+1 800.648.4807

ACA Individual Market Update

ACA Individual Market Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Premium Increase Requests In Maryland and Virginia Dominate the Headlines

  • Maryland and Virginia were the first States to make public the premium increase requests of their insurance carriers choosing to sell “individual” market plans – both on- and off-Exchange plans.  The average increase in Maryland is around 30%.  But, that is just an average.  For example, CareFirst asked for an 18.5% premium increase for their 138,000 HMO policyholders, while requesting a 91.4% increase for their 15,000 PPO policyholders.  Kaiser asked for a 37.4% increase for its almost 74,000 policyholders.
    • Analysis: In Virginia, CareFirst asked for a 26.6% increase for its HMO policyholders and a 64.3% increase for its PPO policyholders. But – at least in Virginia – the State’s other carriers (like HealthKeepers, which is affiliated with Anthem) requested a much smaller premium increase (a 5.6% increase), while another carrier called Optima is lowering their premiums by about 2%. Why are these premium increase requests are important? First, as stated, they are the first set of premium increase requests that have been made public. Brace yourself for premium increase requests that will be coming from the other 48 States (and DC), which will come in on a rolling basis over the next 2 months. Second, these premium requests are proposed. Over the past 4 years, in a majority of cases – although not all cases – premium increase requests have been lowered by State Insurance Commissioners. I fully expect history will repeat itself for the 2019 premiums, which means, while premiums will surely go up for 2019, the final premium increase numbers will be lower than initially requested (see my attached update, “ACA Individual Market Update” where I give some reasons why I think 2019 premium increases may not be as high as most think when all is said-and-done). Another important factor hanging in the balance is this:  Although Congress could not get its act together to enact Federal funds for a reinsurance program or “invisible high-risk pool,” a good number of States are requesting an ACA Section 1332 Waiver for a State-based reinsurance program, funded through Federal “pass-through” dollars along with State revenues. Why is this important? If the Trump Administration approves these 1332 Waiver requests before the premium increase requests are final, this action alone will lower premiums in those States seeking a 1332 Waiver.  For example, Maryland has already submitted a 1332 Waiver request to establish a reinsurance program. Preliminary reports indicate that premiums could go down by 20% to 30% in Maryland if that State’s reinsurance program request is approved. As stated above, 30% is the average premium increase request, which I expect will be reduced to something closer to 20% by the Maryland Insurance Commissioner. A reinsurance program for Maryland could mean a 0% average premium increase for 2019. Or, a single-digit increase, or even a single-digit decrease, depending on how the numbers shake-out. Based on this potential pathway to mitigating the 2019 premium increases, it is arguably in the Trump Administration’s best interest to approve as many 1332 Waivers (requesting a reinsurance program) as possible.  It seems to me that is in the best interest of Congressional Republicans to start beating HHS over the head to get the Department to approve as many reinsurance program requests as possible in advance of the mid-term elections. That way, Congressional Republicans might be able to get what they could not get through legislation, which is: Federal funds for a reinsurance program. In this case, Congressional Republicans can try to save-face by telling their voting base that they did not “bailout” the insurance companies during their time in Congress, while also doing some damage-control by telling Independent voters that their actions did not “sabotage” the market because premiums are not spiking. The play-book is written for ways to help Congressional Republicans in the mid-term elections. The question is whether the Trump Administration will give Congressional Republicans what they need by September, when premium rates will be finalized.  Stay tuned.

Sen. Alexander (R-TN) Voices His Frustration Over ACA “Market Stabilization” In a Letter to Supporters

