Commercial health issuers should develop contingency plans as legislative proposals designed to modify the Patient Protection and Affordable Care Act (ACA) emerge. While the direction of the ACA marketplace is uncertain now, health plans can proactively evaluate the risks and rewards of various contingency plans to act quickly once the new market environment becomes clear.
Milliman actuaries Amy Giese and Alison Fasching have authored a new paper offering issuers considerations for commercial contingency planning. In the paper, the authors explore the following new “three Rs” to mitigate risk in the current environment:
• Remain in the market
• Refile in the summer if changes occur after products are initially filed
• Remove products from the market
To learn more about the developing healthcare landscape in the United States, follow Milliman Healthcare reform 2.0.
Many insurers are contemplating the financial implications that a U.S. Supreme Court ruling against federal healthcare subsidies would have on their business. This Wall Street Journal article (subscription required) quotes Milliman’s Tom Snook discussing a potential exodus from the federal exchange if tax credits are rescinded.
Here is an excerpt from the article:
Insurers offering products in the federal-exchange states are worried that they could be caught short this year. An antisubsidy ruling could potentially take effect—and prompt consumers to drop coverage—as soon as this summer. Insurers are locked into rates for 2015 and typically wouldn’t be able to raise prices midyear. And partly because of state regulations, it isn’t clear if or when insurers would be able to withdraw from the federal marketplace before January.
But for 2016, if the federal insurance tax credits are unavailable in a state, “the impact would be substantial enough that I would expect many carriers to consider pulling from the market,” says Tom Snook, an actuary with consultants Milliman Inc. who is working with a number of insurers offering exchange plans. “There’s a question, if the subsidies are struck down, if it’s an insurable market.” That could leave consumers with fewer, and far pricier, choices.
Under the Patient Protection and Affordable Care Act (ACA) enrollees who qualify for subsidies are allowed a 90-day premium nonpayment grace period so long as they have paid their first month’s premium. This provision could have adverse effects for the healthcare industry if individuals only pay nine months of premiums for a year’s worth of coverage.
A recent Health Affairs article by Milliman consultant Hans Leida and Manatt’s Michael Kolber offers perspective on how premium rates and exchange participation may be affected by individuals who game the grace period provision.
It is unclear how many individuals are likely to take advantage of this loophole. It seems likely that CMS’s new approach for the federally facilitated exchanges will reduce the number of gamers in those markets somewhat. In states that do not adopt CMS’s approach (or some other method to reduce gaming), the impact will likely be greater.
However, it is also likely that the impact will be smaller in the first years of the exchanges. Many of those newly enrolled through the exchanges are unfamiliar with health insurance in general and the ACA’s arcane rules in particular, and may not realize the potential for gaming. Others may have objections to gaming the system, or may be averse to the perceived risk of being in a grace period.
On the other hand, given the significant potential cost savings for gamers, it seems plausible that—eventually—many low-income individuals will adopt this strategy in order to further reduce their premium costs. For example, the nationwide average monthly premium for the second lowest cost silver plan is approximately $260 for a 35 year old. At that rate, a single enrollee at 250 percent of the federal poverty level would have a monthly net premium of approximately $193 after subsidy.
Over three months, this would amount to $579 of net premium that could be avoided through gaming. The insurer in this case would receive only $67 (the subsidy in the first month) out of the total gross premium of $780…
If even a relatively small fraction chooses to do so, it could have real consequences for premium rates—perhaps requiring an increase of up to several percentage points. Insurers with a greater concentration of subsidy-eligible enrollees, including new market entrants such as consumer operated and oriented plans (CO-OPs) and traditional Medicaid managed care organizations, could see larger impacts.
To read the entire article, click here.
Policyholders may receive a lower advanced federal subsidy than they otherwise would if they fail to visit the federal health insurance exchange to reenroll or update their financial information, resulting in higher out-of-pocket costs. Milliman actuary Paul Houchens discussed the auto-enrollment process with Trudy Lieberman, and explains how premium trends affect subsidies and out-of-pocket costs in this Rural Health News article.
The actuarial consulting firm Milliman has found that even small premium increases – in the 5 percent range – can lead to out-of-pocket increases of between 30 and 100 percent for those with low incomes if income information is not updated. Data suggest that most individuals with exchange policies have incomes of $25,000 or less and most families have incomes around $50,000, said Paul Houchens, an actuary with Milliman.
