Regardless of what the incoming Trump administration and Congress opt to do with the Patient Protection and Affordable Care Act’s reforms of the individual health insurance market, the segment will continue to face an existential crisis. The individual market remains the problem stepchild of health coverage, playing an important but relatively minor role in a siloed scheme dominated by employer sponsored coverage for a solid majority of those under age 65 and the big government entitlement programs of Medicare and Medicaid for most of the rest. Not to mention the other integrated government run care systems for active duty military members and their dependents and military veterans.
Given its place in the overall scheme of things, individual health insurance is the remainder market of last resort for those not covered by the dominant private and public systems. It functions as a high turnover, temporary segment that’s inherently unstable. People move in and out of coverage due to changing life circumstances or obtaining eligibility for coverage under one of the dominant systems. Others possess a deeply ingrained “culture of coping” as some have termed it to get medical care where it’s the most easily accessible and affordable such as hospital emergency departments, community clinics and free care events. That coping culture includes avoiding paying for individual health insurance, a pattern in place decades before the Affordable Care Act’s individual market reforms went into effect in 2014. It’s not going to be changed quickly even as health plan issuers are required to accept all applicants without regard to medical history and the law provides subsidies for premiums and out of pocket expenses to low and moderate income households.
That instability makes it very challenging for the basic insurance principle of risk spreading since the risk being insured against is highly dynamic. Actuaries base their projections on relatively stable risk pools and flows of premium dollars into the pool. As long as “covered lives” are moving in and out of the individual market, that desired actuarial predictability will remain elusive, the Affordable Care Act’s carrots and sticks aimed at stabilizing the pool notwithstanding.
As policymakers reassess the Affordable Care Act health insurance market reforms in the post-election period, they might well reexamine an assumption of the law that small group coverage would be eclipsed by the reformed individual market. It was expected that by making individual market coverage more like small group coverage by establishing small group plans as benchmark plans, that along with the individual market reforms would drive more people into individual coverage.
It hasn’t quite worked out that way. Even though the Affordable Care Act does not mandate they do so, small employers are continuing to offer group coverage, albeit less generous than the recent past and more akin to major medical, catastrophic plans with high deductibles. If they are offered coverage under them, employees have little incentive to enroll in individual coverage since they would not qualify for subsidized coverage sold on state health benefit exchanges.
That circumstance reduces the potential size of the individual segment and in so doing, degrades the individual market risk pool. While the Obama administration’s health insurance reforms are based on keeping employer-sponsored health benefits as the bedrock of coverage for most pre-retirement Americans, they also were aimed at revitalizing the struggling individual market. Given that employer-sponsored coverage cuts against a robust individual health insurance space, it may not be possible to have both.
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