As insurers wait to see the vote outcome on the Republican tax bill, and its provision for the repeal of the individual mandate of the Affordable Care Act, they're already trying to calculate the rate at which they'll have to raise premiums to keep themselves solvent.
Modern Healthcare reports that insurers are thinking ahead to the spring of 2019, when initial requests for 2019 individual market coverage will come due.
The repeal of the mandate is looking like a done deal, which, according to industry experts, will lead younger, healthier people to drop their coverage, leaving sicker, more expensive and heavily subsidized members of the population to seek policies from insurers.
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How scary is that? Well, the Congressional Budget Office has projected that 4 million people would drop their health insurance plans in 2019, rising to 13 million by 2027. Insurers would have to raise rates significantly, says the report, to cover the cost of insuring a sicker population, while some insurers would probably stop selling coverage altogether.
It would be "a little bit like insuring only burning houses," Chet Burrell says in the report. Burrell, the CEO of Blues insurer CareFirst — which has already lost north of $600 million on its individual ACA plans from 2014 through 2017 — adds, "When you insure a whole geographic region of houses, it's one thing. When you insure only those that are burning, it costs a bloody fortune."
The $695 penalty paid by those who don't buy coverage under the mandate is what has helped keep the market, including the ACA exchanges, from collapsing. It isn't popular, but it is an essential piece of the whole puzzle.
Among exchange customers, about 84 percent — approximately 8.6 million people — got a premium tax credit in the first half of 2017. That helps lower the cost of premiums for people with incomes up to 400 percent of the federal poverty level.
What the loss of the mandate will do to individual insurers depends on the mix of its customers. The report points out that Blue Cross and Blue Shield plans bring in a higher-income population, many of whom don't get those premium tax credits. So the repeal of the mandate could mean a loss of lots of healthy members, which means plans like CareFirst may have to raise rates significantly to cover them. That in turn could result in remaining unsubsidized members dropping their coverage rather than paying such high premiums.
On the other hand, an insurer like Centene isn't as concerned over a potential loss of the mandate, since its predominantly low-income, heavily subsidized population will keep its insurance without it. Federal tax credits grow as premiums rise, protecting members with subsidies from premium increases. In fact, such insurers could actually boost their market share, as other companies exit the market or lose members to premium hikes.
Of course, there's the possibility that states will step in with their own mandates, but that wouldn't be a popular move either. More likely is that insurers will be looking for reinsurance programs. And if Congress feels pressured enough, it might actually boost the odds that a reinsurance fund could be approved.
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