  • I have a ton of respect for Sen. Alexander.  I always have.  What adds to my continued respect for Sen. Alexander is that instead of holding a press conference – or some other partisan-type of event – Sen. Alexander made his views known in a letter thanking supporters for their help on trying to enact the ACA “market stabilization” proposal.  I think this was a wise move because the release of a “letter of thanks” softens much of the partisanship that now surrounds efforts to “stabilize” the ACA individual market, while also allowing Sen. Alexander to voice his frustration over the fact that efforts to enact a “market stabilization” package failed.  I know that others may disagree with my take on Sen. Alexander’s approach here (ACA supporters have characterized it as a passive-aggressive partisan stunt).
    • Analysis: I also respect Sen. Alexander because he gets it.  He gets that the only way premiums are going to go down is if HHS approves as many 1332 Waivers (asking for a reinsurance program) as possible. That is why Sen. Alexander – in his “letter of thanks” – specifically stated that he is currently talking with HHS about “administrative actions” the Department can take “to give States more flexibility to help lower health insurance premiums.” In my opinion, the “administrative actions” the Senator is referring to are approvals of 1332 Waivers. Yes, an argument can be made that these “administrative actions” could include HHS’s proposed changes to the short-term health plans.  But, the Senator already specifically calls out in his letter that short-term health plans “could provide a coverage option for Americans [who find ACA individual market plans] too expensive.” I also believe Sen. Alexander is referring to 1332 Waivers for this reason: Outside of short-term health plans and 1332 Waivers, I do NOT believe that HHS can provide any more flexibility to States through administrative guidance because the existing ACA statute limits HHS’s ability to directly modify the ACA through administrative means. Note, Sen. Alexander is not the only Republican Senator talking with HHS about 1332 Waivers.  Sen. Collins (R-ME) – another Republican champion for the failed “market stabilization” package – is also talking with the Department about getting Federal funds into the hands of the States for a reinsurance program. It is important to note that Maine just submitted a 1332 Waiver request to establish a State-based reinsurance program (actually, the request is to re-establish the State’s “invisible high-risk pool”), which would be funded with Federal “pass-through” dollars. Sen. Collins obviously has a vested interest in 1332 Waiver approvals. Not only to reduce premiums nationwide – which the Senator hoped that Congress could have done through enacting the Collins-Nelson legislation which called for Federal funds for reinsurance/“invisible high-risk pool” – but Sen. Collins wants to improve her State’s own individual market. I also want to add this point: I do NOT believe that Congressional Democrats would want to see significant premiums if there was NOT a political motivation to use the premium increase issue against Congressional Republicans. BTW, I think it is a wise political move to be “relentless in making sure the American public exactly understands who is to blame for the [premium ] rates,” something Minority Leader Schumer (D-NY) articulated in a recent press conference. After all, that is what Republicans did for the last 8 years before their recent role reversal. The bottom-line is this: The play-book is already written on how to use the premium increase issue to win elections, and Congressional Democrats are wasting no time in turning-the-tables and using it against Republicans.  We will just have to wait an see how effective Congressional Democrats can be at playing the Republicans’ game. I will keep you apprised as “silly season” (i.e., campaign season) heats up. We are only in the 1st inning.


Association Health Plan Update

An Analysis Suggests That Allowing Self-Employed Individuals to Participate In an AHP Will Reduce Individual Market Participation

  • The Actuary Magazine ran an analysis of how association health plans (AHPs) might impact the “individual” health insurance market. While I am not an actuary, and therefore, cannot get my hands on data – and crunch the data – like many actuaries can, I do want to opine on the findings in the analysis: Both agreeing and disagreeing with some things.
    • Analysis: Let me first start by saying that a recent news article that covered The Actuary Magazine analysis suggested that the reduction in participation in individual market plans was limited to the ACA Exchange markets. In other words, this news article explained that, according to the analysis, “Exchange enrollment could drop up to 10% [because of AHPs].” This is NOT what the authors of the analysis said. Instead, the reduction in enrollment is individual market-wide (i.e., BOTH on-Exchange and off-Exchange), and NOT limited to the “subsidized” Exchange market. It is also important to emphasize that the reduction in individual market participation could ALSO be as low as 3%. Like most technical analyses, the authors developed a “low” and a “high” estimate of the impact of AHPs on the individual market. Here is where I agree with the analysis: The analysis concludes that the vast majority of self-employed individuals who might exit the individual market for an AHP will come from the “un-subsidized” individual market. To me – the non-actuary – this makes total sense. Why?  Because if a self-employed individual is NOT eligible for a premium subsidy (because they make too much money), they are receiving NO subsidy to help them pay for the cost of the “un-subsidized” individual market plan. The only “subsidy” they get from the government is an above-the-line tax deduction for the cost of the coverage. If this same non-subsidy-eligible self-employed individual enrolled in an AHP, this individual ALSO receives NO premium subsidy to help them pay for the cost of the AHP coverage. This individual ALSO can deduct the cost of the AHP coverage as an above-the-line tax deduction. In both cases, there is no economic difference between whether this self-employed individual sticks with their “un-subsidized” individual market plan or whether they enroll in an AHP. However, an AHP will be considered a “large group” plan (which can be fully-insured or self-insured), and virtually every employee benefits practitioner – and also actuary – will tell you that a “large group” plan is going to be cheaper than an individual market plan, especially an “un-subsidized” individual market plan (i.e., there are many reasons for the cost differences, which range from lower administrative costs and efficiencies to a larger, and more stable risk pool of lives participating in an AHP versus the current un-balanced individual market risk pool).  Based on this fact, because the cost of AHP coverage will be lower than an “un-subsidized” individual market plan 9 out of 10 times (probably 10 out of 10 times), you do not need to be good at math (like an actuary) to conclude that self-employed individuals in the “un-subsidized” individual market are going to migrate to AHP coverage (cost will drive behavior here). Now, critics of AHPs argue that AHP coverage will be cheaper than an “un-subsidized” individual market plan because the AHP will provide “skimpy” coverage. And these critics further argue that this is where AHPs get the cost advantage over “un-subsidized” individual market plans. As you know, I have talked at length on why I disagree with this argument, so I won’t re-hash my counter-arguments here (instead, see the 2nd attached update, “Association Health Plan Update”). I will, however, say this: While I believe AHPs will provide comprehensive coverage (for the reasons described in the attached update), even if an AHP was required to satisfy all of the requirements that an “un-subsidized” individual market plan must satisfy, the AHP is STILL going to cost less than this individual market plan in most cases (e.g., because of lower administrative costs and efficiencies, as well as a larger, and more stable risk pool of lives participating in an AHP).


