The individual insurance market in 2018: Business as usual?
Editor’s Note: This post is part of a series stemming from the Sixth Annual Health Law Year in P/Review event held at Harvard Law School on December 12, 2016. The conference brought together leading experts to review major developments in health law over the previous year, and preview what is to come.
Congress has enacted a tax bill that repeals the Affordable Care Act (ACA) penalties for individuals who fail to enroll in health insurance. Open enrollment for the 2018 plan year may stay roughly even with 2017 exchange enrollment—lackluster performance that some blame on what they call “Trump sabotage”. Some Republicans are urging Congress to appropriate funds for cost sharing reduction (CSR) payments and a national reinsurance pool, presumably to promote enrollment and moderate premium increases. Will Democrats vote to resolve the CSR problem and reinstitute reinsurance—policies many say they support? Or will it be business as usual on Capitol Hill with strict party-line votes (and the inevitable failure of ACA fixes)? Would that change anything about the way the nongroup insurance market operates next year?
The short answers are no, yes, and no. Here are some thoughts about why the status quo is likely to remain largely undisturbed by political speech-making and over-reaction from the editorial pages. My comments are based loosely on my presentation at the Petrie-Flom Health Law Year in P/Review conference held at Harvard University on December 12, 2017.
Exchange Enrollment For 2018
Early reports showed a more rapid pace of exchange enrollment this year than last. As of December 15, 2017, 8.8 million people in the 39 states using the federal exchange had selected plans. That is less than last year’s total of 9.2 million enrollments through Healthcare.gov, but not the dramatic reduction that advocates may have expected.
One cannot simply compare last year’s enrollment pace with this year’s. The open enrollment period is shorter, but nine states and the District of Columbia gave people more time to enroll. California, for example, moved the end date from December 15, 2017 (the federal standard) to January 31, 2018. Whether that extension results in more enrollment or merely allows people to put off making a decision will be the subject of debate.
Other factors also play into the enrollment process. The Obama administration actively promoted exchange plans; the Trump administration did less to encourage people to enroll. Premiums increased by double digits for the second year in a row, due primarily to the Trump administration’s decision to stop paying insurers for CSRs. A 40-year-old individual purchasing the lowest cost silver plan would face a premium increase averaging 32 percent.
In many states, only silver plan premiums were increased to account for the loss of CSR payments. That strategy drove up the premium tax credit, which is tied to the silver premium in each market. As a result, most people receiving the subsidy are no worse off—and in many cases better off since gold plans became more affordable net of the subsidy. Indeed, the two groups left disadvantaged by the decision to halt CSR payments to insurers are people with incomes over 400 percent of poverty (and ineligible for the premium subsidy) and taxpayers (who will foot the bill for the higher premium subsidies).
Once the dust settles and all open enrollment periods are completed, we are likely to see little change in the number of subsidized enrollees, and perhaps a slight increase. Some subsidy-eligible individuals who had not previously enrolled in exchange coverage may have feared that further procrastination might jeopardize their chances for coverage in the future.
If there is a decline, it will be in the unsubsidized population. Many middle-class families buying their own coverage before the ACA were priced out of the market by the new law, and the 2018 premium increase will hit hard. Assuming that 80 percent of the 10.3 million people in 2017 who “effectuated” their coverage (by selecting a plan and paying the first premium) received a premium subsidy, then about two million would be subject to the full increase in premiums for 2018. It would not be surprising if half of those dropped out.
What about the impact of dropping the mandate penalty? Debate has typically fallen along ideological, rather than logical, lines. The Congressional Budget Office (CBO) assumed that the mandate would be highly effective, that it would be effective essentially immediately, and that it would strengthen somewhat over time as the financial penalties increased. If you support the ACA, that is an appealing assumption (although note that CBO has begun to back off on their faith in the mandate). If not, then you reject it.
Analysts should try to avoid getting caught up in this debate and instead take a broad view of what motivates consumers to buy health insurance—or, for that matter, any product. The mandate probably caused many to look at an exchange website or seek out other information, but the mandate could not sell a product that younger, healthier people do not consider to be worth the money.
The point is that the mandate was one fairly small factor in enrollment decisions. If exchange coverage could be sold with premiums and deductibles in the hundreds rather than the thousands of dollars, enrollment would have been much greater than we have seen—but that would not be because of the mandate.
The penalty is now universally regarded as too weak to be much of a threat. The penalty does not take effect until at least a year after a person decides not to buy insurance, and the Obama administration offered to exempt people from the penalty for hardship reasons that were loosely defined. In 2015, more individuals claimed an exemption than enrolled in exchange coverage.
Another fact of human behavior was also overlooked. Low-income people do not value health insurance as highly as those with high incomes. A recent study of low-income adults in Massachusetts shows that insurance take-up drops 25 percent for every $40 increase in monthly enrollee premiums. Even with a subsidy covering 90 percent of the premium, 20 percent would remain uninsured. Failure to take into account the differing circumstances, preferences, and understanding of people at various income levels faced with health insurance decisions led to the assumption that the mandate is the key element in making the ACA work.
Outlook For Further Policy Changes In 2018
Despite Senator Susan Collins’ (R-ME) claims that legislation will be enacted to pay insurers for CSRs and establish a national risk pool, those proposals are unlikely to make it to President Donald Trump’s desk. There is the usual problem of getting enough votes, which in the Senate means at least nine votes from Democrats to achieve the 60 vote majority. But even if there were enough votes, the proposals are too little and too late.
Restoring CSR payments through 2019, as proposed by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), does little to resolve the uncertain business climate facing insurers in the nongroup market. Passage of that bill would not lower premiums in 2018 and would do little to keep insurers in the market in 2019. The reinsurance program proposed by Senators Collins and Bill Nelson (D-FL) provides $10 billion over two years for states to set up high-risk pools. Whether that sum is adequate for a couple years is debatable, but high-cost patients will remain in the system once federal dollars are spent.
Such repairs to ACA design and implementation flaws are not popular with Republicans, who promised to repeal and replace. At best, they are meant to buy time for Republicans to agree on a comprehensive reform package that might get some Democrat support. But further action on bigger-picture proposals, such as that advanced by Senators Lindsay Graham (R-SC) and Bill Cassidy (R-LA), is highly unlikely in 2018 given the painful legislative failures of 2017.
Regulation is more likely to be the vehicle for policy changes next year since there is no need to gain approval from Democrats—or even some Republicans. President Trump’s October 12, 2017 executive order directs executive branch agencies to develop federal regulations that could allow new and less expensive health insurance options for employers and consumers. Allowing new kinds of association health plans, loosening restrictions on short-term limited duration Insurance, and expanding the availability and use of health reimbursement arrangements could advancepart of the Republican agenda, although not in time to affect the nongroup market in 2018.
Claims that the exchange market is unstable are greatly exaggerated. Absent significant changes in policy, we are likely to see enrollment dropping somewhat, with the vast majority of exchange customers receiving generous federal subsidies. Premium increases will moderate after several years of double-digit growth, which reflects necessary market corrections to early misjudgments on cost by insurers and shifting payment policies by the government.
A stable market does not necessarily yield optimal social or fiscal outcomes. Instead of achieving the ACA’s goal of (near-) universal coverage, middle-class families who do not have access to employer coverage will continue to be squeezed out of the market. Those who have coverage will continue to see their costs rise as a result of an inefficient delivery system. These serious problems are not new. Neither is the reluctance of either political party to take them on.