It is difficult to measure the specific effects, of each of these actions, on health insurance markets. However, there is increasing evidence that the cumulative effects of these actions are reshaping health insurance markets in the United States.
The efforts to dismantle the Affordable Care Act, piece by piece, continue. Over the past few months the Trump Administration:
• Finalized regulations expanding Association Health Plans (“AHPs”) for unrelated employers;
• Signed the Tax Cuts and Jobs Act of 2017, eliminating the individual mandate;
• Finalized regulations expanding short-term limited duration (“STLD”) coverage;
• Stopped payments to insurance carriers for cost sharing subsidies (which reduced out-of-pocket costs for over 6 million Americans), and
• Cut back outreach and enrollment support for exchange-based coverage under ACA.
Each of these actions serves to undermine the ACA by facilitating the movement of covered lives away from plans covered by the ACA – by increasing premiums, by discouraging carrier participation in ACA exchanges and by reducing behavioral barriers to dropping individual coverage.
It is difficult to measure the specific effects, of each of these actions, on health insurance markets. However, there is increasing evidence that the cumulative effects of these actions are reshaping health insurance markets in the United States. In reports prepared over the past few months:
• The Urban Institute estimated that the elimination of the individual mandate and the expansion of STLD coverage will increase premiums by 18.2 percent (in the states that do not restrict STLD coverages) and that these changes will result in an additional 6.4 million people uninsured in 2019.
• The Commonwealth Fund has estimated that the elimination of the individual mandate and the expansion of STLD coverages could decrease, by 9 million, the number of Americans with coverage for ACA essential health benefits and increase premiums by up to 9.9 percent.
This blog will not discuss the broader societal implications of these actions. Rather, the blog will focus on how these actions represent traps for employers caught in the middle of this slow-motion ACA repeal.
• Caveat Emptor. Although the new regulations on AHPs are not fully effective until April, 2019, employers can expect to see association-based entities pitching cut-rate plans. However, these plans represent real risks to employers – they may be self-insured programs and employers could be left holding the bag if the AHP defaults on its obligations or goes bankrupt. Additionally, employers will need to read the fine print on any coverages offered by an AHP to understand what is really covered by the AHP program.
• Caveat Emptor (Part II). With elimination of the individual mandate and the loosening of restrictions on STLD coverages, employers can expect brokers to promote STLD coverage. STLD can be promoted as a voluntary employee benefit for individuals who are not eligible for the employer’s comprehensive (i.e., ACA-compliant program) or who may be looking for a “lower cost” alternative.
The promotion of STLD will come hot and heavy; these products are very profitable for carriers. Per the National Association of Insurance Commissioners, carriers have a 67% loss ratio (so, a 33% profit) on STLD and a 96% loss ratio (or 4% profit) on more comprehensive coverage. This, in turn, means that brokers can earn hefty commissions selling STLD policies.
STLD policies can have significant coverage gaps (such as for preexisting conditions). If employers start offering these policies as a voluntary benefit, the employer will have to deal with the impact of any employees who find out about these coverage gaps the hard way.
• Employer Provisions of ACA Intact. The provisions of ACA that create the greatest burdens on employers – the employer mandate and the complex rules governing application of the mandate, remain intact. However, as younger, healthier Americans are drawn away from comprehensive medical coverage (by going uninsured or seeking STLD coverage as a “lower cost” alternative), employers will find themselves in the same dilemma as insurers – with a smaller, higher cost covered population. In effect, employers’ health care strategies remain linked to the ACA, while the Administration moves to undermine the ACA.
According to the Academy of Actuaries “the pooling of risk is fundamental to all types of insurance because large pools of similar risks exhibit stable and measurable characteristics that enable actuaries to determine premium levels within an acceptable range of accuracy.” At the core of the Administration’s actions to dismantle the ACA are actions that pull lives out of the risk pool; undermining the integrity of the ACA’s risk pools will undermine the stability of health insurance markets. This instability may prove to be yet another set of ACA-related headaches for employers.
