Featured Health Business Daily Story, March 20, 2017

What Role Will Carriers Play in Trump’s ACA Replacement Plan?

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry. Subscribe today!

March 6, 2017Volume 27Issue 8

Leaders from some of the nation’s largest health plans, along with the industry’s two trade groups, turned up at the White House on Feb. 27 to meet with President Trump — and his recently confirmed HHS secretary — to discuss replacing the Affordable Care Act (ACA) and strategies to stabilize the market in the short term.

Trump offered scant details of the legislation he envisions will replace the law other than to say it’s “going to be, I think, fantastic,” according to a transcript of his remarks posted by the White House.

The president said his vision for an ACA replacement includes expanded health savings accounts (HSAs), greater state flexibility and the ability to purchase coverage across state lines, which he suggested would improve competition among carriers.

Health Plan Week

Trump predicted 2017 would be a “catastrophic year for Obamacare, for payments,” and acknowledged that by taking on health reform, the issue is now owned by Republicans. Trump said HHS Sec. Tom Price intends to work with the industry to steady the markets and ensure “a smooth transition” to the ACA replacement.

Florida Blue CEO Pat Garrity declined a request to comment on the meeting, but a spokesperson said he maintains a desire to work closely with federal and state administrators. In an opinion piece published late last year in the Miami Herald, Garrity noted that his company covers about 700,000 people in the individual market. Statewide, about 90% of people in the individual market receive federal subsidies, he said.

Still, the Republican-led Senate will need to woo at least eight Democrats to support a bipartisan bill, and that’s assuming all Republicans are able to agree on a bill. But to win Democratic support, the legislation would need to focus on improving the existing law rather than scrapping it, says industry consultant Robert Laszewski. And Congress also will need the insurance industry to embrace any changes.

But how much influence will carriers and their lobbying arms have on an ACA replacement plan, or on fixes to the existing law? The health insurance industry was instrumental in derailing President Bill Clinton’s health reform efforts. And while insurers worked with the Obama administration and Democratic lawmakers to craft the ACA, the insurance industry helped torpedo the idea of a competing public insurance option.

Big Rate Hikes Are Likely

During the development of the ACA, carriers came to the table wondering how they’d survive if the exchange population was sicker than actuaries predicted. The risk-mitigation programs outlined in the ACA — reinsurance, risk corridors and risk adjustment — helped to make a risky market attractive to insurers. But in late 2014, Congress approved the so-called omnibus budget agreement, which essentially gutted the risk-corridors program by making it budget-neutral. Assurances that the federal government would protect carriers from deep underwriting losses for the first three years of the marketplaces evaporated.

“If the government wants insurers to continue to participate, [it] will have to enact a guarantee against adverse selection, again…and probably sweeten the pot by reducing some of the duplicative reporting and rules insurers now suffer under,” says William DeMarco, founder and president of Rockford, Ill.-based Pendulum HealthCare Development Corp.

Laszewski expects that most, though not all, existing carriers will continue to sell coverage through the exchanges for 2018. Blues plans, he predicts, will be compelled to stay on as the carriers of last resort. However, carriers that opt to continue will be very conservative in setting rates, plan designs, deductibles and market breadth to avoid even worse losses, he says. That would hit the off-exchange market particularly hard given that these people don’t receive federal subsidies.

In its Feb. 15 proposed market stabilization rule, HHS addressed a number of industry-supported tweaks, such as allowing carriers to end coverage if premiums aren’t paid after 30 days rather than three months. To encourage carriers to stick with the exchanges, HHS also said it would extend the 2018 rate-filing deadline from May 3 to June 21. The administration also is delaying a ruling on House v. Price (previously House v. Burwell), the lawsuit that threatens to eliminate federal cost-sharing reductions (HPW 2/13/17, p. 1). The moves, while important, might fall short of encouraging carriers to participate on the exchanges in 2018.

Despite some large rate hikes between 2016 and 2017, Laszewski says premium increases for 2018 will probably still fall short of covering claims for most carriers. “We are seeing a slight deterioration in the number of people enrolled [through exchanges], and likely a bigger deterioration in the number of people enrolled in the off-exchange pool that makes up almost half of the market,” he explains.

The biggest short-term problem for Republicans is to stabilize the existing exchange market. Laszewski notes that enrollment in the individual market, both on and off the exchanges, is shrinking.

“About all the Republicans are saying is ‘Obamacare is in a death spiral.’ Well, then why do they think it isn’t in need of emergency care to keep it afloat until they have their replacement in place?” he asks. “The Republicans will have a market collapse on their hands if they don’t move to stabilize the existing law in the period before any new scheme can be launched,” he tells AIS Health.

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