Lack of Obamacare Subsidies Could Cause Premium Spikes in 2018

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By Sara Hansard

Failing to fund subsidies for low-income Obamacare enrollees would require insurers to raise premiums by more than 20 percent in some cases for the most popular plans in 2018.

If insurers have to foot the bill for the Affordable Care Act’s cost-sharing subsidies, which are expected to cost $9 billion in 2017, silver tier plans that cover an average of 70 percent of claims could end up costing more than gold tier plans that cover 80 percent, Karen Bender, chairperson of the American Academy of Actuaries’ individual and small group medical committee, told a health-care summit sponsored by the Alliance for Health Reform April 7. Moreover, the 20 percent-plus increases wouldn’t cover other costs such as medical inflation, the aging U.S. population or the sicker population being covered in the exchanges, Bender said.

The question of whether Congress will fund the cost-sharing subsidies is the top issue that needs to be addressed for insurers to decide whether to participate in the 2018 exchanges, for which they must file premium rate requests by June 21. A federal district court ruled in U.S. House of Representatives v. Burwell , 185 F. Supp. 3d 165, 2016 BL 151586 (D.D.C. 5/12/16) that the federal government illegally made the payments without a congressional appropriation, but the ruling is on hold pending appeal.

Unsubsidized Would Be Hard Hit

While a second year of big premium increases wouldn’t have a large impact on the majority of exchange enrollees who receive federal subsidies, about 40 percent of enrollees in the entire individual markets, which also include plans outside of the exchanges, would be hard hit, said Bender, president of Snowway Actuarial and Healthcare Consulting in Green Bay, Wis.

In 2017 exchange premiums spiked an average of 25 percent nationwide. Health insurers are continuing to exit the money-losing ACA marketplaces as they have for the past several years. Aetna Inc. said April 6 it will quit Iowa’s exchange in 2018 “as a result of financial risk and an uncertain outlook for the marketplace,” the company said. Wellmark Inc., one of the state’s largest insurers, also said it planned to leave the Obamacare market in 2018.

The approximately 20 percent increase would apply if insurers spread the cost for the loss of the subsidies only among silver tier plans, Bender said. If insurers spread the cost through the entire individual market, it would boost premiums by about 7 percent to 12 percent, or higher in some areas, she said.

Further, higher premiums lead to sicker risk pools, Bender said. “Lower rates get better pools,” she said.

S&P Global: 2016 `Marked Improvement.’

While many people are questioning the stability of the ACA exchanges, S&P Global released a report April 7 finding that “2016 was a marked improvement for most U.S. Blue Cross Blue Shield (Blues) insurers’ operating performance in the Affordable Care Act (ACA) individual market.” But, the report said, “profitability is still a couple of years away.”

Some $15 billion in funding was proposed by Republicans in an amendment to the American Health Care Act (H.R. 1628) adopted April 6 by the House Rules Committee for a reinsurance fund from 2018 through 2026. It is aimed at helping health insurers who lose money on individual market plans.

The funding would lower premium costs, Peter Lee, director of the Covered California state-run exchange, said at the Alliance for Health Reform summit. “To stabilize the market that’s exactly what you need to do,” he said.

But Katie Allen, executive director of the Council for Affordable Health Coverage (CAHC), told Bloomberg BNA in a telephone interview April 6 that insurers need $15 billion dedicated to the reinsurance market just for 2018 and 2019 in order for the individual market to be viable.

It isn’t clear if that amount of money would be dedicated for reinsurance in 2018-2019, said Allen, whose organization represents employers, pharmaceutical companies, insurers, patient groups and physician organizations.

A Call for Broader Risk Pools

To stabilize the individual markets, risk pools need to be broadened, Ed Haislmaier, senior research fellow in health policy studies with the Heritage Foundation, a conservative think tank, said at the summit.

“Your risk pooling needs to encompass not just the individual but at least the commercial employer group market,” he said. However, “the obstacle to that would be folding in the self-insured employer market,” he said.

Haislmaier also suggested the Republican plan should require enrollees to stay covered continuously in order to be protected against higher charges for pre-existing conditions. That is what is required in the group market under the Health Insurance Portability and Accountability Act, he said.

The ACA’s individual mandate requiring people to have coverage or pay a penalty has not been successful, Haislmaier said. People have been allowed “to jump in and out of the market,” which has been a “big driver of costs,” he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

The amendment adopted by the House Rules Committee is at https://rules.house.gov/sites/republicans.rules.house.gov/files/115/AHCA/Palmer-Schweikert%20Amendment.pdf.

The April 7 S&P Global report is at http://src.bna.com/nLa.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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