Health Insurance Actuaries Propose Ways to Stabilize Market

April 24, 2017 - A stable health insurance marketplace is good for payers and consumers. Speculation over potential payer mergers, repeal or modification of the ACA, and the future of high-risk and low income subsidy payments have left premium rates and coverage questions unanswered. 

A recent April 2017 report by the American Academy of Actuaries (AAA) Health Practice Council offers actuary recommendations on steps to stabilize the health insurance marketplace.

 “With the deadlines for insurer rate filings fast approaching, policymakers need to act soon to address individual market issues for next year,” said Academy Senior Health Fellow Cori Uccello. “The consumers, insurers, and health care providers in the individual market will all be affected by whether and how these challenges are addressed.”

The report outlines four key areas to create a stable and sustainable health insurance market:

• Continued funding of cost-sharing reduction (CSR) reimbursements
• Enforcement of the individual responsibility penalty
• Increased external funding aimed at lowering premiums, increasing enrollment, and improving the risk pool
• Avoiding legislative or regulatory actions that could increase uncertainty or threaten stability

The organization acknowledged that the federal legislation has reduced rates of the uninsured, but with lower-than-expected enrollment numbers. A critical component to keeping claims at a stable and predictable level is robust plan enrollment.

High numbers of enrollees would balance the risk pool. Patients in high-risk groups or with pre-existing conditions would combine with healthy low-risk members.

From an actuarial perspective, the ACA marketplace plans have attracted a higher number of high-benefit cost members.

A possible remedy to this population is the reintroduction and expansion of high-risk pools, which have served as a means for taking individuals out of the general risk pool and could therefore help stabilize or even lower rates for the lower-risk market. 

In an earlier report the AAA reiterated the need for outside funding to supplement the costs of high-risk pools to mitigate premium increases across the enrollment pool in general.

“In 2011, 226,000 individuals were enrolled in state high-risk pools at a total cost of $2.6 billion. The guaranteed availability of individual market coverage at standard rates under the ACA beginning in 2014 reduced the need for state high-risk pools. As of November 2016, most state high-risk pools were either closed entirely or were not enrolling new participants.”

Another key program that requires outside funding is cost-sharing reduction (CSR) reimbursements.

With the future of CSRs tied up in a court and in federal budget negotiations, the result has made the job of actuaries nearly impossible.  “For actuaries to assess premium requirements, they urgently need to know whether those reimbursements will be funded,” the report states.

The organization also called for more stringent enforcement of the individual responsibility penalty (or mandate), which was intended to encourage healthy individuals to enroll. 

The report sites weak enforcement, and low-cost penalties, has left it an ineffective incentive. “Strengthening the mandate, through higher financial penalties or stricter enforcement, could increase its effectiveness,” the report suggested.

Similar proposed penalties for individuals with gaps in coverage are also seen as having adverse effects on the general risk pool, and stabilization in general. 

The organization maintains that if the penalties are too low it lacks the incentive to attract healthy members. Conversely, if the penalties are too high, it would attract more high-need enrollees willing to pay the fine for coverage.

The AAA recommendations also refuted proposals to allow sales of insurance across state lines or expand consumer access to purchase plans through association health plans (AHPs), warning that both actions could result in a fragmentation and destabilization of markets. This was at the greatest risk of happening when individual state coverage requirements would vary. Included in this were the sale of non-ACA compliant health plans.