The potential nonpayment of cost-sharing reduction (CSR) subsidies to health insurers could create instability in the Affordable Care Act’s individual market. Issuers are now contemplating their exchange participation plans for 2018, and the future of cost-sharing reductions will play a key role in their decision. This report by Milliman’s Pedro Alcocer, Frederick Busch, and Jason Karcher explores the possible legislative and regulatory outcomes and potential issuer responses.
In 2010, then-President Obama signed into law the Patient Protection and Affordable Care Act (ACA). In 2017, it’s déjà vu all over again, as the House of Representatives has passed the American Health Care Act (AHCA), which would significantly amend large portions of the ACA if it becomes law. While this bill has not yet been through the Senate and will almost certainly change before President Trump can sign it into law, the policies proposed in this legislation would make many changes to the health insurance sector.
In this paper, Milliman actuary Jason Karcher explores the effects that the May 4, 2017, version of this House bill may have on different markets and stakeholders in the healthcare and insurance ecosystem.
Risk adjustment transfer payments continue to have financial implications on insurers in the commercial individual and small group marketplaces. In this analysis, Milliman consultants provide an overview of 2015 transfer payments, comparing them against 2014 results. The authors also explore the following conclusions from their report.
• Total risk adjustment transfer payments at the national level remained at about 10% of premium in the individual market and 6% of premium in the small group market.
• Roughly one in four issuers offering plans in a given state or market in both 2014 and 2015 switched between payer and receiver status.
• Statewide risk scores rose more year-over-year than the movements in market demographics and average plan benefit richness would have suggested.
• Where available, the interim risk adjustment report did not provide a reliable indication of the ultimate value of the 2015 risk score.
A new Milliman analysis shows that the percentage of transitional policy members in a state’s health exchange market appears to correlate with higher medical loss ratios. In the analysis, Milliman consultants Erik Huth and Jason Karcher quantify the effect that transitional policies had on issuers’ 2014 individual market performances and how it may result in 2017 rate increases for transitional states.
Here’s an excerpt:
The table in Figure 3 shows that issuers in transitional states had higher 2014 loss ratios but appear to not have taken large enough 2015 and 2016 rate increases to achieve profitable 2016 loss ratios (assuming 2014 to 2016 significant cost savings are not realized in other ways). Although issuers’ 2017 rate increases will reflect their 2015 experience and updated projections, there is potential for transitional states to see higher rate increases in 2017.
The graph in Figure 4 shows the 2014 ACA loss ratio and the average 2014 to 2016 statewide QHP base rate change for each state. The gray line represents an illustrative 2014 to 2016 rate increase needed to target an 85% 2016 loss ratio given the 2014 loss ratio and assuming a 5% annual claim trend. For example, a state with an 85% 2014 loss ratio would require a 10.25% 2014 to 2016 rate increase to target an 85% 2016 loss ratio (i.e., 5% annual rate increases to cover the 5% annual claim trend to maintain the 85% loss ratio). States well underneath the line indicate a possible need for higher 2017 increases than states closer to the line. Keep in mind that projected 2016 loss ratios are merely illustrative. There are many factors that will affect a state’s overall 2016 loss ratio and required 2016 and 2017 rate increases, such as, but not limited to, changes in experience and statewide morbidity levels, wear-off of pent-up demand, provider contracting, claim trends, population migration and characteristics, and product and issuer mix. These values also represent a statewide composite, while specific issuers could have materially different results than the average.
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.
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