Stabilizing and Strengthening the Individual Health Insurance Market: a View from Ten States
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f July 2018 Stabilizing and strengthening the individual health insurance market: A view from ten states ______________________________________________________ Mark Hall Wake Forest University Nonresident Senior Fellow in Economic Studies, The Brookings Institution USC-Brookings Schaeffer Initiative for Health Policy This report is available online at: www.brookings.edu/research/stabilizing-and-strengthening-the-individual-health-insurance-market Contents Editor’s Note ......................................................................................................................... i Author’s Note ....................................................................................................................... i Statement of Independence ................................................................................................. i Introduction ........................................................................................................................ 1 Approach and Methodology ............................................................................................ 2 Executive Summary ............................................................................................................. 4 I. General Market Stability .................................................................................................. 6 II. Enrollment ...................................................................................................................... 7 A. Exchange Enrollment .................................................................................................. 7 B. State-Based Exchanges ............................................................................................... 9 C. Unsubsidized Enrollment ......................................................................................... 12 III. Insurer Participation ................................................................................................... 14 A. Covering Bare Counties ............................................................................................. 16 B. Maintaining Profitability ............................................................................................ 17 C. Dealing with Uncertainty .......................................................................................... 19 IV. Premium Rates and Cost-Sharing Reduction ............................................................. 22 A. Achieving Profitability............................................................................................... 23 B. Pricing for Uncertainty .............................................................................................. 24 C. Political Uncertainty .................................................................................................. 25 D. Hope for the Future .................................................................................................. 26 E. Cost-Sharing Reduction (CSR) Payments ................................................................ 27 V. Individual Mandate ....................................................................................................... 30 VI. Reinsurance ................................................................................................................. 33 A. Examples from Study States ..................................................................................... 35 B. Expanding Premium Subsidies ................................................................................. 39 VII. Non-compliant Plans ................................................................................................. 40 VIII. Other Stabilization Measures ................................................................................... 45 A. Federal Actions .......................................................................................................... 45 B. State Actions .............................................................................................................. 47 Conclusion ......................................................................................................................... 48 EDITOR’S NOTE This white paper is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between the Center for Health Policy at Brookings and the USC Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings AUTHOR’S NOTE The author received support for this research from the Robert Wood Johnson Foundation (grant #75030). The views expressed here do not necessarily reflect the views of the Foundation. STATEMENT OF INDEPENDENCE The Brookings Institution is a nonprofit organization devoted to independent, in-depth research that leads to pragmatic and innovative ideas on how to solve problems facing society. The conclusions and recommendations of any Brookings publication are solely those of its author(s) and do not reflect the views of the Institution, its management, or its other scholars. i Stabilizing and Strengthening the Individual Health Insurance Market Introduction Market stabilization is currently the most critical regulatory challenge that public policy officials face under the private insurance component of the Affordable Care Act (ACA). Prior to the ACA, states had largely failed in their efforts to improve and reform their individual (non-group) health insurance markets.1 Reform is inherently challenging due to the dynamics of the individual market, which focus heavily on risk selection and segmentation rather than pooling risk and broadening coverage.2 The ACA adopted a set of reforms aimed at correcting these market failings, which worked well for the first two years (2014 and 2015), but market conditions began to worsen substantially in 2016.3 Insurers exited the individual market, both on and off the subsidized exchanges, leaving many areas with only a single insurer, and threatening to leave some areas (mostly rural) with no insurer on the exchange.4 Also, most insurers suffered significant losses in the individual market the first three years under the ACA, leading to very substantial increases in premiums a couple of years in a row.5 For a time, it appeared that rate increases in 2016 and 2017 would be sufficient to stabilize the market by returning insurers to profitability, which would bring future increases in line with normal medical cost trends. However, Congress’s decision to repeal the individual mandate and the Trump Administration’s decision to halt “cost-sharing reduction” payments to insurers, along with other measures that were seen as destabilizing, created substantial new uncertainty for market conditions in 2018. Moreover, this uncertainty continues into 2019, owing both to lack of clarity on the actual effects of last year’s statutory and regulatory changes, and to pending regulatory changes that would expand the availability of “non-compliant” plans sold outside of the ACA-regulated market. These uncertainties further complicate insurers’ decisions about whether to remain in the individual market and how much to increase premiums. Although the market has not entered a “death spiral,” some observers see that as a real possibility, at least for the unsubsidized part of the market in some states.6 Various efforts in Congress have failed to reform or replace the ACA, which leaves state lawmakers scrambling to identify feasible and viable approaches to stabilize and strengthen the individual market. These strategies seek to encourage more insurers to enter and remain in the market, to improve the risk pool by reducing adverse selection, and to create market conditions that moderate premium increases. States are also considering what measures they might want to take to more directly counteract federal regulatory changes that are viewed as potentially destabilizing.7 For instance, states might adopt a 1 See Alan Monheit & Joel Cantor, State Health Insurance Market Reform (Routledge Press, 2004). 2 See Mark A. Hall, Reforming Private Health Insurance (AEI Press, 1995); Mark Pauly and Bradley Herring, Pooling Health Insurance Risks (AEI Press, 1999). 3 Mark A. Hall & Michael J. McCue, How Has the Affordable Care Act Affected Health Insurers' Financial Performance? (Commonwealth Fund, July 2016), http://www.commonwealthfund.org/publications/issue-briefs/2016/jul/the-affordable-care-act- and-health-insurers-financial-performance. 4 See note 35. 5 Cynthia Cox, Larry Levitt, and Gary Claxton, Insurer Financial Performance in the Early Years of the Affordable Care Act (Kaiser Family Foundation, Apr 2017), http://www.kff.org/health-reform/issue-brief/insurer-financial-performance-in-the- early-years-of-the-affordable-care-act . 6 E.g., CMS, Press Release, July 2, 2018, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact- Sheet-items/2017-03-15.html; Anna Maria Barry-Jester, The Obamacare Marketplaces Aren’t In A Death Spiral: But They are in Real Trouble (FiveThirtyEight, May 2017), https://fivethirtyeight.com/features/the-obamacare-marketplaces-arent-in-a- death-spiral/; Robert Laszewski, Is Part of the Health-Insurance Market Entering a Death Spiral? (National Review Aug. 2017), https://www.nationalreview.com/2017/08/obamacare-death-spiral-exchange-enrollment-down-29-percent/. See generally Seth Chandler,