Image courtesy of Xavier J. Peg

Health Insurers Looking To Charge Higher Individual Premiums In 2018. Which Americans Will Be Hit Hardest?

With the state of the Affordable Care Act and billions of dollars in subsidies still in doubt, several insurers are raising rates in expectation of possible turbulence.

Health insurance companies that sell individual coverage plans through state exchanges are currently in the process of setting the rates they will charge customers for 2018. And the uncertainty over the state of America’s health care laws and President Trump’s repeated threats to summarily cut off billions of dollars in federal subsidies to insurers has many of these companies asking for significant increases. But not everyone would have to pay those higher prices, and some could actually end up with slightly lower premiums than they pay now.

Insurers have to lock in their rates in the coming weeks with each of the states in which they sell coverage, so that the prices are all set when 2018 plans go on sale Nov. 1 through Dec. 15 (which is a much narrower window of time than in previous years).

Researchers at the Kaiser Family Foundation looked at insurers’ 2018 rate requests (all final rates must be approved by the states) in the 20 states and the District of Columbia that make this preliminary information publicly available. They compared current costs and proposed rate changes on the second-lowest cost “Silver” plan — which is the benchmark for setting tax credits and accounts for a large number of people in the individual market — in the largest city in each state.

Price Hikes Coming

[NOTE: All the rate quotes that follow are based on the price that a 40-year-old non-smoker would pay in each market.]

Insurance companies in 15 of these 21 markets are seeking rate increases that are at least 10% higher than their current level, with some premiums looking to jump as much as 49% (in Wilmington, DE), bringing the monthly premium (before tax credits; more on that in a bit) to $631, up from its current level of $423. Other large proposed rate hikes come from Albuquerque (up 34%), and Richmond, VA (up 33%).

Four markets (D.C.; Atlanta; Detroit; Minneapolis) only face single-digit percent hikes in the costs of these plans, and a fifth, Burlington, VT, should see no change in price in 2018, though premiums in Burlington would remain one of the highest on this list (see next paragraph). Only Providence, RI, is expected to see a drop in premiums for the popular plans — a 5% decrease from $261 to $248.

If Delaware were to approve the price hike, the $631 monthly premium would be the highest of the 21 markets in the Kaiser survey, followed by Philadelphia ($515; a 23% hike), Nashville ($507; up 21% from 2017), New York City ($504; a 10% increase), and Burlington ($491).

Tax Credits Mean Not Everyone Will Pay More

According to Kaiser, 84% of Americans who purchase insurance through the exchanges receive some amount of tax credit to help cover the costs of their insurance premiums. These credits, which are based on household income, put a cap on the amount an insured person pays out-of-pocket each year.

For the purpose of the Kaiser analysis, they assume that this 40-year-old non-smoker is single and earns $30,000 per year. For 2017, this person’s premium costs are capped at $207/month, with the tax credit covering the difference between that cap and the sticker price of the plan. For 2018, premiums for this same person should actually be capped at an even lower rate ($201/month), regardless of whatever increased cost the insurer charges.

The farther above the poverty line a person (or family) is, the higher their monthly cap, but anyone purchasing insurance through the exchanges who is below 400% of the federal poverty level (FPL) is eligible for some amount of premium tax credit intended to shield them from soaring rates.

So Who Will Pay More?

Not everyone purchasing individual insurance plans fall within the income eligibility range for the tax credits. For instance, a single person with no children earning more than $50,000 a year would make too much money to qualify. In a city like New York or Los Angeles, where there are large numbers of well-paid freelance workers who don’t have employer-sponsored insurance, you’ll see folks having to pay the full sticker price for coverage.

In all, there are about 1.62 million people currently enrolled in exchange plans that aren’t receiving any tax credits to cap their premium payments. These folks will be shouldering any additional rate hikes for 2018.

And they won’t be alone. There are around 5 million Americans who purchase individual plans outside of the exchanges, meaning their plans are not eligible for the credit and will pay sticker price regardless. It’s possible that many of the people in this category are above the 400% FPL threshold anyway, so it doesn’t matter to their bottom line where they purchase coverage.

Disappearing Act

A lot has been made in the recent debate about repeal of the Affordable Care Act regarding the shrinking number of insurers willing to participate in the exchanges. In the 21 states surveyed by Kaiser, an average of 4.6 insurance providers expect to sell these policies in 2018, down from an average of 5.1 last year, and the high of 6.7 in 2015.

Having multiple providers in a market helps by not only ensuring that residents will have access to quality insurance, but that these providers are competing against each other on price and service.

Of the 21 states in the Kaiser report, about half are seeing insurance companies exiting the exchange entirely, though in some cases the loss of one provider is being offset by the entry of a new insurer.