Analysis of AHPs Impacting the Individual Market (cont.)  (no news story)

  • Let me now suggest why I disagree with the analysis, while agreeing with it on the following point: The analysis assumes that NO self-employed individuals with an income of 250% of the Federal Poverty Level (FPL) and below will shift from their “subsidized” Exchange plan to an AHP. I 100% agree.
    • Analysis: In my opinion, you don’t need to be actuary to conclude this. The fact that these “subsidized” self-employed individuals are getting a large premium subsidy to pay for the cost of the Exchange plan versus NO premium subsidy for AHP coverage – only the above-the-line deduction for the cost of the AHP – these self-employed individuals are going to stick with their “subsidized” Exchange plans (because it is in their best financial interest to do so). BUT, the analysis does assume that some self-employed individuals with incomes between 251% of FPL and 400% will leave their “subsidized” Exchange plan for the AHP coverage, which I don’t quite agree with. Yes, there will likely be some self-employed individuals who fall between 350% and 400% of FPL who are getting too low of an ACA premium subsidy for the Exchange plan to encourage these individuals to stick with their “subsidized” Exchange plan (because the above-the-line deduction tax benefit may equal or be just slightly less than the ACA premium subsidy, and this may not be enough to dissuade the individual from shifting to AHP coverage).  BUT, I do NOT believe that self-employed individuals with incomes between, for example, 251% and 350% of FPL are going to leave their “subsidized” Exchange plan. Why? Because I believe that the financial incentives will govern the behavior here, and I believe that the ACA premium subsidy for self-employed individuals with incomes between 251% and 350% of FPL (1) will be greater than any above-the-line deduction tax benefit and (2) will cover enough of the cost of the Exchange plan to encourage these self-employed individuals to stick with their “subsidized” Exchange plan (as opposed to an AHP plan where they receive NO premium subsidy to cover the cost of the AHP). Therefore, I do NOT believe self-employed individuals in this income cohort will shift to an AHP (because shifting to an AHP would be against their financial interests). I also disagree with the author’s conclusion that more “young and healthy” self-employed individuals are going to shift to AHPs. Yes, it is likely true that self-employed individuals with incomes above 400% of FPL are healthier than self-employed individuals below 400% of FPL. And therefore, because most of the self-employed individuals who will exit the individual market are in the “un-subsidized” market, it is reasonable to assume that a greater number of healthier individuals might leave the individual market as a whole, which will adversely affect the risk pool that remains. BUT, we cannot overlook the fact that there are also less healthy people in the “un-subsidized” individual market who are likely going to exit the individual market just like the healthy self-employed individuals are going to exit. In full disclosure, I cannot quantify the number of less healthy self-employed individuals who I think will exit, but it is definitely a conclusion that I do not believe can be disputed. As a result, I believe there will be enough less healthy self-employed individuals who will exit the “un-subsidized” individual market, which should mitigate the adverse effects to the individual market risk pool (actually, see the last post in the 2nd attached update for my thoughts on this). On this latter point, again, I am not an actuary, so I cannot quantify the extent to which “health claims” will go up on account of the shift to AHPs. But, I believe I know insurance well enough to say that it takes multiple “healthy” people to offset the cost of a “less healthy” person. For talking purposes, let’s say it is 5 “healthy” people to 1 “less healthy” person. I could see a scenario where we might see a slightly higher number of “healthy” self-employed individuals – say 7 – for every 1 “less healthy” self-employed individual shift to an AHP. And as a result – based on my crude un-scientific formula here – I do not believe the premiums in the individual will go up to the extent critics of AHPs are suggesting.  But I do know this: Actuaries are smarter than me, although, I do feel confident in what my head – and gut – are telling me. I look forward to finding out who is right over these next few years.


