The individual market is an important source of coverage for a significant segment of the population including the self-employed and small business owners, employees not eligible for or offered group coverage, and early retirees, among others. Keeping coverage affordable in this market is a key challenge that policymakers are wrestling with.
In response to the potential elimination of the individual mandate beginning in 2019 and a forecasted increase in premiums, the U.S. Senate is considering proposals that would fund CSR payments and that would appropriate $5 billion a year in 2019 and 2020 that states could use to help stabilize their individual markets. Oliver Wyman has applied our healthcare microsimulation model to understand the effects of this package of provisions on the individual market.
Here are the most notable results of our modeling.
First, it is our understanding that the $5 billion in annual funding for 2019 and 2020 would be made available to the states for use in pursuing section 1332 waivers. In our modeling, we presume that states would use this money to establish reinsurance programs that would qualify for pass through savings. The pass through savings result from the fact that premium subsidies under the ACA cover the differences between the second lowest cost silver plan in a rating area and a fixed percentage of an individual’s income varying only by FPL. Lower premiums result directly in lower premium subsidies, and under a section 1332 waiver, these savings that would otherwise accrue to the federal government can be used by the states to provide additional reinsurance.
In our modeling, we are assuming that states will use the pass through savings to leverage the $5 billion per year available in 2019 and 2020. We estimate that with $5 billion in funding, states collectively could provide more than $15 billion in reinsurance coverage, and that this, combined with the funding of CSRs, would result in another 700,000 people with coverage in the individual market and premiums that were more than 20% lower than if the individual mandate were repealed and the package of provisions was not implemented. Since the CBO estimated that repealing the individual mandate would increase premiums by 10%, this means that the package of provisions would more than offset the impact of repealing the individual mandate, and result in premiums that are roughly 10% lower than if the individual mandate were enforced and the package of provisions was not implemented. Part of the 20% decrease is related to the funding of CSRs, and this portion of the decrease will primarily impact those eligible for premium subsidies. We estimate that premiums for those not eligible for subsidies would decline by about 15% if the package of provisions were implemented, and result in premiums that are roughly 5% lower than if the individual mandate were enforced and the package of provisions was not implemented.
Our analysis assumes that states would implement 1332 waivers for 2019. State regulators showed creativity and tremendous flexibility in working with issuers to respond to the Administration’s decision to not fund CSR payments in 2018, but we doubt that a majority of states would be able to implement section 1332 waivers in compliance with current regulation in time to impact premiums in 2019. States could face political and practical challenges in implementing waivers, however, legislative changes have been proposed to Section 1332 that would reduce the federal review timeframe and make it easier for states to adopt waivers. Under current law, a given state would have to enact enabling legislation, develop an application, hold public hearings during a 30-day public comment period, and then submit the application to HHS. HHS would then conduct a two-step review process that could span 225 days – 45 days for a completeness determination followed by 180 days for the review. However, there is legislation being considered by Congress that would reduce the amount of time CMS has to review any section 1332 waivers to 90 days but does not provide any new stability funding. Additional legislation would authorize new stability funding and establishes a new approval process that would expedite federal funds to willing states. Unless Congress makes statutory changes to guarantee the availability of the federal funding to states, the full potential of the new funding may not be realized for consumers as some states may face significant barriers to leveraging the funds in time for approving 2019 rates.