Delaware, which is expecting to see the highest premium increase of these states for 2018, is also going down to just a single insurer offering plans in the state after Aetna decided to exit this market. Vermont, where premiums are high but remain flat, has only two providers selling insurance through the exchange. D.C., Connecticut, and Rhode Island also only have two options for their residents.

New York remains the state on this list with the largest number of providers (14), followed by California (11), and Michigan (8, a decrease of one because of the loss of Humana). Though it’s worth noting that that the total number of insurers available in a state isn’t necessarily the number of options available to everyone in that state. In California, for example, insurance giant Anthem has announced its intention to exit large swaths of the state, meaning residents of those areas will have fewer providers to choose from.

Uncertainty Abounds

Why the higher than usual rate hikes? The insurance industry is blaming the widespread uncertainty about the future of American healthcare laws and regulations.

INDIVIDUAL MANDATE
Under the Affordable Care Act, most people are required to purchase some form of qualifying health insurance coverage or pay a financial penalty. This so-called “individual mandate” is one of the more controversial aspects of the ACA and it’s one of the few aspects of the law that has been common to all Republican repeal bills.

Before the ACA, the individual insurance market had a reputation of being a high-cost, high-risk business, with large numbers of policyholders paying for expensive coverage because it was still less expensive than going out of pocket for their costly medical expenses.

The intention of the individual mandate was to nudge all adults — particularly younger, healthier Americans — into purchasing insurance they would have otherwise gone without. The hope was that a larger, less-risky pool of insured people would allow plans to be sold at a more affordable rate.

In terms of changes that many people liked, the ACA significantly improved the mandatory level of coverage provided by these individual plans. Insurers can no longer exclude or limit coverage applicants with pre-existing conditions; they must provide a suite of essential health benefits; dependents can now stay on parents’ plans until the age of 26; and insurance companies are now required to account for how much of their premium revenue is actually spent on providing patient care — if a company doesn’t spend enough of that money in a year, it has to issue refunds to policyholders.

The various GOP repeal bills all sought to eliminate the individual mandate, but many of these bills left in (or revised without eliminating) the aspects of ObamaCare that are popular with voters. From a political standpoint, it made sense: Get rid of the easy target that makes people made, and keep the stuff that people want. The problem is that the former is intended to pay for the latter.

The Congressional Budget Office, consumer advocates, healthcare providers, and the insurance industry repeatedly warned GOP lawmakers that eliminating the individual mandate while retaining these new coverage requirements would cause large numbers of healthy people to drop their insurance, driving up costs and premiums for those who remain. It would also likely result in an even faster exodus from the exchanges, argued some.

While the repeal efforts stalled in July when the Senate was unable to muster enough votes to pass its bill, it’s highly likely that repeal legislation will continue to be considered after these insurance companies have locked in their rates for 2018. That means that these insurers have to set a premium for a year in which it’s entirely possible that the individual mandate could be dropped.

The President has also previously directed the Department of Health and Human Services to consider whether it should continue enforcing the individual mandate, meaning the White House may try to eliminate or soften this requirement without help from Congress.

In the Kaiser report, 25 insurers in 12 states explicitly indicated in their rate filings that their rate request is based on the assumption that the individual mandate would either be dropped or weakly enforced. Still others told states that they would seek higher rates if the mandate were eliminated. In some states, insurers are blaming premium rates of up to 20% on the uncertainty about the mandate.

SUBSIDY PAYMENTS
In addition to the premium tax credits, the federal government provides insurers with billions of dollars a year in subsidies to reduce out-of-pocket medical costs beyond premiums, like co-pays and deductibles. These cost-sharing reduction payments — estimated at around $7 billion this year — help to lower the cost burden for about 57% of enrollees who purchased insurance through the exchanges.

President Trump has repeatedly decried these subsidies, referring to them publicly as “bailouts” for the insurance industry. The White House has also made multiple statements that the President can, and might, cut these payments off at any time he chooses.

Meanwhile, House Republicans have been challenging the legality of these subsidies in court for several years, arguing that President Obama sidestepped necessary appropriations processes. That dispute, which could also end the subsidies, is currently before a federal appeals court, which recently allowed a coalition of states to step in to defend the payments since the Trump Administration has given no indication that it intends to continue this defense.

And once again, a number of the insurance companies in the Kaiser survey are telling the states that they are basing their 2018 premiums on the possibility that these payments could end, with multiple providers saying that this lack of certainty is responsible for rate hikes of 20% or more.

Additionally, there are insurers whose rate request are not currently based on an assumption of lost subsidies, but who have told the states that they intend to tack on an additional 3% to 10% beyond their initial requests if the payments are eliminated.

“Some states have instructed insurers to submit two sets of rates to account for the possibility of discontinued cost-sharing subsidies,” notes Kaiser. “In California, for example, a surcharge would be added to silver plans on the exchange, increasing proposed rates an additional 12.4% on average across all 11 carriers, ranging from 8% to 27%.”

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