Houchens told me several reasons premiums will be higher this year for many exchange buyers. (Some will see decreases.) Insurers, which offered super low rates in the exchanges last year to entice more customers to their plans, are finding they need to increase their premiums. And in many parts of the country the benchmark plan (the second lowest cost silver level policy) on which subsidies are based has changed, meaning higher premiums for some people.
Premiums also go up each year gradually each year you get older. Because the Affordable Care Act allows insurers to charge older people three times more than younger ones, older people will certainly feel the pinch if last year’s subsidy is too low. They might get larger subsidies if they reapply.
This paper provides more perspective on the potential implications for policyholders and insurance companies related to changes in federal subsidies and the renewal process.
The U.S. Supreme Court’s recent decision to review the legality of the premium subsidies provision of the Patient Protection and Affordable Care Act (ACA) has major implications for the health insurance industry. In a new article, Milliman consultants Jason Siegel and Jason Karcher address several questions concerning the uncertainty the high court’s decision creates for insurers participating on the healthcare exchange.
Here is an excerpt:
How many people will use FFEs?
As mentioned earlier, APTCs are one of the major legs upon which the ACA stool stands. Individuals are required to maintain minimum essential coverage as long as it is affordable to them. Of those who enrolled in coverage through an FFE, 86% received these credits. Removal of these credits will likely reduce participation. A RAND Corporation study3 commissioned by the U.S. Department of Health and Human Services (HHS) estimates that this would decrease enrollment to 32% of what it would otherwise be. Impacts of decreased enrollment on economies of scale and volatility of claims experience should be considered when planning for 2016.
What will the morbidity of these individuals look like?
The removal of subsidies would encourage adverse selection, as there will be a tendency for the sicker of those who would otherwise receive subsidies to maintain coverage, while the healthier will tend to lapse. The same RAND Corporation study concluded that removal of the APTCs would result in a 43% increase in premiums in the individual market, which would primarily be due to the higher claims levels. Individual issuers should consider the extent to which these forces may impact their memberships and the memberships of their competitors when setting rates for 2016.
Will health plans still have sufficient incentives to participate in the exchange?
APTCs are only available to enrollees through the exchange, which has been a substantial incentive for insurers to offer their plans in the exchange market. In the absence of APTCs, the exchange user fee (3.5% of exchange premiums) may be too high relative to any remaining benefits of exchange participation. In recognition of this, the 2015 FFE contracts with health plans include a clause that these contracts may be terminated by the health plan4 in the event that APTCs are no longer available, subject to state and federal law. However, doing so may engender bad will from members who signed up through the exchange and enjoy the transparency it creates. This should be taken into account when considering exchange participation for 2016 and beyond.
To read the entire article, click here.
The federal health exchange’s automatic reenrollment process was intended to simplify renewing policies. However, auto enrollment could also introduce unpredictability for insurers. This New York Times article examines how these issues will impact the exchange and quotes Paul Houchens offering some perspective in regards to the financial implications.
Here’s an excerpt:
Automatically renewing marketplace plans will be a mistake for many people, but it is an especially risky one for the 85 percent of people who qualified for some sort of subsidy. The Obama administration has chosen not to recalculate the value of tax credits for people who don’t return to the Healthcare.gov site.
If your subsidy should go down – either because you have received a raise since last year or because the benchmark plan in the market became cheaper – you could end up owing the government a lot more money than you think, and you won’t find out until tax time.
…Not everyone has to worry about these invisible price changes, especially if incomes haven’t changed. But in markets where federal rules apply and the benchmark is going down a lot, it pays to return to the marketplace before renewing. Places where that will be an issue include parts of Georgia, Indiana and Ohio – where benchmark prices are declining by more than 15 percent. For people in those areas, returning to the marketplace could prevent a surprise tax bill.
“The structure makes for a very competitive environment among the insurance carriers,” said Paul Houchens, an actuary at Milliman, who estimates that, in some cases, what looks like a 5 percent premium rise could actually mean an increase of more than 30 percent. “But,” he said, “I can see how it would create more confusion for consumers.”
To understand how the reenrollment process will affect premiums and potentially create financial barriers to coverage in 2015, read this healthcare reform paper.