Changes in the individual market, adverse selection to have largest impact on 2014 premiums, Milliman projects
One month after it produced a projection of factors affecting 2014 premiums in California’s individual health insurance market segment for the Golden State’s health benefits exchange, Covered California, the actuarial consulting firm Milliman has issued a similar study with a national focus. Like its analysis of the California market, Milliman’s review examined the impact of new coverage requirements under the Patient Protection and Affordable Care Act as well as individuals opting to “buy up” to plans with richer benefits, premium and benefit subsidies and the underlying upward trend in the cost of medical treatment. It was commissioned by America’s Health Insurance Plans.
Milliman’s national study took into account additional factors including new taxes and fees on health plan issuers and premium stabilization programs including a transitional reinsurance program to protect plans from unexpectedly high care costs. It concludes “average individual market pre-subsidy premiums are anticipated to increase significantly from what standard rates are today.” It adds advance tax credit premium subsidies for coverage purchased through state benefit exchanges for those earning 400 percent or lower of the federal poverty level will produce “significant reductions from current premium levels.”
The Milliman study projects that Affordable Care Act changes in the individual risk pool and adverse selection — largely due to the law’s ban on medical underwriting of individuals looking to purchase or upgrade coverage — will have the largest impact on premiums. Those factors including the potential for younger, healthier individuals to remain in plans issued prior to 2014 and sicker people opting for 2014 plans with more extensive coverage could increase premiums by 20 to 45 percent, according to Milliman.
The study raises a red flag over the law’s restriction on the use of age as a rating factor for older individuals, predicting it will boost premiums for younger people and thus potentially drive adverse selection if they opt to forgo coverage until they need it — notwithstanding the Affordable Care Act’s tax penalties for not having some form of health coverage. “For the individual market risk pool to remain a stable market in 2014 and beyond, it is vital that young and healthy individuals enter and remain in the insurance market in addition to individuals with an immediate need for healthcare services,” the study concludes.
We are the 401%: Middle class households ineligible for exchange subsidies could reignite health reform
A little more than three years ago, steep premium increases in California’s individual market sparked outrage from Sacramento to Washington, providing a political tipping point for the enactment of the then-moribund Patient Protection and Affordable Care Act (PPACA). This fall and into 2014, those without government or employer-sponsored health coverage who earn more than 400 percent of the federal poverty level (FPL) ($45,960 for singles; $92,200 for a family of four) may find themselves outraged yet again by sharp double digit premium increases. Under the PPACA, those earning in excess of 400 percent of FPL are ineligible for income tax subsidies available for qualified health plans purchased through state health benefit exchanges. They will bear the full amount of higher premiums on their own.
Projections of the impact of the PPACA individual market reforms issued this week by the Society of Actuaries (on the medical cost impact of those newly insured under the law) and the actuarial consulting firm Milliman (on premiums in California) suggest premiums for plan year 2014 will rise significantly for these relatively higher income middle class households. The Society of Actuaries estimates the PPACA individual market reforms will drive up claims costs by an average of 32 percent nationally by 2017 and by double digits in as many as 43 states. The Milliman study commissioned by the California exchange, Covered California, estimates those currently insured with incomes exceeding 400 percent of FPL purchasing the lowest cost “bronze” rated plan covering 60 percent of expected costs can expect a 30.1 percent premium hike for 2014. “Currently insured individuals with incomes greater than 400% of FPL will experience the largest increases,” the Milliman study notes.
Those in this income range likely to be hit with the biggest increases are middle class people in their 50s and 60s – the large Baby Boomer demographic not yet Medicare eligible and not covered by employer-sponsored plans. A major potential implication of higher premiums on top of the already relatively high rates paid by this age group (new age rating rules under the PPACA will provide some relief) is many of them may find even bronze-rated coverage unaffordable and go uninsured, contrary to the policy goal of the PPACA to increase affordability and access to coverage.
If 2014 rate increases for 401+ percent FPL households boost the price of the cheapest plans too high, tax penalties built into the law for those without public or private coverage won’t provide incentive for these individuals to purchase coverage. The PPACA’s individual mandate expressly exempts those who have to spend more than eight percent of their incomes to purchase the cheapest bronze plan offered in their geographic rating region. The law also provides for a financial hardship exemption.
Because of the sheer size of the Boomer demographic and Boomers’ willingness to seek political redress of their grievances, if the premium increases for the 401 percenters predicted indirectly by the Society of Actuaries and directly by Milliman materialize, it could create impetus for further reforms in 2014.
Here’s a good analysis by the Associated Press of how the Patient Protection and Affordable Care Act (PPACA) might be affected by a Romney victory in next week’s presidential election.
