed repeal attempts, Congress enacted legislation late last year that eliminated one of the law’s central features, the mandate requiring people to buy insurance.

Obamacare, as the Affordable Care Act is widely known, isn’t in imminent danger of collapse, but the mandate’s repeal poses a serious long-term threat.

To understand that threat and how it might be parried, it’s helpful to consider why the United States has relied so heavily on employer-provided insurance — and why it has not yet adopted a form of the universal coverage seen in most other countries.

First, some basics on private insurance: It works well only when many people, each with a low risk of loss, buy in. Most homeowners buy fire insurance, for example, and only a small fraction file claims annually. A modest premium can therefore cover large losses sustained by a few.

But because of what economists call the adverse-selection problem, this model can easily break down for private health insurance. People typically know more about their own health risks than insurers do, making those most at risk more likely to purchase insurance.

This drives premiums up, making insurance still less attractive to the healthiest people. That, in turn, causes many to drop out, producing the fabled “death spiral” in which only the least healthy people remain insured. But at that point, private health insurance may no longer be viable, because annual treatment costs for serious illnesses often exceed several hundred thousand dollars.

Most nations have solved this problem by adopting universal coverage financed by taxes. The United States probably would have followed this approach except for a historical anomaly during World War II. Fearing runaway inflation in tight labor markets, the American government imposed a cap on wages.

But the cap didn’t apply to fringe benefits, which employers quickly exploited as a recruiting tool. Employer health plans proved particularly attractive, since their cost was a deductible expense and they were not taxed. Before the war started, only 9 percent of workers had employer-provided insurance, but 63 percent had it by 1953.

To be eligible for favorable tax treatment, companies were required to make their plans available to all employees, which mitigated the adverse-selection problem. People would lose insurance if they lost their jobs, which inhibited labor mobility, but since employment relationships were relatively durable in the postwar years, this arrangement worked well enough.

But after peaking at almost 70 percent in the 1990s, employer coverage began declining in the face of stagnating wages and rising insurance costs. By 2010, only 56 percent of the nonelderly American population still had workplace health plans.

Even so, because more than 100 million Americans still had such plans and were reasonably satisfied with them, the Obama administration opted to build health reform atop the existing system. In addition to allowing people to keep their existing employer coverage, Obamacare expanded eligibility for Medicaid and established exchanges in which people without employer plans could buy insurance.

At the outset, Obamacare had three central features:

• Insurers could not charge higher prices to people with pre-existing conditions.

• Those without coverage had to pay a penalty to the government (the “mandate”).

• Low-income people would be eligible for subsidies.

The first two provisions were necessary to prevent the death spiral, and government couldn’t mandate insurance purchases without adding subsidies for the poor.

Despite a bumpy rollout and some frustrations over shrinking choices and rising prices at health care exchanges, Obamacare was working remarkably well by most important metrics. Program costs were much lower than expected, and the uninsured rate among nonelderly Americans fell sharply — from 18.2 percent in 2010 to only 10.3 percent in 2018.

This progress is now imperiled.

The mandate — by far the program’s least popular provision — was repealed as part of tax legislation passed in December 2017. And because economists predict that its absence will slowly rekindle the insurance death spiral, we’re forced back to the policy drawing board.

The most common response has been to call for a variant of the single-payer systems employed by most other countries, which promise dramatic reductions in health costs.

The United States spends far more on health care than any other nation, yet gets worse outcomes on most measures. In part this is because administrative and marketing expenses are much lower under single-payer plans. But by far the most important source of savings is that governments are able to negotiate much more favorable terms with service providers. Virtually every procedure, test, and drug costs substantially more here than elsewhere.

An American hospital stay, for example, costs more than twelve times as much as one in the Netherlands. The single-payer approach also sidesteps the thorny mandate objection by covering everyone out of tax revenue.

A June 2017 poll showed that 60 percent of Americans said the government should provide universal coverage, and support for single-payer insurance rose more than one-third since 2014.

Yet a move to a single-payer system faces the same hurdle that shaped Obamacare: Millions of Americans would resist any attempt to take their employer-provided plans away. And although single-payer health care would be far less costly overall, it would be paid for by taxes — the most visible form of sacrifice — rather than by the implicit levies that underwrite employer coverage.

From a purely economic standpoint, the increased tax burden is irrelevant. It’s a truism that making the economic pie larger necessarily makes it possible for everyone to get a larger slice than before. And because the gains from single-payer insurance would be so large, there must be ways to make everyone come out ahead, even in the short run.

The Yale political scientist Jacob Hacker, for example, has proposed the introduction of Medicare Part E (Medicare for Everyone), which would allow anyone to buy into Medicare, regardless of age. The program’s budget would be supported in part by levies on employers that don’t offer insurance.

The cost savings inherent in this form of single-payer coverage would lead more and more firms to abandon their current plans voluntarily. Gradually, the age for standard Medicare eligibility also would fall until the entire population was covered by it. The Center for American Progress has now introduced a similar proposal.

It’s critical to realize that there are attractive paths forward. In no other wealthy country do we see people organize bake sales to help pay for a neighbor’s cancer care. We can avoid this national embarrassment without requiring painful sacrifices from anyone.

 

 

Obamacare insurers just had their best year ever — despite Trump

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https://www.politico.com/story/2018/03/17/obamacare-insurers-2017-profit-analysis-422559

Flyers promoting Blue Cross Blue Shield are pictured. | AP Photo

A new POLITICO analysis finds many health plans turned a profit for the first time as GOP fumbled repeal.

Obamacare is no longer busting the bank for insurers.

