Friday, November 17, 2017

Halfway back to the future in the individual market for health insurance

The ACA-compliant individual market for health insurance is at a mid-point between Trump sabotage that's been executed and Trump sabotage that's threatened. At present, the market remains viable for most subsidized prospective enrollees -- and even accidentally improved for a good number of them via discounts for bronze and gold plans. It's largely dysfunctional for the unsubsidized, however, after two years of average premium hikes in excess of 20%.

The main (though by no means only) act of sabotage in 2017 was Trump's long-running threat -- executed in October -- to cut off federal reimbursement that the federal government is legally obligated to pay insurers for providing Cost Sharing Reduction (CSR) payments to qualifying enrollees. Stiffed by Trump, insurers had to boost premiums to cover the cost of CSR. That in itself accounted for nearly half of this year's 29% average premium hike, according to Charles Gaba.

The next sabotage threat is individual mandate repeal, coupled with pending administrative action to empower a non-ACA-compliant market of medically underwritten, loosely regulated plans. -- which currently do not satisfy the mandate. Those measures in combination will trigger a fresh wave of premium hikes in the ACA-compliant market by draining its risk pool. Many if not most of the 6-7 million current unsubsidized enrollees in ACA-compliant plans will probably be driven perforce into the unregulated market if this next round of sabotage is fully implemented.

We are already halfway there, I suspect.  Recently I spotlighted the choice facing a 58 year-old in Pottsville, PA who's ineligible for subsidies -- that is, with an income over $47,520 for an individual or $64,080 for a couple. For this person
the cheapest bronze plan available is from Geisinger at $898 per month. The deductible is $6,100, though doctor visits are not subject to it.. The cheapest silver plan is $1069 per month, offered off-exchange only, with a $5000 deductible.  This person would have a mandate exemption if her income is below $133,863 (898 x 12/.0805).  That means she could also buy a catastrophic plan for $748 per month if her income is below that level. 
Assuming mandate exemption, what would the current short-term plan market -- where plan length is currently limited to three months -- have to offer? For a healthy enrollee, a panoply of risks, but options that may be comparatively attractive to many who are not subsidy-eligible. Here's a sampling of what I found on eHealth, a commercial online broker that pre-dates the ACA.

The cheapest plan available in the Pottsville market is $88 per month. It has a $750,000 coverage cap for the three month duration, a $5,000 deductible, a $10,000 out-of-pocket maximum (including the deductible) and 50% coinsurance for various services. Subject to that coverage limit, it does offer catastrophic coverage of sorts.

The short-term plans exclude coverage for pre-existing conditions and must be renewed every three months -- which means the (generally high) deductible resets every three months, and exclusions for pre-existing conditions kick in every three months. A partial workaround for the short term is offered by "multi-policy" plans, which auto-renew every three months, up to 360 days.

In one such plan I looked at, from Pivot Health, the deductible resets every 90 days, but medical conditions that arise within the period of continuous coverage are covered  -- that is, if you get sick in one 90-day term, and are on auto-renewal, you are covered until the full 360 days runs out (or till you end coverage). This policy is $166 per month with a $10,000 deductible and a $500,000 coverage cap. There is no prescription drug coverage -- as is the case with many plans I looked at. Pivot offers more or less the same plan with a $5,000 deductible and $1 million coverage limit.

Another class of plans on offer is "guarantee issue" with one wee catch: coverage for pre-existing conditions is excluded (as it is in all short-term plans). One such plan is available in the area in question, for $492 per month, deductible $3,500, coinsurance 20%. There's no drug coverage. You may ask: what good is guaranteed issue if it a) excludes pre-existing conditions and b) only last three months? I do not know. It seems to me that multi-policy plans, which protect you from fresh medical underwriting for a year once you're enrolled, make more sense.

For a more comprehensive account of what's on offer in the temporary market, see Louise Norris' overview of regulations and plan features and offerings

Until April of this year, short-term plans could be offered for a term of up to a year in most states; an ACA rule that went into effect limited them to 3 months. The Trump administration is likely to restore the option of year-long terms.  If the mandate is repealed or not enforced, "temp" plans would constitute a full-fledged medically underwritten market, existing alongside the ACA-complaint one.

