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Tax bill’s evisceration of individual mandate will shrink, bifurcate non-group market

Reforms of the non-group market aimed at revitalizing it as it faced the death spiral of adverse selection at the start of the decade have reached a turning point. A major tax reform bill almost certain to be signed into law this month effectively cancels out one of three foundational elements designed to rescue the market contained in the Patient Protection and Affordable Care Act: the tax penalty levied on households that go “bare” without medical coverage.

The Affordable Care Act reforms effectively force buyers and sellers together to sustain a functional non-group market. Plan issuers must accept everyone applying for coverage without medical underwriting. On the buyer side, the thinking was the penalty would provide incentive to purchase an individual plan, with the segment acting as a residual market for those without access to other forms of coverage. In retrospect, turns out the incentive wasn’t strong enough, particularly to improve the spread of risk by creating a diversified risk pool of young and old and those in good and ill health. Many households found the tax penalty the superior option over purchasing coverage, eroding the intended effect of strengthening the market and ensuring a good spread of risk.

Zeroing out the tax penalty as the pending tax bill does would not collapse non-group into a rapid adverse selection death spiral, accounting to the Congressional Budget Office. The CBO projects the negation of the tax penalty will cut the estimated 15 million Americans in the individual market by one third by 2027. Nevertheless, the CBO said, the segment “would continue to be stable in almost all areas of the country throughout the coming decade.” In other words, a shrunken but not a fatally crippled market over the near term.

Going forward, a couple of factors not addressed in the CBO analysis could further downsize the non-group segment:

  • The exit of households earning in excess of 400 percent of federal poverty and therefore ineligible for premium subsidies offered though state health benefit exchanges, particularly for family plans and for individuals aged 50 to 64. Premium rates are already considered out of reach for many of these households. According to the CBO analysis, premiums will continue to rise by 10 percent a year over the next 10 years. The CBO analysis notes non-enforcement of the tax penalty would help drive the increases as healthier people would be less likely to obtain insurance, requiring plan issuers to make up the lost premium revenue by raising rates.
  • The replacement of Affordable Care Act compliant individual plans with short term plans. In October, the Trump administration directed three federal agencies to consider new regulations or guidance that would expand the availability of short term policies beyond the current 90 day limit. If short term policies are defined as up to 12 versus three months and be renewable for another year, they would offer a medically underwritten, lower cost alternative to those who can pass underwriting standards. That would reintroduce medical risk selection mostly barred by the Affordable Care Act, which permits premium rating based only on age, location, family size and tobacco use. According to  Modern Healthcare, at least two plan issuers – UnitedHealth and Aetna – are looking into issuing short term plans, potentially offering covered benefits on a par with individual plans. That would create a bifurcated non-group market rather than the single state risk pooling under the Affordable Care Act’s reforms and has raised concerns among stakeholders and state regulators according to Modern Healthcare.
 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Issuer churn continues among non-group plans despite ACA’s statewide risk pooling

Cyndee Weston has navigated the shifting ground better than many. For years she has had the same insurer — BlueCross BlueShield of Oklahoma — which has dominated that state’s market for individual plans and is the only marketplace player for 2018. But even though the carrier is the same and the health law requires insurers to take all comers, canceled plans each year force her to learn a new coverage design, file new paperwork with doctors and worry her primary physician will be dropped from the network.

Source: Churning, Confusion And Disruption — The Dark Side Of Marketplace Coverage | California Healthline

Before the Patient Protection and Affordable Care Act’s non-group market reforms took effect in 2014, plan issuers frequently shut down plans, placing them in runoff mode once the pool quality declined too much and they fell into the adverse selection death spiral. It appears however the pattern nevertheless continues even with the Affordable Care Act’s requirement that all non-group risk be pooled into single statewide risk pools, making it tough on plan members seeking stability.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Rising medical costs undermine America’s largest coverage silo: Employer-sponsored medical benefit plans.

But the longer-term risk for job-based coverage is the inability of most employers — despite their power as the largest purchasers of health care services — to stem rising health care costs. Though some very large employers that run their own health insurance plans, like Comcast and Boeing, show considerable sophistication in managing their workers’ health care bills, they are the exceptions.

Faced with these structural handicaps, employers trying to limit their exposure to health care costs fall back on a simple strategy: shifting more of those costs to their employees. That winds up increasing the number of Americans with employer-sponsored health plans who are underinsured. The Commonwealth Fund survey found that underinsured adults reported health care access and medical bill problems at nearly the same rates as adults who lacked coverage for part of the year.