Analysis of AHPs Impacting the Individual Market (cont.)  (no news story)

  • For purposes of developing the “low” and “high” estimate set forth in the analysis, the authors made various assumptions on what the final rules might say. However, because the AHP regulations are not final, I think it is anyone’s guess how AHPs will end up impacting the individual market. Note, I am not criticizing the authors for trying to guess what the final rules might say. After all, I try to do the same thing on most issues, including on the AHP issue. BUT, because there is so much uncertainty on what the final rules might look like, I think it is difficult to try to attach numbers to the proposed AHP changes.
    • Analysis: For example, the authors explain that for their “high” estimate, they assume that AHPs would be allowed to develop premium rates for a self-employed individual based on the individual’s “health claims experience.” The authors make this assumption based on a scenario where the DOL eliminates the “nondiscrimination protection” I talked about in last week’s update, where AHPs would be allowed to develop different premium rates for different employer members based on the “health claims experience” of the members’ employees (see the 3rd update attached, “Association Health Plan Update”). Unfortunately, I have a problem with this assumption. My problem lies with the fact that existing law will NOT allow an AHP to develop premiums for a self-employed individual based on the individual’s “health claims experience.” This is because – with or without this “nondiscrimination protection” – engaging in this practice would be a violation of HIPAA’s current prohibition against developing premium rates based on a particular participant’s “health status.” In my opinion, HIPAA’s existing prohibition is one of the reasons why the DOL developed this “nondiscrimination protection” in the first place (as I explained in last week’s update). Based on these facts, I do NOT think this is an assumption that the authors can rely on when trying to determine the impact of AHPs. In addition, the authors assume that the AHP regulations will “preempt some State regulatory authority” under the final rules. It appears the authors are referring to the “class exemption” for self-insured AHPs, which would exempt self-insured AHPs from the “non-solvency” requirements of State MEWA laws (but NOT State solvency laws). The problem I have with this assumption is that this “class exemption” shows up in the proposed AHP regs as a “Request for Information” (RFI). Which means, this “class exemption” will NOT show up in the final regs as a binding change in the law. Instead, the DOL would have to pursue this idea of a “class exemption” through proposed regulations (with the goal of ultimately finalizing this “class exemption”). It is important to emphasize that unless and until we see proposed regs for a “class exemption,” AHPs will continue to be regulated by the States without concern that State regulation is preempted (because ERISA gives States the exclusive authority to impose any State insurance law on self-insured AHPs due to Congress amending ERISA’s preemption provision back in 1983 to allow States to regulate self-insured AHPs anyway the State sees fit).


Analysis of AHPs Impacting the Individual Market (cont.)  (no news story)

  • Last comment: The other assumptions the authors rely on for their “high” estimate include: (1) Limited or no verification processes of self-employed status and (2) Robust marketing of AHPs to self-employed individuals.
    • Analysis: On this first point, it is reasonable to assume that the DOL might go easy on AHPs when it comes to self-employed individuals participating in the plan. Although the proposed regs set forth a prescriptive definition of what it means to be a “working owner,” the DOL might not “police” AHPs to make sure that the only self-employed individuals who are getting coverage under an AHP actually meet the “working owner” definition. BUT, the DOL could go the other way on this. That is, the final AHP regulations may end up including a definition of a “working owner” that is more constraining than the proposed “definition.” BTW, I would not be surprised if the definition of a “working owner” ends up being more difficult to meet in the end (look at what happened under the Tax Reform legislation). Based on this fact, I believe there is too much uncertainty on what the final regs are going to say, which is why I think it is difficult to make this assumption. With respect to the assumption that there will be robust marketing of AHPs to self-employed individuals, I have a hard time believing that this will be the case. Why?  As I told you above, AHPs are NOT able to develop premiums for a self-employed individual based on the individual’s “health claims experience.” And because of this prohibition, I do not think that many AHPs are going to want to take the risk of offering coverage to self-employed individuals they do not know. What I mean is this: Yes, there will be certain trade organizations whose membership is primarily made up of self-employed individuals that will form an AHP to provide health coverage to their self-employed members. But here, this trade organization generally “knows” the type of individuals they are getting because the organization generally knows the make-up and demographics of their membership.  Same with self-employed individuals like Uber drivers. That is, Uber drivers forming an AHP to offer health coverage to Uber drivers generally know their Uber drivers (say that 3 times). Local Chambers of Commerce, on the other hand, will probably want to exclude self-employed individuals from their AHPs because these Chambers of Commerce will not “know” what health risks they will be getting. Note, limiting membership in an AHP to employers with at least one “common law employee” is NOT prohibited under the proposed AHP regulations. The AHP just cannot exclude membership in the AHP based on a self-employed individual’s health status. That is all a long way of saying this: I commend the authors and their attempt to quantify the impact AHPs may have on the individual market. And, as stated, I am in agreement with some of their conclusions. BUT, because I do not foresee all of the assumptions used to develop the “high” estimate coming out of the final regs, I think the overall shift from the individual market to AHPs will be lower (maybe the mid-point between 3% and 10%). And, as stated, I do not expect the impact on individual market premiums will be as pronounced as the authors suggest, based on my un-scientific belief that “less healthy” self-employed individuals are going to be attracted to AHPs for the same reasons “healthy” self-employed individuals will be attracted. The debate will continue…even after the AHP regs are finalized.