The Affordable Care Act (ACA) effectively created a shotgun marriage between state insurance regulators and the US Department of Health and Human Services who then had to provide oversight of their baby — the individual insurance market. The relationship has been complicated since the start: the insurance market has proved to be a problem child and the federal government has not been the most reliable spouse and parent recently.
Next Wednesday’s Senate Health Education, Labor, and Pension (HELP) Committee hearing, “Stabilizing Premiums and Helping Individuals in the Individual Insurance Market for 2018: Insurance Commissioners,” with testimony from five state insurance commissioners, will provide a chance for some of the states—the parents with de facto custody—to make their grievances known. What can we expect to hear?
Factors Behind Insurance Market Instability
Insurance markets with unknown or unstable enrollment characteristics make it difficult for insurers to predict rates, and they react to that uncertainty by raising their premiums more than they would otherwise. Four years into the ACA, some individual markets are becoming less, not more, stable, and one can expect the commissioners to make that abundantly clear.
Higher Prices, Less Insurer Participation
A preliminary assessment by the Kaiser Family Foundation of 2018 rate filings in 20 states and DC found only six markets with a rate request increase for the benchmark (second-lowest cost silver) plan less than 10 percent. Wilmington, DE, is facing the steepest increase at 49 percent. The same study found that an average of two insurers in each state had dropped out of the individual market in the last two years. As of June of this year, it appeared that 44 counties in the country would have no participating insurer in the ACA exchanges.
Insurance Commissioners are statutorily charged with guarding the solvency of insurers and protecting the interests of consumers. They take that responsibility very seriously, regardless of political affiliation. As a result, they have resisted pressure to arbitrarily cut rates to win short-term political points, and through judicious arm twisting they have ensured that no county in the country will be without an insurance option in the federally subsidized individual market.
However, high rate increases and one-insurer counties are not policy successes. One should expect the commissioners’ obligations to their state statutes, the evidence, and the people they serve to outweigh political affiliation, and each of them to lay most of the blame for the current instability on the individual market squarely in the lap of their carousing federal partner.
Cost-Sharing Reduction Uncertainty
The biggest driver of uncertainty in predicting rates for 2018 for insurers has been federal dithering on the status of cost-sharing reductions (CSRs) — subsidies to help low-income individuals and families deal with the deductibles and co-insurance in their exchange products. The authority of the administration to fund CSRs had been contested in a lawsuit filed by members of Congress. Failure to fund CSRs—hardly the insurer bailout alleged by the president, but instead a way to shield low-income consumers from high health care costs—would make health insurance on the exchange unaffordable for more individuals who would then drop their coverage.
Uncertainty over the future of CSRs, the status of the lawsuit, and the characteristics of those who would drop out of the market were all priced into insurers’ 2018 rates. Learning from one another, most commissioners have asked insurers for two sets of rates and directed them to allocate all of the CSR-related cost increases into the prices of their silver plans on the exchange, in an attempt to shift the burden of these cost increases back to the federal government. Some insurers in their rate filings have even detailed the incremental costs they attribute to a failure to fund CSRs. These estimates vary widely by insurer, further highlighting the costs of uncertainty. Congress and the administration can extricate themselves from this box, commissioners will point out, by honoring the commitment to funding CSRs.
Failure to Fund or Enforce Enrollment
The Trump administration has done the commissioners and their states’ individual markets no favors with its antipathy to enforcing the individual mandate, by defunding outreach efforts to inform individuals of the open enrollment period for the exchange markets, and by shortening the duration of that open enrollment period. One can expect several commissioners to point out the obvious: if you make health insurance harder to attain and easier to avoid, only sicker people will find their way to it, further destabilizing the market and raising the average costs of the insured pool. Many insurer rate filings for 2018 have also frequently added costs for these actions.
State Market Decisions
Senators in this hearing may point out however that neither parent is without guilt in this partnership. Some insurance commissioners have contributed to the individual market instability by ducking the politically tough move and allowing non-ACA compliant “grandfathered” and “grandmothered” plans for as long as possible — which segregates rather than pools risks and encourages market volatility. Rate review has been conducted with markedly less enthusiasm by some commissioners. Finally, of the states with small individual markets to start with, only Vermont and the District of Columbia have made the actuarially sound—but politically hard—choice of shutting down their off-exchange individual markets and channeling all volume through their exchanges.
Beyond asking for more fidelity (to the law) from their federal partner, commissioners will likely point out that there are additional steps Congress can take to improve the stability of the individual market. Federal funding of reinsurance pools—through 1332 waiver approvals or a new federal program—would improve predictability for insurers and reduce instability. Similarly some might call for the widening of allowable age rating (the ratio of the highest rate charged for a product to the lowest) from the current three-to-one, to attract younger enrollees as was proposed in various ACA repeal-and-replace bills. Finally, one of the testifying commissioners, John Doak of Oklahoma, has been vocal in his support for allowing plans with more cost-sharing or fewer essential health benefits to be sold in the market, presumably to draw healthier people into the risk pool.
Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) make an unlikely pair of marriage counselors, but in the wake of the collapse of the repeal-and-replace effort in the Senate in July, they deserve credit for leadership in defining the priority problem of market stability quickly, narrowly (“affordability” would have been a more politically expedient goal but a less responsible one), and in a bipartisan fashion. The commissioners, forced to handle the problem child of the individual market with an absent parent, are likely to remind the HELP Committee of the hard work they are doing on their own and to call on the administration to fulfill its important and statutory responsibilities.