Wednesday, April 18, 2018

Two NJ healthcare bills awaiting Gov. Murphy's signature should reduce premiums by 20-30% in the individual market

On April 12, both houses of the New Jersey legislature passed bills to establish a state individual mandate (A3380) and a reinsurance program (S1878). The bills are designed to work in tandem to stabilize and reduce premiums in the individual market for health insurance.

It is not certain that Governor Phil Murphy will sign the bills. A mandate is a tax, and taxes are hard. The reinsurance program will cost the state some money, though not much -- probably an amount in the low tens of millions each year. But the payoff would be dramatic. Taken together, as outlined below, the bills can be expected reduce premiums in the individual market 20-30% compared to what they would be if neither bill is enacted.

Following a year in which individual market premiums in the state shot up an average of 22%, that relief is desperately needed by the roughly 150,000 state residents who pay full freight in the individual market, obtaining coverage without benefit of subsidy. The plights of several people in this situation are recounted in testimony in support of these bills submitted by BlueWaveNJ.

The Congressional Budget Office has forecast that repeal of the federal individual mandate will increase individual market premiums by 10% per year. The state mandate can be assumed to void that effect. The reinsurance program in turn is to be funded to a level calculated to reduce premiums by 10-20%, according to the text of S1877. The bill would partially cover insurers' costs for enrollees with medical claims in excess of an unspecified "attachment point" (say, $50,000) and below  a cap (for example, $250,000). The  more invested by the state and federal government, the smaller the insurer's coinsurance in the reinsured cost range and so the greater the premium reduction.

The reinsurance program would seek federal funding via an ACA innovation waiver. Waivers for such programs have already been granted to four states, with some 10 others in various stages of application or legislation directing the state to seek a waiver.

Revenue from the individual mandate would also be dedicated to funding the reinsurance program. If no such program is enacted, the revenue would be used to improve and expand the state Children's Health Insurance Program.

Laurie McCabe, chief of staff to the bill's lead sponsor, NJ Senator Joe Vitale, told me that according to an estimate from CMS, a reinsurance program designed to reduce premiums by 20% would cost $350 million per year, while funding for a 15% reduction would cost $275 million. The federal government would pick up somewhat more than half the tab.  While a fiscal estimate from the state's Legislative, Budget and Finance Office declines to estimate revenue from the mandate, it cites $93 million collected from New Jerseyans in payment of the federal mandate in 2015, the most recent year for which figures are available.

Under the mid-range $275 million program, McCabe said, a best guestimate of cost to the state (aside from the dedicated mandate revenue) is in the $30 million range.

The state Department of Banking and Insurance has put out a Request for Bids to actuarial firms to develop the reinsurance waiver proposal. Bids are due on April 21, with work product to be delivered May 21. The waiver proposal is due to CMS on June 4. 

The mandate is structured more or less like the federal mandate that the Republican Congress zeroed out in the sweeping tax bill passed last December. The penalty for not maintaining coverage if coverage is deemed affordable follows form with the repealed federal mandate, except that the maximum penalty is capped at the cost of the state rather than national average premium for bronze plans.

As I noted in a prior post, the mandate bill also moves to head off the Trump administration's attempts to create a market for ACA-noncompliant insurance by empowering the state Department of Banking and Insurance, in coordination with the Treasury, to define minimum essential coverage required to avoid the mandate penalty. The bill also includes a provision requiring small business employees to obtain small group coverage, foreclosing on the administration's bid to let association health plans that gain large group status in their own right market to small businesses.

In summary, these estimates and data points support implementation the two bills:
  • A state mandate will stave off premium increases resulting from mandate repeal of 10% per year, according to CBO, after a 22% increase in 2018.

  • Without a mandate, the number of uninsured New Jerseyans will increase by about 300,000 over ten years, according to an analysis by Raymond Castro of New Jersey Policy Perspectives.

  • Reinsurance will reduce premiums by 10-20% per year, according to the text of the bill (S1878) directing the state to seek federal funding via ACA innovation waiver, with the majority of the tab likely picked up by the federal government.

  • Mandate revenue, while indeterminate, was $93 million in New Jersey in 2015, when the full federal penalty was not yet phased in, as noted in the fiscal estimate prepared for A3380 (with the data originally collected, I believe, by Raymond Castro at NJPP).

  •  Additional state funding is estimated in the $30 million/yr range.

  • The mandate and reinsurance working in tandem should reduce premiums by 20-30% compared to current law.

UPDATE, 4/19: Marlene Caride, acting commissioner of the New Jersey Department of Banking and Insurance, provided cost estimates similar to those relayed above by Laurie McBride at an Assembly Budget Committee hearing yesterday. David Levinsky of the Burlington County Times reports:
At least half of the projected $280 million cost for the reinsurance program is expected to be paid by the federal government, Caride told lawmakers. Another $100 million is expected to come from revenues generated from the state’s proposed penalty on residents who fail to obtain adequate health coverage, she said.
Caride, who said that DOBI was involved in crafting the legislation, cast the need in pretty dire terms:
Without state action, individual market premiums sold on the federal health care exchange are expected to rise as much as 90 percent over the next three years, Marlene Caride, the acting commissioner of the Department of Banking and Insurance, told lawmakers on the Assembly Budget Committee hearing Wednesday. 
She also said that she did not know whether Murphy would sign the bills.

Update 2, 4/20: Audio for the Assembly hearing at which Caride spoke is here. Assemblyman John McKeon, a sponsor of the mandate/reinsurance bills (and my rep!) cited the estimate that coverage losses that could reach 90% over three years, which Caride affirmed (near the tape's end - start at minute 65). The estimate derives from a study commissioned by Covered California analyzing the potential effects nationwide of mandate repeal,  the extension of short-term plans. federal cuts in outreach/advertising spending, etc. A 90% 3-year increase is the worst case scenario, but the report does put New Jersey in the highest risk category, so the cite is not inappropriate. It's not entirely clear why NJ is considered at risk of "catastrophic" effects: the state's risk score for enrollees is on the high side (4%), and the 2018 enrollment drop was modestly above average (7%, compared to a national average of 4%. But the state has no areas served by just one insurer; the Murphy administration is vowing to invest in outreach; and the state bans short-term health plans.

P.S. Stray thought: if a passes its own mandate, obtains federal funding for reinsurance and silver-loads CSR costs, it can basically turn the major elements of Republican ACA sabotage in 2017 to advantage (including, to stretch a point, poison-pilling federal reinsurance legislation with an absolute abortion ban for ACA marketplace plans). New Jersey is on the brink of that -- except to date its silver loading hasn't been as effective as it might be, since silver plans with no CSR costs loaded on are not available off-exchange.


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