Increasing underinsurance among working families should raise alarm bells for policymakers and advocates both for and against increased government involvement in health care. If employer-sponsored health insurance continues to become less and less adequate over time — and we have every reason to believe it will — the discontent of middle-class working Americans with the cost of their health care will inevitably increase.

Source: The Decline of Employer-Sponsored Health Insurance – The Commonwealth Fund

Employer-sponsored medical coverage covers as many Americans as Medicare, Medicaid and the non-group individual market combined. As such, it’s the biggest coverage silo of the nation’s multifaceted scheme to cover the costs of medical care.

According to this Commonwealth Fund analysis, the structural integrity and long term viability of that largest and traditionally quite generous of coverage silos is under enormous stress from the ever growing cost of medical care. Another appearing today in Health Affairs warns that rising medical care costs could reduce commercial medical insurance, including employer plans.

Those cost pressures could cause it to tip over. If it topples, the analysis accurately observes, it would create an environment where a wider expansion of government plans beyond Medicare and Medicaid becomes more politically possible, even probable. It could spark a consolidation of the four big coverage silos into one or two. History appears poised to turn a page over the next decade.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Analysis: Non-group market faces adverse selection failure starting in thinly populated states with repeal of ACA individual mandate

The Senate Republican plan to use tax legislation to repeal the federal requirement that Americans have health coverage threatens to derail insurance markets in conservative, rural swaths of the country, according to a Los Angeles Times data analysis.That could leave consumers in these regions — including most or all of Alaska, Iowa, Missouri, Nebraska, Nevada and Wyoming, as well as parts of many other states — with either no options for coverage or health plans that are prohibitively expensive.

Source: Republicans’ latest plan to repeal Obamacare’s insurance requirement could wreak havoc in some very red states – LA Times

A New York Times analysis finds repeal of the individual mandate would spur sales of medically underwritten and rescindable short term plans with narrower coverage benefits than mandated for non-group plans by the Patient Protection and Affordable Care Act — particularly if an executive order issued by President Donald Trump in October that would extend the current three month term limit on such policies to one year is fully implemented.

According to this article from The Hill, state regulators are worried if this plays out, non-group markets could fall into an adverse selection death spiral and collapse.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Non-group segment clouded in uncertainty amid questions of market and actuarial sustainability

Four years after the start of open enrollment under the Patient Protection and Affordable Care Act’s reformation of the non-group medical insurance market, the market’s future is clouded in uncertainty. The biggest questions are whether it can sustain itself as a market and as a functional risk pool.

First the market. Alarm bells are being sounded that that the segment will undergo buy side market failure as households with incomes exceeding 400 percent of federal poverty levels that don’t qualify for premium subsidies on state health benefit exchanges will no longer be able to keep up with large premium rate increases. This is complicated by the fact that these households perceive low value in high deductible plans that have become commonplace. Their expectations of fair value are under assault by high premiums for high deductible plans. The expectation is high premiums should have an inverse relationship with out of pocket costs such as deductibles and co-insurance as they historically have. That’s no longer the case.

Many of these 401 percenters ineligible for premium assistance have income tax incentives to continue to purchase non-group plans. For all of them, there is the stick of the tax penalty for going without coverage. For the many that are self-employed, there is the carrot of being able to deduct premiums from taxable income on their Form 1040. Both of these incentives however can only go so far if premium costs are unaffordable. The perception of poor value due to high plan deductibles might be enough to push a vacillating 401 percent plus household to make the decision to go without coverage and pay the tax penalty instead. Particularly if that self-employed household has dependent children or is comprised of adults over age 50. Premiums hit these households particularly hard since household size and age are two key premium rating factors in the non-group market.

The out migration of the 401 percenters combined with the reluctance of under 30 “young invincibles” to purchase a plan and instead pay the tax penalty would shrink and distort the non-group risk pool, calling into question its actuarial sustainability. The primary members would be adults aged 30-50 and a declining number of those over age 50 who are high utilizers of medical care eligible for premium subsidies though the exchanges or willing and able to pay rising premiums in the off-exchange market. With these populations, there may not be enough people in the pool to achieve a sufficient spread of risk among high and low utilizers to keep the segment from falling into adverse selection, further accelerating premium rate hikes.

