Georgetown Findings: Individual Market, Finally Stabilizing, Threatened if ACA Is Not Immediately Replaced

The individual health insurance market, which is finally calming after a few turbulent years, could be thrown into a tailspin if the Affordable Care Act (ACA) is not replaced when it is repealed.

That’s the conclusion of a report published this week from a team at the Georgetown University Health Policy Institute. The paper was prepared for the Urban Institute and funded by the Robert Wood Johnson Foundation.

Authors Sabrina Corlette, JD; Kevin Lucia, JD, MPH: Justin Giovannelli, JD, MPP; and Dania Palanker, JD, MPP, conducted structured interviews with 13 insurers across 28 states. The group included large, for-profit payers that operate in multiple states, regional nonprofits, former Medicaid-only plans, and integrated provider-sponsored plans. Interviews took place between December 5, 2016, and January 11, 2017.

The insurers’ chief concern was uncertainty itself–they told the team that if a replacement is adopted alongside a repeal, they would adapt, and would be aided by a transition period. But a repeal without a replacement–even if there is a delay–would create upheaval that could threaten the stability of the individual market.

And that would come after the market has started to stabilize after a rocky start for the ACA, in which payers competed on price for a group of consumers for whom they had little or no data. Many of the new customers on the exchanges had not been insured for years, if ever. The sicker-than-expected population, combined with Congress’ decision to not fund risk corridors as called for in the ACA, led to large premium hikes for 2017.

Just as market analysts see calm in the individual market, the repeal of the ACA looms. “This emerging market stability is threatened by the considerable uncertainty over whether and for how long the marketplace will continue to exist if the ACA is repealed,” the authors wrote.

President Donald J. Trump has pushed for a rapid repeal of the ACA, but the details of a replacement are in doubt. The Senate has competing bills, which rely on health savings accounts and do not retain the individual mandate, although Trump has said he wants to retain bans on rejecting consumers based on preexisting conditions.

With the requirement for all Americans to be insured, however, most experts do not see how such a combination would work financially. As it is, ACA insurers struggled to get young, healthy consumers to enroll, despite financial penalties.

The authors asked insurers how they would respond to 3 different scenarios: 1) a repeal with no replacement; 2) a repeal with no immediate replacement, but a delayed effective date; and 3) a repeal with an immediate replacement. The payers said:

• While insurers cannot bolt the 2017 market due to contractual obligations, most would “seriously consider” leaving the market in 2018 if the ACA is repealed without an effective replacement.
• A sicker risk pool will cause premium increases, if Congress cancels the individual mandate.
• A “repeal and delay” strategy would still cause upheaval if there’s no replacement, because insurers would see “significant” downside risk by staying put with so much uncertainty.
• An end to financial supports that reduce premiums would harm insurers, and some would seek mid-year rate increases in 2017 as a result. Ending premium supports mid-year would leave insurers with “billions” in unfunded costs.

“The insurers we interviewed indicated almost unanimously that failing to provide (cost-sharing reduction) reimbursement would be financially devastating,” with 1 insurer saying this step would “undermine the industry.”

In fact, the authors reported, fear of a “death spiral” in the individual market would drive many insurers off the marketplace, and 1 respondent said the end of cost-sharing support would leave “a lot of bad options.”

An estimated 13.8 million people are projected to enroll on the exchanges for 2017; enrollment was tracking ahead of prior years, but the Trump administration canceled the final days of the marketing and enrollment reminder campaign that HHS had already funded.

Reference

Corlette S, Lucia K, Giovannelli J, Palanker D. Uncertain future for Affordable Care Act leads insurers to rethink participation, prices. Urban Institute website. http://www.urban.org/research/publication/uncertain-future-affordable-care-act-leads-insurers-rethink-participation-prices. Published January 24, 2017. Accessed January 27, 2017.