That parallel market, if it were to constitute the entire market, or the only affordable market for the unsubsidized (which alas, in some cases it already does), take us back to the bad old days in which coverage depends on medical underwriting and is honeycombed with exclusions that make comparison and risk assessment very difficult. That's the world we'll be in if Republicans repeal the individual mandate, extend short-term plan duration, and allow lightly regulated "association" health plans to market to individuals. 

Unfortunately, we are halfway there, as in many regions, ACA-compliant is unaffordable for many who do not qualify for subsidies. That's especially true for older enrollees, since plan prices rise with age, so that a 64 year-old pays three times what a 21 year-old would pay. 

With political commitment, the ACA-regulated market could be stabilized so that it offered affordable coverage to all. As Aetna CEO Mark Bertolini noted back in the spring of 2016, all government-regulated insurance programs require constant tweaking, and Republican hostility to the ACA has made that impossible. On an earnings call, Bertolini said of the ACA marketplace:
we see this as a good investment, hoping that we have an administration and a Congress that will allow us to change the product like we change Medicare every year, and we change Medicaid every year.

But we haven't been able to touch this product because of the politics. But if we can get to that point, we believe we are in a very good place to make this a sustainable program.
If we ever do "get to that point," the marketplace could be first stabilized and then strengthened by measures obvious to anyone not blinded by ideological hostility (or faking it for political gains). Some would roll back the current sabotage; others would address shortcomings in the law as draft. They include:
  • Commit to enforcing the individual mandate
  • Restore enrollment outreach and assistance (radically cut by Trump administration)
  • Assure permanent funding for the CSR subsidies that insurers are legally obligated to provide
  • Re-start the ACA's original reinsurance program, which the law foolishly set to expire after the first three years. Reinsurance manifestly and dramatically reduces premiums -- restoring it would go a ways toward rolling back the steep increases of the past two years.
To fulfill the aspiration expressed in the Affordable Care Act's title, a further measure would be to cap premiums as a percentage of income for all enrollees in the individual market. An alternative would be to extend the tax deduction of individual market premium currently allowed to the self-employed only to any unsubsidized enrollee in the ACA-compliant individual market.  As of 2014, over 4 million tax filers took this deduction (some of them subsidized in the ACA marketplace); perhaps their ranks would double if the deduction were extended to the unsubsidized who are not self-employed.

For the present, the best-case scenario for the law's supporters is probably a gridlock-driven stasis somewhere in between total sabotage and repair. As long as the law is not repealed, the subsidized market can probably limp along roughly as is. The unregulated market will be expanded to provide some shaky and uneven relief to some unsubsidized buyers, weakening the ACA-compliant risk pool to greater or less degree. Some states with Democratic governors and legislatures will take measures to stabilize and protect their own markets, as California has done. And in this state of limbo, the ACA marketplace will kludge along.


  1. Well done as always. I recently had occasion to actually read one of the short term policies that my agency sells. In the fine print, the policy paid $500 for an ambulance ride, 20% of the cost of anesthesia, excluded sports injuries, and the list went on.

    Add to this the fact that the insurers will pay virtually no claims!. If you exclude all pre-ex conditions, and you do not cover doctor visits or drugs, then the only time you will pay a claim is if an insured has an accident or sudden cancer in a three month period. I guess this shows the importance of guaranteed renewable provisions!

  2. How do get to a premium of $1000 a month for a rather lousy silver plan?

    Here are some numbers:

    The insurance company will collect $12,000 in premiums plus a $5000 deductible on each client. That is $17,000.

    Assume that $15,000 will be paid out in claims after the usual admin and profit.

    So if 100 people buy the plan, the insurer will pay out $1.5 million in claims.

    That is a lot of money! If a large claim is $50,000, that means 30 people out of 100 are filing large claims each year.

    That is believable. My agency sells health insurance, and the 58 year olds we enroll in the individual market nearly always have a serious condition of some kind.

    This is what a death spiral looks like.