The slow-motion consideration by Congress and the president to change the Affordable Care Act is likely to produce surprising results. The insurance market does not go into suspended animation while Washington debates.
In fact, starting this month, insurers face a series of filing deadlines that will determine what comes next for health insurance plans in the ACA marketplace. Anthem’s plan to exit from the Ohio Obamacare individual insurance exchange is just the next act in a long-running drama of insurers and the ACA.
As a former insurance CEO and a professor of health finance, I see trouble lurking. President Trump predicted the exchanges would collapse. But what he didn’t say is that he’d help make sure that happens. The end result may be many people will rejoin the ranks for of the uninsured.
Premiums and Subsidies on the Obamacare Exchanges
Let’s step back a little to consider how the ACA exchanges actually work.
If the dwindling number of insurance companies still offering plans under Obamacare want to continue next year, they must file their designs and premiums with their states and the federal government now. Open enrollment for people to sign up for insurance on these exchanges then starts in the fall.
These plans must fit into four actuarial categories. The first category, called platinum level, is for plans that cover 90 percent of the estimated full cost of medical expenses; gold plans cover 80 percent; silver plans cover 70 percent; and bronze plans cover 60 percent.
Insurance companies have the option of pulling these plans from the exchanges in September if they wish, based on their actual medical costs incurred and resulting gains or losses in the current year. In other words, if their numbers indicate they cannot make a profit, health insurance providers can leave. This is important, since insurers are making broad guesses regarding projected costs and premiums for consumers when they file so early, with little experience to back their decisions.
This year, they have much less certainty regarding the ground rules and subsidies on the exchanges. If they make the reasonable assumption that the government will cut back on their subsidies, as Republicans have indicated they will, the premiums they set now must reflect this additional risk in the future, since insurers will still be legally committed to their filings. Judging from early indications, this additional uncertainty will drive up premiums over 20 percent, although the underlying general increases in health care costs are less than 5 percent.
On top of this, the additional cost sharing reduction (CSR) subsidies under the silver plans are literally being held hostage by the president. A pending court case and President Trump’s statements give credibility to the threat of withholding these payments.
The loss of these would require additional premium increases of 19 percent to offset the reduced government support.
These subsidies are critical to the many people buying silver plans since they reduce the average out-of-pocket cost of copays and deductibles radically from the standard 30 percent (i.e., the part not covered by the silver plans) to only 6 percent for the lowest-income people and somewhat higher for those with greater income.
The Insurers’ Dilemma
As a former CEO of an insurance company, I can say that this would create a huge dilemma for me. Premiums must be sufficient to cover likely costs, or I will lose my job!
But I don’t know what costs will be, and now I can only guess at what subsidies will be available. So, I must file rates that cover the most extreme possibilities.
The resulting high premiums will be excessive for those not receiving subsidies. These folks most likely will just revert to their former uninsured status.
This will leave only those low-income purchasers whose subsidies under the ACA will automatically rise to offset the higher premiums, leaving the net cost to the working poor the same based on the percentage of their income that is deemed “affordable.”
In fact, since enrollees’ incomes haven’t risen, their net payment for silver plans after these subsidies has remained flat for three years. An insurer, then, can raise premiums as much as it needs to, and the net price to most of those low income people still purchasing plans will still look like a great deal.
The problem for government is that its expenditures may not drop even with lower enrollments, since the people now receiving subsidies are likely to continue to buy policies while those without this assistance drop out.
Ironically, due to the resulting much higher premiums, it is likely that the total cost to the government will be even bigger since the subsidies required for low-income people will shoot up. The difference is that choices will be dramatically reduced, and everyone else will be priced out of the market! Far fewer people will actually be insured.
Net Result of Delay and Uncertainty
The result of this mess is likely to be a radical change in the exchanges and those who sell insurance through them. Insurers will fall into one of three categories.
First are those like United Healthcare, who entered the exchanges late and left early. They bet on failure or loss of government support from the outset. More are joining this camp by completely withdrawing. But this isn’t due to an inevitable failure of Obamacare, as the president maintains. Instead, it’s due to the withdrawal of promised market support and uncertainty fostered by the delays.
Second are those who are uncertain about the future but want to keep their options open. Most of these firms will file plans this month with very high premiums as placeholders but with a significant probability of withdrawal in the fall when it is clearer what will happen in the policy world. If no changes to the ACA occur in a stalemated Congress, this strategy may pay off handsomely due to their higher premiums and continuing subsidies. However, some courageous insurers might file lower premiums to be more competitive and then withdraw if conditions warrant it.
The third set are those insurers who are betting that the CSR subsidies will be canceled, but who think higher premiums will be enough to offset the loss of this income. With the exit of most or all of their competitors, they would pick up market share and do just fine.
In any event, the delay and uncertainty, along with predicted reactions of insurers, will guarantee that only low-income working people who are eligible for subsidies will be covered by exchange plans.
Ironically, these are akin to the folks that Medicaid covers now but at a higher level of income than what would qualify for coverage normally. Thus, the result of the impending meltdown of the exchanges may be effectively an extension of Medicaid-type coverage to a greater number of working poor than we have now.
By destroying the initial thrust of the ACA exchanges to give affordable options to everyone regardless of income or health status, we may effectively wind up just extending our current and revamped Medicaid programs for the poor to those with somewhat higher incomes — an ironic result for those bent on reducing Medicaid. But this would come at the cost of returning the individual markets for everyone else to their former dysfunctional state.
And this all may happen by default while the debate goes on rather than by design.
Is this the way to do health policy?
This article was originally published on The Conversation.