GOP repeal-and-delay plans spell uncertainty for insurers
As the cost of premiums on the individual insurance market have risen year after year, Republicans have put the blame on the Affordable Care Act (ACA). Now, with control of Congress and the White House on the horizon, they have an opportunity to implement their healthcare agenda. Senate Majority Leader Mitch McConnell (R-KY) confirmed in a press conference on Monday Congress will begin the process of repealing the ACA shortly after it convenes on January 3, 2017. Unfortunately, without a clear replacement plan, conditions in the individual market are likely to get worse before they get better.
Dissecting the Affordable Care Act
The first step for Republicans is repeal. “We know what repeal means,” said Tom Bulleit, a Washington, D.C.-based attorney with Ropes & Gray, which has worked with various healthcare organizations to navigate policy changes enacted during Barack Obama’s presidency. “It means subsidies for the ACA markets go away and that suggests the markets themselves go away.”
Without the 60 votes required for full repeal of the ACA, Republicans will likely use the budget reconciliation process to target ACA provisions that provide federal funding. However, to complicate matters just for fun, some Republicans, including president-elect Trump, have announced support for various provisions in the ACA. Even if Republicans could achieve full repeal, it isn’t clear that this is an approach they would take. “They want to take away the spinach and leave the candy,” Bulleit said. “The effect is pretty simple: It’s going to cost more.”
Provisions like the individual mandate, although unpopular, are intended to keep costs low by ensuring enough healthy patients enroll through the individual market to cover costs of patients who require more treatment than their premiums cover. As it currently stands, part of the problem with the individual market is that fewer healthy people have signed up for insurance than initially expected.
Without provisions like the individual mandate, there are fewer incentives for healthy patients to actually sign up. If healthy patients leave the individual market or if patients only sign up when they are sick, costs for treating patients in the individual market will rise. This could send individual insurance markets into a “death spiral.” Enrollment numbers drop as premiums rise, causing premiums to rise even more, and the cycle repeats itself.
Mathematics of Republican health reform plans don’t add up
Assessing Republican plans is difficult because they haven’t developed consensus around specific legislation to overhaul the healthcare system. However, their plans generally include a combination of ideas to allow interstate health insurance sales, to offer tax credits to cover the at least some of the cost of health insurance premiums, and to block-grant Medicaid to the states. If Republicans enact health reform that includes some of these ideas, it is unlikely to reduce costs enough to eliminate the need for subsidies, according to Bulleit.
“The spike in premiums that caught so much attention was, in my view, the product of reduction in federal funding,” said John Chesley, a San Francisco-based attorney with Ropes & Gray. “Much funding has not been perpetual and was intended to taper off as insurance pools grew.”
Chesley is referring to funding for market stabilization programs like risk adjustment, reinsurance, and risk corridors. These programs reduced the financial risk for payers to take on sick, high-cost patients. At the time the ACA was written, legislators had assumed enough healthy patients would enroll in the individual market to cover costs within a few years.
Their assumption was wrong, which is causing premiums to rise now. The Obama administration has attempted to fight rising premiums by encouraging more people to sign up for insurance. However, a similar push to expand coverage by a Republican administration is unlikely. Republicans could address rising premiums by reinstating and funding market stabilization programs, but there isn’t much motivation for them to fix the ACA exchanges.
Payers likely to proceed with caution
With so much uncertainty surrounding Republicans’ plans for health reform, payers are having a difficult time planning for the future. “It’s hard for insurers to know how the market is going to change over the coming months and years,” said Ira Parghi, a San Francisco-based attorney for Ropes & Gray.
Like most of the nation, many payers expected Hillary Clinton, the Democratic nominee for president, to win the recent election. Even without a Democratic majority in Congress, Clinton would have used the influence of the executive branch to enact fixes to ACA exchanges and countered Republican efforts to dismantle the law.
Even though many payers were losing money on health plans sold on the ACA exchanges, it seemed many had been willing to continue their participation because they believed the next president would help to stabilize the individual insurance market, according to Chesley.
He pointed to one Ropes & Gray client that had been an active participant in the ACA exchanges. The client had planned to explore new markets and to introduce new products, However, with unknown changes on the horizon, the payer is “taking a serious pause” and stepping back from that strategy, Chesley said.
There will likely be other consequences to uncertainty created by the unexpected results of the election, according to Chesley. “Whenever there is a substantial amount of uncertainty, you see a couple of effects: a chilling effect on deal making and a reluctance to invest new capital.”
Payers might flee insurance exchanges if Republicans repeal the ACA with no replacement plan implemented at the same time, causing significant disruption in the individual insurance market, according to a recent analysis from the American Academy of Actuaries (AAA).
One topic recently coming across the wires is the idea of GOP "bailing out" the insurers to stabilize the market, an idea they were strictly against during the Obama administration. It's unclear if such a strategy would work without getting politically dinged.
For now, it appears that Republicans will proceed along a path that keeps some elements of the ACA or delay full repeal. This approach will not do much to stabilize the individual insurance market. A policy like guaranteed issue that requires payers to sell health plans to patients with preexisting conditions is popular, but it doesn’t mean much if there are no payers sticking around to sell plans on the ACA exchanges, Bulleit said.
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