Tuesday, October 29, 2019

Looks like New Jersey's reinsurance trade-off paid off

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New Jersey's Department of Banking and Insurance has published second quarter enrollment numbers for the state's individual market for health insurance. Some upside surprises:

New Jersey Individual Market Enrollment, Second Quarter 2018 to Second Quarter 2019
Q2 2019
Q2 2018
# change
% change

  • Off-exchange enrollment is up from the first quarter -- unusual, because anyone enrolling after December 15, 2018 would have to qualify for a Special Enrollment Period. In Q1, off-exchange enrollment was up 2.98% year-over-year. In Q2, it's up 8.7% over Q2  2018, to 92,798. 

  • On-exchange enrollment, which was down a disappointing 7.1% as of the end of Open Enrollment, has had much lighter attrition than in previous years. It's down just 1.6% since Q1, compared to an average Q1-to-Q2 drop of  6.8% in the three previous years. Accordingly, it's down just 1.1% from Q2 2018.

  • Total individual market enrollment is up 1.6% compared to Q2 2018.  That's all in ACA-compliant plans, as New Jersey bans the lightly regulated, medically underwritten short-term plans promoted by the Trump administration.
New Jersey's 2019 experience is something of a case study for what you might call the reinsurance tradeoff.

The Trump administration, while taking multiple steps to sabotage the ACA, has encouraged states to submit waivers seeking federal funding for individual market reinsurance programs, which partially reimburse health insurers for costs incurred by their most expensive enrollees. Because reinsurance reduces premiums, it also reduces federal subsidies for those premiums, and CMS has proved willing to "pass through" much of that saving to the states. In New Jersey, the waiver approved in August 2018 estimated the federal share at $210 million, or about two thirds of the total cost -- albeit reduced by CMS to $180 million once enrollment figures were in.  

Reinsurance, combined with a state individual mandate also enacted in advance of the 2019 enrollment period, reduced premiums in New Jersey's individual market in 2019 by 22% compared to what they would otherwise have been, and to an average of 9% below 2018 rates. But reductions in base premiums in the ACA marketplace have a paradoxical effect: they tend to increase the premiums paid by subsidized enrollees (who in Jersey account for a comparatively low 53% of all individual market enrollees). Subsidized enrollees pay a fixed percentage of costs, varying by income, for the benchmark plan (the second cheapest silver plan) in their area. When premiums go down, the "spread" between the benchmark and cheaper plans tends to compress, reducing discounts for cheaper plans. 

That happened in New Jersey in 2019.  For a 40 year-old with an income of $30,000, the cheapest bronze plan cost 12-22% more in 2019 than in 2018 (varying by region) -- that is, $13-$25 more per month. Cheapest silver was also up slightly in most of the state.  

Decision 2018: To whom should ACA strengthening measures be targeted?

In New Jersey in 2018, the incoming Murphy administration and increased Democratic majority in the legislature were eager to protect the state's ACA marketplace from various forms of administration and Congressional Republican sabotage -- including repeal of the individual mandate, massive reductions in federal funding for marketplace advertising and enrollment assistance, and an abrupt cutoff of direct federal reimbursement to insurers for Cost Sharing Reduction (CSR) subsidies. A year of turmoil had massively jacked up premiums in New Jersey and nationwide in 2018. In New Jersey, benchmark premiums rose 19% on average. Off-exchange enrollment dropped 14%, and on-exchange dropped 9.6%. 

Considering options, New Jersey legislators took into account an estimate that a state individual mandate would raise about $90 million per year, while reducing individual market premiums. Should that money be plowed into state-based supplemental subsidies for those already eligible for federal subsidies in the individual market? Or should it be used for reinsurance, which would provide relief to the unsubsidized? With reinsurance, the state contribution would effectively be tripled by federal funds. Unsubsidized individual market enrollees were hurting -- and vocal (e.g., via Blue Wave New Jersey). The state took the federal money and went with reinsurance.

After the Murphy administration trumpeted reduced premiums in the runup to open enrollment for 2019 (running from Nov. 1 - Dec. 15, 2018), progressives watched in dismay as CMS's Weekly Enrollment Snapshots showed New Jersey enrollment trailing the previous year's. When the dust settled, on-exchange enrollment was down 7.1%, compared to 2.6% nationwide and 3.8% in the 39 states (Jersey included) that use HealthCare.gov, the federal enrollment platform.

But the experience and data released in subsequent months mitigates that disappointment. Improved retention matches a national trend in recent years and narrows apparent enrollment reductions recorded at the end of Open Enrollment. As noted above, that's very much the case in New Jersey. Improved retention off-exchange has bolstered the turnaround there, which is doubtless driven in large part by the premium drops of 2019.  In the combined on- and off-exchange New Jersey individual market, second quarter attrition in NJ averaged 5.3% from 2015-2018; this year, it's just 0.7%. From the partial picture visible in December 2018 (a 7.1% drop in on-exchange enrollment) we've moved to a broader mid-year view that shows a modest increase (1.6%) in total individual market enrollment.  

In 2020, while premiums nationally are all but flat on average, premiums are rising a weighted average of 8.6% in New Jersey. That's probably in large part because the NJ market suffered just one year of sharp premium increases, 2018, compared to two years, 2017-2018, in most of the country. Rates for the cheapest bronze and silver plans in NJ are still below 2018 levels. And while much of the country may experience the lower-base-premium/higher-subsidized-premium paradox on average in 2020, Jersey has gone into reverse on that front. 

AmeriHealth, which dominates the low price points at each metal level in New Jersey, has manipulated the spreads so that the cheapest bronze and silver plans will cost subsidized buyers less in 2020 than in 2019. For a 40 year-old with an income of $30,000 in Essex County, for example, cheapest silver is $188/month in 2020 vs. $200/month in 2019, and cheapest bronze (an HSA plan)  is $118 in 2020 vs. $137 in 2019 (though bronze deductibles have risen from $3,000 to $3,450). 

The ACA subsidy structure is underfunded: too many subsidy-eligible people nationwide find coverage and out-of-pocket costs too expensive. Using individual mandate revenue to enrich subsidies at low incomes might have paid dividends. But roughly $200 million per year in additional federal funding via reinsurance probably made the state's choice all but inevitable. And the dividends from that choice have been substantial.

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