Federal Actions Further De-Stabilize Insurance Market and Foretell Premium Hikes

In late spring, insurers filed their proposed rate increases with the New York State Department of Financial Services (DFS).  The average rate increase is 24 percent in the individual market and 7.5 percent in the small group market for 2019.  These are the increases proposed before the latest news from the Centers for Medicare and Medicaid Services (CMS) revealed that the agency has put on hold $10.4 billion in risk adjustment payments for benefit year 2017.  This matters because the loss of these payments, along with the repeal of the individual mandate and the White House’s recent final rule expanding the role of association health plans, further de-stabilizes the insurance marketplace and increases premiums even more next year.

It has to do with covering the very sick and covering the not so sick.  Insurance companies need a “healthy” mix of the two in order to remain solvent and to ensure affordable premiums for all.  It’s simple economics.  Various elements of the Affordable Care Act (ACA) were intended to ensure that risk was shared and broadly distributed.

The Affordable Care Act’s (ACA) Risk Adjustment Program was one such element designed to do just that – to stabilize insurance markets by disincentivising health insurers from seeking out only the healthiest of individuals as customers.  The program guards against “cherry picking,” a tactic that ends up leaving a handful of insurers with the most costly covered members and by default the costliest premiums for all.   The Risk Adjustment Program transfers funds in the individual and small group health insurance markets from health plans with lower-risk members (the healthy) to plans with higher-risk enrollees (the sick, which includes those with pre-existing conditions).  No taxpayer money is involved.

In response to the federal government’s action, Governor Cuomo directed the DFS to implement an affordable health access action plan to expand the state’s Risk Adjustment Program, if necessary.  The idea is to ensure access to affordable health insurance, especially for those who need it the most.

CMS says it took this action due to conflicting court rulings in lawsuits filed by small insurers who claim they are being treated unfairly by the program.  The administration says its hands are tied due to the contradictory decisions stemming from federal courts in New Mexico and Massachusetts regarding the formula CMS uses to calculate the payments.  However, some legal experts say these payments are required by law and should continue.

While such uncertainty is not helpful to insurers, patients and providers bear the brunt of these actions.  Patients, especially those with pre-existing conditions such as diabetes, heart disease, cancer and any other number of chronic illnesses, could be priced out of the insurance market and unable to access care.  And hospitals, institutions that are required under federal law to treat anyone who presents at an emergency room, will receive little to no reimbursement for the care offered to those uninsured patients.

CMS’ final ruling in late June that expands the availability of association health plans also chips away at the stability of the insurance markets, patients’ access to care, and hospitals’ ability to care for the uninsured and underinsured.  The association health plan rule allows unrelated businesses or groups of individuals to form groups to purchase health insurance across state lines, without a requirement to offer products that adhere to the current ACA’s minimum standards of coverage.  In other words, plans could skimp on covered benefits and charge members differently, depending upon health status.  That raises premium costs for employers and employees.  Although New York State has robust consumer and provider protections in place, this new rule, effective September 1, 2018, will challenge the state’s ability to regulate these plans.

The repeal of the penalty for not complying with the individual mandate is almost universally cited by insurers operating in our state as the reason why the average rate increase (24 percent) requested for the individual market is so steep for 2019.   Repeal of the penalty and, in effect, the individual mandate to carry health insurance, was contained in tax reform legislation passed late last year.  The state will review requested rates this summer and has the authority to change the requested amounts.  The approved rates will be announced in the fall.

New York State notes that since the implementation of New York’s own health insurance exhange, the state’s uninsured rate has halved.  That is progress and good news for New Yorkers.  More insured patients is also good news for providers.  However, the elimination of the individual insurance mandate undermines the fundamental balance of interests and economics agreed to in the ACA. The hospital sector agreed to hundreds of billions of dollars in federal Medicare and Medicaid cuts, over the course of 10 years, to help fund the law.  Insurers agreed to underwriting restrictions in exchange for the promise of a diverse pool of new customers.  Consumers and employers would get access to affordable coverage in exchange for the mandates to purchase insurance.  The ranks of the insured would swell.

By chipping away at the individual mandate, risk adjustment programs and coverage requirements, the law is significantly weakened.  Soaring premiums for plans in the exchange are but one consequence of these actions.

The current administration’s actions do nothing to reduce health insurance costs for Americans or enhance access to care.  Instead, these actions move us backwards and hamper hospitals’ ability to provide affordable care to all.