Now that the Affordable Care Act repeal-and-replace is apparently dead (or at least sleeping in its coffin for the time being), what happens next? We’ve been thinking a lot about what lies ahead for insurers as the ACA 2018 open enrollment period approaches, given the many uncertainties in the current environment. Below is a recap of what we see as four considerations worth exploring in some depth.
1. Relevance of cost-sharing reductions
In most states, issuers either have been required to build the cost of unfunded CSRs into their on-exchange silver plans, or they have taken this approach by choice. Because the ACA premium subsidies are based on the difference between the cost of the second lowest cost silver plan and a given percentage of the individual’s income, increasing the cost of silver plans for unfunded CSRs increases the available premium subsidies. This means that in a number of markets, it is likely that individuals eligible for premium subsidies will have access to free bronze plans at some income levels, and access to very low-cost bronze coverage at most income levels.
It will be interesting to see the extent to which issuers and states promote the availability of free and very low-cost bronze plans and to see how consumers respond. States are aware of this dynamic and may plan to promote the free plans in hopes of drawing younger, healthier individuals into the risk pool. At the same time, a number of issuers have found bronze enrollees to be unprofitable after considering risk adjustment.
If it turns out that CSRs are funded for 2018, and plans also collect extra premiums because issuers expected them not to be funded, some plans may end up owing rebates to their customers under the medical loss ratio (MLR) regulations, which require those rebates when the MLR drops below 80 percent. It is possible that some consumers could receive premium rebates without having paid premium. (Note that in calculating rebates for 2018, issuers will be blending 2018 experience with 2016 and 2017 experience which would dampen the effect of CSR being funded in 2018).
Enrollment could be higher among the subsidy-eligible population in 2018. Census Bureau data shows that in 2016 there were almost 16 million uninsured individuals with incomes between 100 percent and 400 percent of the federal poverty level, income levels at which premium subsidies are available. Not all of these people would be eligible for ACA premium subsidies in 2018, or coverage for that matter (e.g. they may have access to employer-provided insurance), but a pretty significant share of them likely are, and if they have access to free bronze coverage, we could see a material uptick in enrollment, at least for 2018. If CSRs are funded for 2019, then the premium loads on silver plans would go away in 2019, as would free bronze coverage in most markets.
3. Impact of higher premiums in 2018
Higher premiums will have the most significant impact on individuals who are not eligible for premium subsidies. In 2017, there was a significant decline in enrollment among those without subsidies and a small increase among those with subsidies. We expect this trend to repeat in 2018. People who are eligible for subsidies are protected from the rate increases because they pay a fixed percentage of their income towards the cost of coverage, irrespective of the actual premium. Those not eligible for premium subsidies will bear the full cost of premium increases, and for many, the increases issuers are implementing for 2018 will be too much to absorb.
4. Justification of premium rates for 2018
In our work, we have seen insurers price for the risk and uncertainty they felt they could bear. A lot of issuers have pulled out of the ACA market because they felt they couldn’t price for the risk. We looked at rate filings with increases of 50 percent or even more that appear to be justified. At least two factors in addition to the lack of funding for CSRs are contributing to produce relatively large premium increases:
- Carriers are continuing to experience significant churn and adverse lapse. Some carriers show lapse rates of 30 to 40 percent year over year. Their filings show that the cohort that persisted from 2016 into 2017 had much higher morbidity than the cohort that lapsed. And those that lapsed were being replaced by new entrants that have higher morbidity.
- Carriers are finding that their standard actuarial value models do not properly capture the higher morbidity of the individual market population, and 2018 is the first time we are starting to see them recognize that problem. Issuers have been using models which have typically been based on a healthier population overall, to estimate the portion of claims costs that would be covered by a given benefit plan, and they've ended up underestimating their liability due to the higher morbidity of the individual market population.
At this time last year, we were anticipating a relatively uneventful ACA 2018 open enrollment period and relative market stability. Instead, it looks like interesting times ahead.