Health insurers are planning to expand in Obamacare amid rising profits, but the trend is coming at the expense of higher premiums for certain customers.
Premiums are expected to rise by an average of 15 percent for customers whose incomes aren’t low enough to qualify them for subsidies, according to early estimates from Avalere Health.
Still, the entrance by insurers into Obamacare is a reversal from years of exits. Health insurers were fleeing Obamacare in droves around this time last year, and it looked as though people in as many as 47 counties would have no options for coverage.
The Trump administration and Republicans have made several changes to Obamacare since then that Democrats call “sabotage.” President Trump ended payments to insurers, the GOP tax law will end the requirement in 2019 that people must buy health insurance or pay a fine, and people soon will be able to buy less-expensive coverage that doesn’t follow Obamacare’s rules.
Yet, the Obamacare exchanges are showing an unexpected trend: No empty counties have been reported. Not only are insurers not leaving, but they’re also expanding or returning.
“It’s almost a complete 180 of where we were last year,” said Cynthia Cox, director of the Study of Health Reform and Private Insurance program at the Kaiser Family Foundation. “We were counting how many counties would have no insurance companies and companies were exiting.”
It’s too early to determine how many insurers will sell Obamacare coverage, because contracts between states and health insurers won’t be finalized until the fall and not all applications have been submitted.
But having more insurers gives consumers more options, and may include coverage for doctors or hospitals they prefer. It also has the potential to offer more competition that could help keep prices down. For customers who like their coverage, a lack of insurer exits means they can keep their plan and won’t have to find new doctors.
“That is good for consumers,” said Katherine Hempstead, senior adviser to the executive vice president at the Robert Wood Johnson Foundation. “Everybody in business does better when they have competition.”
Oscar Health is planning to expand to three new states. Centene has filed in North Carolina and Tennessee. Wellmark Blue Cross and Blue Shield has filed to come back to Iowa. Molina is planning to re-enter Wisconsin and Utah, and Medica has applied to Oklahoma.
Sen. Tom Cotton, R-Ark., who pushed for the repeal of the fine on the uninsured, known as the individual mandate, said the latest trend suggests that Democrats exaggerated their predictions.
“It’s good insurers are offering more plans this year, and it underscores what most Americans already knew: The mandate was a tax on people who couldn’t afford Obamacare, and, despite what the Chicken Littles in the Democratic Party said, it was entirely unnecessary,” he said.
The trend isn’t what many observers predicted would happen a year ago.
The American Academy of Actuaries, several insurers, and insurance officials predicted that insurers would consider fleeing the exchanges if the individual mandate were gutted.
The latest trends are “surprising,” the National Association of Insurance Commissioners says, but the group points out that there were many unknowns a year ago. Republicans were still working on repealing Obamacare. And it wasn’t clear the Trump administration would uphold the law and whether CSRs would be paid until the president ended them in October.
“There was a possibility that we could still have instability,” according to NAIC.
Experts say part of what is driving the expansion is that insurers are finally making a profit in the exchanges. That began in 2017, and the first quarter of 2018 shows insurers are on track to see their most profitable year yet.
Observing that insurers are making a profit is “certainly what is making other carriers want to go in there and take a little bit of that margin,” Hempstead said.
Cori Uccello, senior health fellow at the American Academy of Actuaries, said insurers have been increasing premiums to a level that more accurately reflect their costs.
“They are setting rates more appropriate to the underlying claims, and getting more experience over the years in understanding the population,” she said.
America’s Health Insurance Plans, the insurance industry’s top lobbying group, pointed out that insurers are required to spend 85 percent of the premiums they collect on the cost of healthcare and that other uncertainties remain. For instance, the Department of Justice is asking courts to strike down Obamacare provisions that protect people with pre-existing conditions such as cancer or diabetes from being turned away for coverage or from being charged more than healthier customers.
“While you might see some short-term profits in some markets, insurance providers have collectively lost billions on the individual marketplace since the exchanges were implemented,” said Cathryn Donaldson, spokeswoman for AHIP. “Several recent policy developments perpetuate uncertainty that makes it difficult for insurance providers to rely on the rules of the road staying the same for future years.”
The fact that insurers are seeing more profits, however, doesn’t necessarily translate to less costly options for consumers. NAIC cautioned that even though the market may be more “stable,” that tends to mean that insurers aren’t pulling out and that rate increases are rising only moderately, as they are in some states.
“That’s stability, it’s not necessarily affordability, especially for the unsubsidized population,” NAIC said.
The Republicans’ changes to the law are expected to cause healthier customers to flee and prices to rise for those who remain. Proposed premiums for mid-level plans, or “silver” plans, are expected to increase from an average of $642 per month to $740 per month, according to Avalere.
“What appears to be happening is that instead of pulling out of the market, insurers are increasing their premiums to reflect in part the deterioration of the risk pool that could result from eliminating the penalty,” Uccello said.
How much customers pay for the plans depends on whether they smoke, how old they are, where they live, and whether their income is low enough to qualify for subsidies, or less than roughly $48,000 a year for an individual.
To reduce premiums, AHIP is asking Congress to suspend taxes on the industry and to pass reinsurance, which would help pay for the costs of particularly ill and expensive enrollees. AHIP has noted that reinstating cost-sharing reduction payments to insurers could help, as well as some type of mechanism to replace the individual mandate.
“We believe that incentives to promote participation — particularly among younger, healthier individuals — are crucial to create a balanced risk pool and well-functioning market,” Donaldson said.
But costs won’t rise or everyone. Insurers have been able to offer less expensive coverage to certain customers because of the way they structure their plans. Because federal subsidies are based on a formula tied to price of a silver plan, by increasing the sticker price on silver plans, insurers are effectively increasing the federal subsidies. The move, known as “silver loading,” allows certain customers to pay little to nothing for coverage of cheaper “bronze” plans — or even makes “gold” plans an affordable option in some cases.
Cox said that mechanism likely played a large role in customers signing up for Obamacare for 2017.
“The loss of the CSRs played out in a way that insurers were able to remain profitable or in some cases become more profitable,” she said. “Insures have figured out they can price relatively high on the exchange and not lose too many customers.”
The move by insurers is more expensive to the government than paying the CSRs would have been, and it still leaves people who do not receive subsidies in a bind. To help that group, the Trump administration is offering short-term plans and association health plans, which are less expensive but cover less medical care. Some customers are turning to Christian sharing ministries, which don’t offer any guarantee that medical costs will be paid.
Customers in the toughest spot are not only unsubsidized but unhealthy, because they need Obamacare’s more robust coverage, NAIC said. There are signs that the exchange’s population is sicker: Kaiser Family Foundation found more claims filed for hospital visits. Cox said that “suggests the risk pool is worsening but not so much that it’s making it unprofitable.”
“It’s going to be the sick and subsidized,” NAIC said of the customers who continue to enroll in Obamacare. “That’s going to be pretty much predominantly the … market, especially if these other alternatives continue to grow.”
