No Cookie-Cutter Solutions for the Individual Market
Though the details and timing of repeal/repair/replace are unclear, we know with certainty that changes to the individual (non-group) market are coming. In fact, on February 15, the Trump administration unveiled its first rule aimed at shoring up the individual market. The proposed regulation includes shortening the individual market open enrollment period, increasing pre-enrollment verification for special enrollment periods, and granting insurers the right to collect past-due premiums before starting coverage for the next year.
The regulation is far from final; and no matter what shape it takes in the end, we expect that the market response to any changes will vary considerably by state – just as there was considerable variation in how states initially responded to the Affordable Care Act (ACA).
For example, a state’s socioeconomic make-up, the population’s attitude toward the ACA and current premium levels will all play a part in shaping the size and composition of that state’s single-risk pool at a given point in time.
Our recent work with the State of Alaska on its 1332 waiver application illustrates how a state’s idiosyncrasies can influence the effects of a given policy – in this case, a state-sponsored high-risk pool. But it also offers lessons in how issuers, state regulators, and federal regulators can work together to create a solution best tailored to a state’s individual-market needs.
Lessons from Alaska
The general idea behind Alaska’s 1332 waiver application is that the State would fund a high-risk pool for the non-group market. That would serve to reduce premiums for the individuals who remain in the non-group market; and that, in turn, would reduce federal outlays for premium subsidies. Under the waiver, Alaska is asking the federal government to contribute (roughly) the amount the federal government will “save” on premium subsidies to the State’s new high-risk pool.
Alaska’s 1332 waiver illustrates how policy changes to the individual market will play out differently across the country.
As part of our work for the State of Alaska, we used the Oliver Wyman micro-simulation model that assigns a “utility” to an individual’s action, such as purchasing insurance or remaining uninsured, that is specific to that individual’s circumstances and assumes that people take actions that maximize their utility. In this way we can model the flow of people across markets. We used the model to develop estimates of the effect of the waiver. Our modeling shows that investing $60 million into the high-risk pool, and lowering premiums by that amount, would result in a net decline in federal outlays for premium subsidies and other items of $49 million. The waiver proposes that the federal government pay this $49 million to Alaska.
Our model also estimated that creating the high-risk pool could lower individual-market premiums by roughly 20 percent and expand the number of individuals with non-group coverage by roughly 8 percent. Thus, for a net cost of roughly $11 million, Alaska can offer more people coverage, lower premiums for those in the individual market, and reduce the bill for taxpayers in Alaska – and the federal government spends no more than it did before the waiver.
No two markets are the same
Alaska is unique in many ways, but specific to the waiver application: Alaska has very high non-group health insurance premiums and a very high percentage (83 percent) of the non-group ACA marketplace receives premiums subsidies. This means that in Alaska, reducing premiums for individuals in non-group ACA marketplace would have a dramatic impact on federal outlays for premium subsidies. But that isn’t the case in all states and jurisdictions.
For example, contrast this with Washington, D.C., where only 6 percent of the non-group market receives subsidies. If Washington, D.C., were to implement a high-risk pool to lower premiums in the non-group market, a large majority of the premium reduction would go to individuals who were not eligible for premium subsidies, and federal funding for the high-risk pool under a waiver like the one Alaska applied for would be minimal.
Many flavors and varieties
Alaska’s 1332 waiver illustrates how policy changes to the individual market will play out differently across the country. Currently, everything from the individual mandate to the structure of premium subsidies and high-risk pool funding is under review. We expect that any such changes would impact the size and composition of each state’s single-risk pool differently; and, consequently, the make-up and size of the future individual market will vary widely by state.
As Congress and the administration consider various health reform proposals over the next few months, they should evaluate the likely effect these proposals will have on healthcare operations on state-by-state basis.
While some players will surely exit the ACA marketplace in 2018, we believe many issuers can find financially viable opportunities that will position them for success in the post-ACA environment. The key will be a targeted strategic plan informed by detailed modeling and working in tandem with regulators as we navigate the transition period.