The aversion of the young invincibles to comprehensive standard non-group plans would be reinforced under a Trump administration that’s exploring relaxing the rules governing short term “gap” policies. That liberalization would create a large degree of parity between short term and standard non-group plans. Both would have annual terms and be renewable. That would shrink the individual risk pool by providing a lower cost replacement for non-group plans for young adults and those who use little medical care, even when tax penalties for lacking comprehensive coverage are taken into account.

In sum, these factors leave the non-group market segment vulnerable to a relatively rapid unwinding over the next three or so years.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Politicians focus on wrong part of health-care problem: Advisor

Carolyn McClanahan, a certified financial planner and physician, believes there are some commonsense solutions to fixing the health-care system, and she feels the politicians are actually the problem and not the problem-solvers. “With the health-care system being so complicated, one of the problems I have is that the politicians are focusing on the wrong things,” said McClanahan, founder and director of financial planning at Life Planning Partners. “The No. 1 concern with health care right now is that we have a broken system and we need to fix the system. “And politicians are unfortunately focusing on how we pay for health care and not focusing on the cost of health care.”

Source: Politicians focus on wrong part of health-care problem: Advisor

McClanahan’s right. A far more holistic analysis is necessary whenever dealing with a complex system such as medical care costs and their financing. Since most agree costs have grown to unstainable levels and chew up far too many public and private dollars, that deserves a lot of attention. As well as thorough root cause analysis that takes into account population wellness and specifically how to increase it.

McClanahan’s thinking is on the right track. Fortunately, most people don’t need much medical care. The goal should be to ensure that cohort remains the majority and grows. We can’t get there with more medical care. Instead, more health care – engaging in health promoting behaviors and lifestyles — and developing health education and social values that support that are key.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Trump administration policy favors employer-sponsored coverage

In championing the enactment of the Patient Protection and Affordable Care Act in 2010, the Obama administration held to a bedrock policy principle of preserving the employee benefit-based system that covers medical care costs for the vast majority of Americans under age 65. That would be the least disruptive to the current scheme and thus politically viable, the thinking went. The Affordable Care Act also reinforced the role of employer sponsored medical benefit plans by requiring employers of more than 50 to offer them to most of their employees and requiring small employer plans offer specified benefits.

Trump administration policy bolsters the role of employer group coverage even more, clearly favoring it over non-group. During the past year, it has reduced funding for outreach and enrollment for individual plans sold on state health benefit exchanges while promoting enrollment in the exchanges’ Small Business Health Options Program (SHOP). Additionally, the administration has refused continued funding of subsidies to assist low income households with out of pocket costs for silver level individual plans sold on the exchanges.

Then on October 12 of this year, the administration issued an Executive Order directing federal regulatory agencies study three possible areas where employer-based coverage could be expanded by administrative rulemaking or agency guidance.

They include:

  • Expanding Association Health Plans to small employers and potentially based on industry or geographic regions. Some early analysis of this provision speculates that individuals who are self-employed with no staff could be included in the expansion, but it’s unclear whether sufficient statutory authority exists because such individuals are not employers. Initial analysis also warns that expanding these multi-employer plans could jeopardize the actuarial viability of non-group coverage.
  • Liberalizing rules governing employer-sponsored Health Reimbursement Arrangements (HRAs) to help offset employee costs for medical care, including premiums for non-group coverage. While this provision of the order recognizes a role for non-group coverage, it puts employers in a major role in sharing a portion of its costs for employees, impliedly recognizing the primacy of the employee-benefit coverage model for those under age 65.
  • Making short term medical insurance coverage for individuals available for longer than the current three months allowed under existing rules and on a renewable basis. Short term coverage tends to appeal to those between jobs and thus implicitly reinforces the dominant role of employment-based plans.
 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Federal Judge Skeptical Of Claims That Dropping Subsidies Hurts Consumers | California Healthline

In California, 1.4 million people buy their own coverage through the state marketplace, and 90 percent receive federal subsidies that reduce what they pay. During the hearing, Chhabria read from a Covered California press release that predicts how the changes will affect consumers in 2018. It notes that even though silver plan premiums will rise as a result of the surcharge, the federal tax credits will also increase to cover the rise in premiums. That will leave 4 out of 5 consumers with monthly premiums that stay the same or decrease.

