Reinsurance, CSR Reinstatement May Stabilize Individual Premiums

February 21, 2018 - AHIP supports a number of policy solutions that could reverse Trump Administration actions that have resulted in higher premiums and unstable markets.

In a new policy brief, the payer advocacy group suggests that lawmakers focus on the development of reinsurance programs, reinstatement of federal cost-sharing reductions (CSRs), creation of enrollment outreach initiatives, and suspension the health insurance tax.

Recently, the Trump Administration has influenced a rise in individual premiums by expanding the availability of association health plans (AHPs), repealing the ACA’s individual mandate, and eliminating the cost sharing reduction (CSR) payments. AHIP believes that the effects of these decisions will continue to negatively affect conditions of the individual health plan market.

“For many well-documented reasons, the individual market continues to face stability challenges in its fifth year under the market reform rules of the ACA,” AHIP said. “These challenges include high premiums and high premium increases, fewer plan choices for many consumers, lower-than-projected enrollment, and risk pool challenges in certain states and markets.”

Individual health plan enrollment could increase during the 2019 enrollment period as more people shopping for health plans qualify for advance premium tax credits (APTC), according to CMS data. Individual plan earners can earn these federal subsidies if their income is 300 percent below the federal poverty line.

AHIP argues that the individual market needs better stabilization policies because a greater number of beneficiaries are likely to enroll in individual health plans.

Reinsurance programs could provide a mechanism for lowering premiums. AHIP cited an Avalere analysis that found reinsurance programs could lower premiums anywhere from 4 to 12 percent.

Congressional lawmakers have introduced several bills to create a new reinsurance program or enhanced risk-pool funding. Reinsurance programs can help reduce the financial burden of high-cost claims and therefore keep premiums lower.

Additionally, reinsurance programs could reduce federal government spending on APTCs and drive cost savings that are higher than the amounts needed to fund a reinsurance program.

In October 2017, the elimination of CSR payments caused exchange plan premiums to increase by 20 percent, according to research from the Congressional Budget Office. The Kaiser Family Foundation also found the elimination of the CSRs raised silver benchmark plan premiums between 7 and 38 percent.

AHIP believes that reinstating the CSRs would effectively reverse the increase in silver benchmark plan premiums and reduce premiums by 7 to 38 percent again.

“Action by Congress to provide multi-year funding for CSRs would put downward pressure on premiums across the individual market in 2019 and beyond,” AHIP said. “In addition, as with reinsurance, CSR funding would result in in reduced taxpayer spending on federal premium subsidies.”

AHIP also recommends increasing the length of the health insurance tax suspension into 2020. The suspension of the tax creates more affordable consumer premiums, AHIP argues, because it prevents payers from adding the cost of the tax into premium totals.

“We recommend further suspending the health insurance tax in 2018 and 2020 to place downward pressure on premiums, as it would otherwise be incorporated into premiums to cover the cost of the tax,” AHIP said. “This legislative action will reduce premiums by about 3 percent, or by about $230 annually per member in the individual market.”

In 2018, ACA enrollment fell five percent from 2017 totals.  This reduction in participation was likely influenced by cuts in federal advertising and outreach. AHIP argues that increasing individual health plan enrollment advertising may have a positive effect on lowering individual premium totals.

“Studies have shown that cuts in advertising and outreach make it harder for people to enroll and could destabilize the individual marketplace,” AHIP said. “By contrast, effective advertising and outreach can increase enrollment, expand coverage and lower premiums—as California’s comprehensive outreach and marketing program was credited with lowering premiums by 6-8 percent.”

AHIP believes legislation like the proposed Bipartisan Health Care Stabilization Act would lower premiums by enacting policies like reinsurance programs that stabilize individual risk-pools. AHIP again cited CBO research which found the bill could lower federal subsidy costs and budget deficits by $3.8 billion.

AHIP feels that there is a sense of urgency for Congress to officially implement stabilization policies for individual health markets before premiums increase even more in 2019 and 2020.

“Depending on the combination of policies enacted, an individual market stabilization package enacted by Congress could reverse recent premium increases as consumers make coverage selections for the 2019 plan year,” AHIP said.