No wonder there’s a gloomy buzz going around about next year when it comes to health insurance: Two Obamacare subsidies will end and premiums in many places are set to soar.
The absence of the reinsurance program will cause insurers to set premiums an average of 26 percent higher to avoid losses, one report finds.
Health care premiums in 2017, in other words, are a ticking time bomb.
The subsidies made health insurance via the Affordable Care Act more “affordable” for enrollees and less risky for insurers. At least that was the plan. There were three programs to stabilize premiums and mitigate insurers’ risk — risk adjustment, reinsurance, and risk corridors. The risk adjustment is permanent, but reinsurance and risk corridors were only available from 2014 through this year.
“In general across the three risk programs, some insurers pay into the programs, while others take out,” Cynthia Cox, who studies ACA for the Kaiser Family Foundation, said. “The insurers with healthier, lower cost or lower risk enrollees pay into the pot — while insurers with sicker, higher risk, or more costly enrollees take out of the pot.”
So what’s going on for 2017? A report from the Mercatus Center at George Mason University noted that the absence of the reinsurance program will cause insurers to set premiums an average of 26 percent higher to avoid losses. (Even with the reinsurance program, they still reported losses.)
“Our findings raise serious questions about the ACA’s future, particularly when the reinsurance program ends and premium revenue must be sufficient to cover expenses,” Brian Blaise, one of the report’s authors, wrote in Forbes.
Disaster by the Numbers
In 2014, net reinsurance payments received by individual market Qualified Health Plans (QHPs) — those that were ACA-compliant and allowed to be sold via exchanges — were $6.7 billion. That gave insurers an $833 subsidy per enrollee, he said.
Insurers also got front-end subsidies to make plans more affordable for people, as well as an individual mandate penalizing people who would not buy their product.
Obamacare created a “false and moral hazard-ridden insurance model for the private insurers that offered coverage,” one expert said.
“Since reinsurance payments accounted for such a large share of premium revenue in 2014 and insurer performance offering QHPs does not seem to have improved yet, average premiums will likely go up considerably next year,” Blaise wrote.
A recent KFF report that Cox co-authored said premiums for the second-lowest silver plan could go up 10 percent on average in 14 metropolitan areas. About 68 percent of people on exchanges choose silver plans, they say. Prices for the lowest cost silver plan will go up in 12 out of 14 markets checked and could go up by 26 percent, on average, in Portland, Oregon.
“There is substantial variation across markets, with premium changes for second-lowest silver plans ranging from a drop of 13 percent to an increase of 18 percent,” the report states. Premiums for 2017 aren’t set in stone just yet.
Cox doesn’t think premium increases will affect most marketplace enrollees because of the remaining subsidy program in place. “As long as they are willing to shop around for coverage, the amount they pay is capped at a certain percent of their income,” she said.
About 10 million people will receive subsidies for plans sold on and off the exchanges in 2017 — and 26 million will remain uninsured, the Congressional Budget Office estimates.
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Hazards Abound
Stephen T. Parente, director of the Medical Industry Leadership Institute at the University of Minnesota’s Carson School of Management, said fewer people will have coverage in 2017 because premiums are unaffordable. The subsidies delayed the inevitable reality of soaring premiums. They also created a “false and moral hazard-ridden insurance model for the private insurers that offered coverage,” he told LifeZette.
He said most Americans are not willing to see the distinction between a health plan with a low copay and health insurance for catastrophic risks.
Similar to how auto insurance works, people who want more comprehensive coverage have to be willing to pay for it. Americans understand this when it comes to car insurance — but they are “are generally unwilling to accept it with health in part because policy makers have politicized this as a right for so long they believe it is different,” Parente added.
Related: Remember Obamacare’s Big Selling Points?
Skimpy Savings?
The HHS and Internal Revenue Service are reaching out to millions who paid fines or claimed exemptions from doing so in order to lure younger, healthy people into the pool to offset premium increases and burdens on insurers. Most of these people were under the age of 35 in 2014.
Just 28 percent of marketplace enrollees are 18 to 34 years old, KFF reported.
HHS, the Department of Labor, and the Department of the Treasury issued regulatory guidance encouraging employer-sponsored health plans to promote marketplace options for people who will age out of their parents’ health insurance — another ploy to bring in healthier young adults.
If there’s one beacon of hope for saving a few bucks on health plans in 2017, it’s the suspension of the ACA health insurance fee. That was signed into law in 2015 and will save insurers about $13.9 billion — largely offsetting losses felt by the reinsurance program. It’s unclear if that would hike premiums less than originally estimated. The fee is set to be reinstated after the year ends — so expect costs to rise once again.
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