In public health insurance, the Medicaid expansion might be curtailed. In commercial health coverage, payers are hoping for a repeal of the PPACA requirement they maintain minimum loss ratios of 80 percent and new tax levies on insurers.
But insurers aren’t keen on undoing the foundational political bargain of the PPACA’s individual insurance market reforms in which they must accept all applicants for coverage and individuals without other forms of public or private insurance must purchase coverage or face a tax penalty. There’s simply too much potential new business to be had with the mandate, the AP notes, citing a PricewaterhouseCoopers projection that it and state health benefit exchanges will generate $205 billion in new premium by 2021.
Nor is a Romney administration likely to pull the plug on state health benefit exchanges given the more than $2 billion invested in them thus far in the form of federal planning and establishment grants. Plus Romney has not publicly renounced the idea of public health insurance exchanges, a concept he innovated as governor of Massachusetts in 2006 by creating the nation’s first state run health benefit exchange, the Massachusetts Connector.
Speaking at a Univision forum Wednesday night, the Republican presidential nominee said that now and then Obama calls him the grandfather of Obamacare.
Romney said, “I don’t think he meant that as a compliment, but I’ll take it.” He went on to defend the Massachusetts law but says it is wrong for the federal government to take that approach.
Governor Romney was also the Godfather of former California Republican Governor Arnold Schwarzenegger’s omnibus health care reform plan in 2007-08 that was largely based on Romney’s Massachusetts reforms featuring a state health benefit exchange and an “individual mandate” that everyone have public or private health coverage. I know because I covered “ArnoldCare” nee RomneyCare from its beginnings to inglorious collapse in the state Senate as Sacramento health care correspondent for the Bureau of National Affairs.
Last week’s Supreme Court decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) and specifically the so-called individual mandate turned on the penalty for not having minimum essential coverage under Section 1501 of the PPACA. While the court ruled the government cannot compel all Americans have health coverage, the government may require payment of a penalty for not having it as a permissible exercise of Congress’s power to levy taxes. The penalty gives the mandate real teeth. Without it, the mandate would be a paper tiger.
The individual mandate in turn is designed to work with upfront tax credits to subsidize the cost of coverage for those who earn above 133 percent of the federal poverty level and are thus ineligible for Medicaid. The penalty for not having coverage is the disincentive or stick and the tax subsidy to defray plan premiums or fees is the incentive — the carrot. Insurers and health plans also have a mandate to sell coverage to whoever is willing to buy it starting in January 2014 regardless of their medical condition.
Together, the carrot and stick built into the individual mandate along with the requirement insurers and health plans accept all applicants (per sections 2701 and 2704 of the Act) is intended to save the individual and small group health insurance market segments from the black hole of adverse selection and ultimately market failure. The acceleration in adverse selection in recent years occurred in the individual market due to increasingly selective medical underwriting standards in states where payers are permitted to screen out people likely to incur high medical treatment costs. Adverse selection also threatens the viability of the small group market due to poor spread of risk among employers of 50 or fewer employees— and particularly numerous micro businesses with five or fewer workers.
In order to preserve these market segments and to also reduce rising premiums in the large group market due to the shifting of medical treatment costs incurred by those without coverage to the insured population, the PPACA has created an alternative and far more compulsory health insurance market than existed prior to its enactment in early 2010. Daniel Weintraub, a veteran Sacramento print journalist with deep knowledge of the health care market, described the new market landscape that will fully emerge in 2014 as one in which insurers and managed care plans will effectively become a “quasi-public utility.”
The question going forward is whether this government-drawn and enforced market can achieve sufficient savings and spread of risk to ward off market failure in the individual and small group market segments. In addition, given that health insurance functions as a pass through mechanism, whether the chronic disease prevention provisions of Title IV of the PPACA will meaningfully slow the relentless rise in medical costs driving up premiums.
More indications of support for California version of insurance mandate if federal version tossed by high court
The Los Angeles Times‘ Chad Terhune via the Sacramento Bee quotes a key California legislator expressing support for a California version of the Patient Protection and Affordable Care Act’s (PPACA) coverage mandate if the federal law’s mandate is ruled unconstitutional by the U.S. Supreme Court. California Insurance Commissioner Dave Jones also seems to favor an insurance mandate if the Golden State ultimately moves to put its own in place but doesn’t directly say so in Terhune’s story.
A week earlier, California Human Services Secretary Diana Dooley expressed support for the mandate, which state payer organizations contend is essential to prevent adverse selection in the state’s individual market, the largest in the nation as a percentage of working age adults and their dependents.