Tag Archive: short term policies

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. This would effectively unwind the Affordable Care Act’s reforms and return to the period preceding 2014 when plan issuers limited benefits and employed medical underwriting as strategies to cope with rising medical treatment costs. The question is whether these pre-reform strategies will sufficiently mitigate those costs in order to avoid the adverse selection that threatened the market segment’s viability pre-2014.
 


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. 

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. 

%d bloggers like this: