The Affordable Care Act – Whose Promise and Who’s Paying?

One of the most popular provisions of the Affordable Care Act, and something policymakers have almost universally supported, is the promise that all eligible individuals have access to coverage in the individual health insurance market at rates that do not reflect their risk, other than for age, and then only by a ratio of 3:1. While this provision is very popular, it is well accepted that this guaranteed access to coverage comes at a cost. Earlier estimates confirm this cost is roughly $15 billion, arguing that it is being borne by individuals purchasing coverage in the individual market, specifically those individual market enrollees with incomes greater than roughly $48,000 for a single person, who, as a result of his or her income, is not eligible for premium subsidies. The fact individuals not eligible for subsidies are asked to shoulder this cost on their own is one of the major reasons the number of non-subsidy eligible individuals in the market declined by more than 22 percent between the second quarter 2016 and the second quarter 2017.

The individual market is an important source of coverage for a significant segment of the population. For many, it is their only option for coverage. Individuals relying on this market include the self-employed, working people not eligible for or offered employer-sponsored coverage, individuals between jobs, and early retirees, among others. But coverage in this market is becoming increasing unaffordable for those not qualifying for premium subsidies. It’s understandable then that policymakers are looking to take steps to bring down the cost of coverage in this market so that the individuals relying on this market can again obtain coverage.

Perhaps the most important steps policymakers can take at this time would be:

• to inject funds directly into this market for a reinsurance program, perhaps allowing states some limited flexibility regarding the use of other mechanisms such as direct premium credits for those not currently receiving premium subsidies, or an invisible high-risk pool, but making sure the funds go to support the individual marketplace, and

• to provide clarity on whether or not cost sharing reductions (CSRs) will be funded (this would signal to issuers some market stability from a regulatory perspective).

If policymakers do choose to provide relief to individuals for 2019, here are two additional suggestions.

First, provide a federal fallback in the form of a reinsurance program similar to the transitional reinsurance program that was operational from 2014 through 2016. That program was successful in lowering premiums in the non-group market. The infrastructure required to operate it exists, and issuers will be more likely to incorporate such program into their rates. Absent a federal fallback, it is likely many states would be unable to operationalize a program on their own in time to affect 2019 premiums.

Second, recognize the fact that issuers will have to submit premium rates soon. Quick action will be needed to enact the reinsurance legislation, issue implementing guidance, and determine which states are implementing their own programs to impact rates for 2019. An expedited application and review process for states will be critical and should be coupled with a quick deadline for states to elect to operate their own programs. That way, those states choosing to implement one of the other specified programs can have those programs approved and in place in time to affect 2019 premiums.

A $15 billion reinsurance program and the funding of CSRs could bring premiums down by more than 20 percent, and may reverse the forced exodus of the non-subsidized population from this market.