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Affordable Care Act Changes May Bring a Rocky 2018 for Payers

Legislative changes to the Affordable Care Act will impact payers in the individual health plan market and add to the challenge of remaining profitable.

Changes to the ACA should prove challenging for payers in 2018

Source: Thinkstock

By Thomas Beaton

- 2017 was a turbulent year for the Affordable Care Act.  Legislative battles in Congress, fluctuating support from healthcare stakeholders, and threats of repeal have left many payers facing an uncertain future.

Even though Congress has not yet succeeded in scrapping the law, the ACA’s opponents will likely continue to use all of their available powers to weaken the bill throughout 2018.  

Lawmakers have already removed several key pillars of the legislation, including the individual mandate and the cost-sharing reductions, while adding uncertainty through alternative coverage pathways like association health plans (AHPs).

The 2017-2018 open enrollment period saw 8.82 million plan selections, indicating strong interest from consumers in getting or remaining covered in the new year.  But in the coming year, payers should expect the changes in the ACA to impact premium rates, add challenges to the individual health plan market, and adjust how states leverage customized solutions for their Medicaid programs.

Here are some of the most significant changes to the health insurance market from 2017 and how they are likely to impact payers in the year ahead.

Repeal of the individual mandate

READ MORE: The Progress and Challenges of the Affordable Care Act

In late December, the House voted 227-203 and a Senate voted 51-48 to pass a national tax bill that repealed the ACA’s individual mandate. Starting in 2019, individuals will no longer face a tax penalty if they don’t enroll in an ACA-compliant health plan for a full year.

The American Academy of Actuaries estimated that payers participating in individual health plan markets will experience losses so significant that federal subsides (if they were still in effect)wouldn’t be able to cover the costs of premium increases due to unbalanced risk pools.

The Academy believes that healthy individuals will less likely to enroll in a health plan because they will not be penalized for not having coverage. Without a higher number of healthy members to stabilize risk pools, premiums will go up as the balance shifts towards less healthy, higher-cost beneficiaries.  

Payers are expected to lose millions of potential beneficiaries in the individual market over a ten-year period due to the removal of the mandate.

The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) predicted that repealing the mandate would disincentivize 13 million beneficiaries from participating in the individual health plan market by 2027 in exchange for a $328 billion reduction in the federal budget from 2018 to 2028.

READ MORE: MI Requests Renewal of “Healthy Behaviors” 1115 Medicaid Waiver

Both CBO and JCT agreed with the Academy of Actuaries that millions of healthier individual market consumers would no longer purchase insurance because the mandate financial penalty wouldn’t help drive individual enrollment.

Elimination of the cost-sharing reductions (CSRs)

In October, President Trump issued an executive order that ends the CSRs to payers selling individual health plans. Previously, the funds had offset increases in consumer premiums needed to keep health plans financially profitable while compensating for the pre-existing conditions protections of the ACA.

A USC Brookings report found that payers in individual markets experienced only moderate premium growth of around 6.9 percent with the CSRs in place. However, without the CSRs, premiums are expected to grow by 20 percent for individual health plans.

Additionally, the USC Brookings team found that claims spending in 2017 would have accounted for 86 percent of earned premium revenues. Individual health plan premiums would have only required an increase by 4 percent to maintain profitability and account for increases in claims costs.

Many payers sponsoring individual health plans recently hiked their 2018 premium rates as a way to compensate for the loss of the CSRs. Pennsylvania cited premium rate increases of 30 percent, California had payers that increased premiums by 12 percent, and Washington state approved multiple rate increases that ranged from 9 to 27 percent.

READ MORE: 2018 ACA Open Enrollment Totaled 8.82M Beneficiaries in Last Week

If policymakers don’t reinstate the CSRs, or develop a similar way to stabilize premiums, payers will likely continue to raise premium rates as healthcare costs increase and risk pools become unbalanced.

Increased promotion and use of state 1115 Medicaid waivers

In March 2017, former HHS Secretary Tom Price and CMS Administrator Seema Verma penned a letter to governors urging states to use 1115 Medicaid waivers to develop Medicaid programs that address unique state healthcare needs. 1115 waivers follow provisions in the ACA such as requiring essential health benefits, but allow states to customize Medicaid eligibility and the program’s resource allocation.

State governments can use the waivers to expand Medicaid eligibility or constrict member eligibility requirements.

Missouri, Vermont, and New Jersey have waivers that expand federal poverty level (FPL) guidelines for populations with economic healthcare barriers. The waivers increase the allowable income levels so that many individuals who previously didn’t qualify for Medicaid benefits can now receive them.  

Conversely, other 1115 waivers would allow state governments to add accountability requirements for individuals seeking Medicaid benefits. For example, the state of Maine submitted a 1115 waiver that adds work requirements, charges individuals for missed healthcare appointments, and offers lower copays when beneficiaries utilize an urgent care center or primary care provider instead of the ED.

States also use the waivers to address wide-reaching population health concerns. Many states have supported or pursued waiver approvals that increase the number of beds in drug treatment facilities and allow their Medicaid programs to facilitate substance use disorder (SUD) treatments.

Expansion of association health plan availability

In October, President Trump issued an executive order that increases the length of time association health plans (AHPs) can cover individuals.  The order also allows individuals to pay for AHP coverage with health reimbursement agreements like HSAs and related savings accounts.

The AHPs are expected to disrupt the individual insurance market by unbalancing risk pools and could make it harder for sick individuals to receive essential health benefits (EHBs), said AHIP, BCBS, and related payer organizations.

Association health plans have low-cost consumer premiums but are not required to provide EHBs. AHIP, BCBS, and other experts believe that healthy consumers that normally balance individual risk pools will flock to the lower-cost premium plans even though they don’t have comprehensive benefits.

“If short-term plans are allowed to be sold as a long-term alternative to regular health insurance, they will attract healthier consumers away from the regular insurance risk pool and endanger people’s access to comprehensive coverage,” the healthcare organizations said.

The appeal of AHPs could also justify employers and individual health plans in raising premiums to offset expected costs of unbalanced risk pools, the organizations added.

Payers that operate in individual health plan markets may face immediate and long-term challenges in 2018 and beyond because of last year’s ACA changes. The individual health plan market could still present a great opportunity for payers, but may require a new set of solutions that limit profitability concerns as well as premium increases.


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