After three years of financial bloodletting under the law — and despite constant repeal threats and efforts by the Trump administration to dismantle it — many of the remaining insurers made money on individual health plans for the first time last year, according to a POLITICO analysis of financial filings for 29 regional Blue Cross Blue Shield plans, often the dominant player in their markets.

The biggest reason for the improvement is simple: big premium spikes. The Blue plans increased premiums by more than 25 percent on average in 2017, meaning many insurers charged enough to cover their customers’ medical costs for the first time since the Affordable Care Act marketplaces launched in 2014 with robust coverage requirements.

“2017 was the first year we got our head above water in the individual market since the ACA passed,” said Steven Udvarhelyi, CEO of Blue Cross and Blue Shield of Louisiana.

However, one good year won’t ease the trepidation many insurers feel as they start planning for 2019. After knocking out the law’s individual mandate and a subsidy program worth billions of dollars to insurers late last year, the Trump administration is soon expected to finalize rules making it easier to buy cheaper plans exempt from some Obamacare rules.

“I don’t think we’ve turned the corner,” said Kurt Kossen, president of retail markets at Health Care Service Corporation, which operates Blue plans in five states. The insurer lost $2.5 billion on its individual market business during Obamacare’s first three years, he noted. “One year of being able to make a profit out of four certainly is not a stable market,” he said.

“They understand the risks of the market better now than they did at the start of the ACA exchanges,” said Deep Banerjee, an analyst with Standard & Poor’s who has written extensively about the marketplaces.

The gains were particularly notable among some of the biggest insurers. Health Care Service Corporation spent 77.7 percent of premiums on medical claims, an improvement of 18.5 percentage points over the prior year. Similarly, Blue Cross Blue Shield of North Carolina saw its margin improve by just over 10 percentage points.

But not all insurers have figured out how to make money in the troubled markets, which have failed to attract enough young and healthy customers to function effectively in many states. Of the 29 insurers analyzed, eight plans spent more than 90 percent of premium revenues on medical costs last year, meaning they almost certainly lost money in the marketplaces.

The POLITICO analysis provides a snapshot of financial performance in the marketplaces in 2017, not a definitive portrait. Combined, the 29 Blue plans had 4.5 million individual market customers at the end of last year, accounting for about one-fifth of the total market for people who buy their own coverage.

The healthier balance sheets are a welcome development for insurers after three years of major Obamacare losses, estimated at more than $15 billion by McKinsey. That led many national insurers, including UnitedHealth Group and Aetna, to flee the law’s marketplaces, in some cases leaving Blue Cross Blue Shield plans as the only option for customers.

But their improved financial fortunes could also complicate efforts to convince Republican lawmakers to support an Obamacare stabilization package as part of the massive spending bill Congress is trying pass by March 23. Lawmakers are looking to add new funds to help insurers with especially sick customers and restore a subsidy program known as cost-sharing reductions that helps insurers pay medical bills for their low-income customers.

However, a dispute over abortion language is holding up the Obamacare package in Congress. And many conservatives are wary of providing more funding to prop up the marketplaces, deriding it as a bailout for insurance companies.

“The rates can stay low without these payments,” said Rep. Larry Bucshon (R-Ind.), a member of the Energy and Commerce Committee, regarding the cost-sharing reductions that President Donald Trump cut last fall.

Insurers argue that looking at financial performance over a single year is misleading, and they say they’ve been repeatedly blindsided by changes to the law. For instance, because of budgetary restraints Republicans demanded, insurers haven’t received an expected $12 billion from a program meant to help them cover particularly expensive customers. Dozens of insurers are now suing the federal government to recover payments.

“If you don’t want to stabilize the current market, what’s your solution?” Udvarhelyi said. “The fact that we’ve hung in there losing hundreds of millions of dollars is a testament to the fact that we do care, but we need responsible action on the part of policymakers right now.”

Patrick Conway, CEO of Blue Cross and Blue Shield of North Carolina, points out his company would have kept 2018 premiums flat if Trump hadn’t eliminated the cost-sharing subsidy. Instead, the insurer jacked up rates by an average of 13 percent to make up for the lost funding.

“We’re dedicated to having the lowest possible premiums for our customers, and market stabilization would help us have the lowest possible premiums,” Conway said. “I’ve been traveling around the state and people are really worried about the cost.”

As insurers start to crunch the numbers on 2019 premiums, they will have to account for uncertainty over congressional funding and recent steps taken by the Trump administration weakening Obamacare. The elimination of the requirement to purchase insurance, which takes effect in 2019, and the administration’s efforts to make it easier to sell cheaper, skinnier plans that don’t meet Obamacare’s coverage requirements, are likely to further destabilize the markets.

The insurers’ biggest concern is fewer healthy individuals will buy Obamacare plans, either going without coverage, since they’ll no longer face a fine next year, or buying a new cheaper plan that covers far less.

“These things will chip away at the market,” S&P’s Banerjee said. “It’s not going to get meaningfully worse, but it doesn’t get any better.”

Insurers are warning that they’ll again have to jack up rates in 2019 if Congress doesn’t take action to stabilize the markets. A study from California’s marketplace suggests premium spikes around the country are likely to range from 16 to 30 percent next year. That means many Obamacare customers could be facing sticker shock just weeks before heading to the polls.

Polling has consistently shown that Republicans will shoulder most of the blame for future problems in Obamacare, since they’re fully in charge of the federal government. That could spur them to begrudgingly take action to tamp down premium increases, despite their disdain for the health care law.

“I think the people in charge, whether it’s fair or not, will probably [get the blame],” said Rep. Brett Guthrie (R-Ky.), vice chair of the House Energy and Commerce health subcommittee. “Everybody’s prices are going up. We’re going to have to figure out some way to improve it.”