Source: Federal Judge Skeptical Of Claims That Dropping Subsidies Hurts Consumers | California Healthline

The judge’s skepticism stems from the fact that most consumers who purchase coverage though California’s health benefit exchange, Covered California, are protected from higher premiums since their maximum premiums are limited to a percentage of the adjusted gross household income.

In fact, some purchasing bronze plans could pay even less or nothing at all since their premium subsidies are based on the premium rate for the second lowest cost silver individual plan sold in the state. When the premium rate for that plan increases, the amount of the subsidy available for bronze and other plans also rises since the subsidy amount is based on that higher rate as a percentage of household income. Since the higher premium represents a greater proportion of household income, the subsidy level to make it more affordable increases accordingly.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Trump administration adopts market-based statement of health care policy

Nearly nine months into his administration after many months of policy debate in Washington, President Donald Trump has issued an official statement of his administration’s health care policy in an October 12, 2017 Executive Order.

Trump’s policy is essentially not much different than that of his predecessor, Barack Obama, insofar as it retains one of the nation’s largest private sector financing mechanisms: employee benefit medical care plans. Like the managed competition principle of Obama’s Patient Protection and Affordable Care Act, Trump’s policy is market-based and aspires to harness competitive market forces to reduce medical costs and increase access to coverage.

It also mirrors the Affordable Care Act insurance market reforms by concentrating on the small employer group and individual (non-group) market segments where medical care cost pressures hit hardest. The order suggests (not orders) his administration explore allowing small employers to participate in association health plans traditionally used by large employer groups. In addition, Trump suggested his administration consider proposing regulations or revising guidance to increase the use of Health Reimbursement Accounts (HRAs) and expand employers’ ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage for employees.

The latter element closely aligns with recent legislation signed into law late in the Obama administration that enables employers to use a new type of HRA to subsidize premiums on a pre-tax basis for employees obtaining coverage in the non-group market. Effective January 1, 2017, employers of 49 or fewer employees that do not offer group coverage can fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members.

Various observers expressed concern at the executive order’s suggestion (once again couched as a request, not a directive) that the administration consider reversing an Obama administration restriction limiting short term individual medical insurance policies to a maximum term of three months and expanding the limit to 12 months or even longer. The concern is well placed because doing so would put short term plans in competition with non-group and small group plans sold with the standard 12 month coverage term.

The Affordable Care Act established ten essential benefit categories with the goal to put small group and non-group coverage on a par with large group plans. But the tradeoff for these more generous plans is high and rapidly rising premium rates and deductibles, particularly painful for households earning too much to qualify for premium and cost sharing subsidies for individual plans sold on state health benefit exchanges. However, short term plans offering skimpier coverage for lower cost won’t comply with the Affordable Care Act’s minimum coverage mandate for individual taxpayers, subjecting them to a tax penalty.

Finally, Trump’s executive order reinforces market-based approach to mediate medical care costs by requiring the Health and Human Services Department in consultation with the departments of Treasury and Labor as well as the Federal Trade Commission to produce a report by April 12, 2018 and every two years following outlining where existing state and federal policy hinders market competition. The report must also identify policy actions to reduce barriers to market entry, limit excessive consolidation and prevent abuses of market power.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Back to the future for Nevada’s Silver State Health Insurance Exchange

Nevada’s Silver State Health Insurance Exchange (SSHIX) is asking the federal government to revert from a federally supported health benefit exchange back to an independent state-based exchange. The Nevada exchange began using the federal government’s online enrollment platform soon after its own platform faltered amid technical glitches in the first open enrollment for plan year 2014.

Prompting the move is concern over service quality and rising costs. “The Nevada Exchange is set to spend an estimated $7.2 million dollars to lease HealthCare.gov’s eligibility and enrollment platform in 2018; this number represents a fee increase from the estimated $5.5 million that will be spent in 2017,” SSHIX Executive Director Heather Korbulic wrote in an October 12, 2017 report to the exchange’s board of directors. “The decrease in service and increase in cost is unacceptable.”

Following a September meeting with federal officials, Korbulic reported the exchange received approval to move forward with a “blueprint” application – a business plan to make the case to the feds that the exchange can sustain itself financially and fulfill core functions of plan selection and consumer outreach and enrollment. “This is the first step in getting the Exchange on a sustainable pathway whereby we will have our own technology with sustainable cost structures and regular access to consumer information,” Korbulic wrote.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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