Market Stability Remains a Work in Progress

Manatt on Health

As the 47 states, including the District of Columbia (DC), that conduct their own rate reviews continue their review processes, many have released at least some details about what insurers proposed in their rate filings for the 2019 individual market. The picture that emerges from those state announcements is like a tapestry, with each state contributing its own unique threads, but with some common themes emerging.

The 2019 rates will be the first to reflect repeal of the individual mandate penalties, which America’s Health Insurance Plans (AHIP) predicted would add a 9 to 10 percent bump in rates, and several states have seen large increases in the rates proposed by carriers. For example, New York cited repeal of the mandate as the largest factor in proposed rate increases, averaging 24 percent in the Empire State. Other states have seen more modest increases. Pennsylvania reported average proposed increases of 4.9 percent, partially because carriers were allowed to take uncertainty about the mandate into account last year, raising rates more than 30 percent on average. States with smaller proposed increases include Oregon, with increases ranging from 5 to 16 percent; Rhode Island, where the two carriers in the individual market filed for 8.7 and 10.7 percent increases; and Florida, where insurers requested an average rate increase of 8.8 percent. Still other states, such as Maryland and Virginia, have reported a much broader range of increases—from 8 to 69 percent in Virginia and 24 to 98 percent in Maryland. Tennessee insurers proposed 2019 premium changes ranging from a decrease of 10.9 percent to a 10.8 percent increase. This comes after a 57 percent increase in the average benchmark in Tennessee between 2016 and 2017 and the announcement that two new carriers plan to enter the market in 2019.

It is difficult to make generalizations about 2019 rates given the tremendous variation in rate information released to date and the fact that many states have not yet released any information. That said, the trend appears to be toward smaller increases for 2019 compared to 2018. A recent Kaiser Family Foundation (KFF) study of 12 states found half the states had increases of less than 10 percent for silver benchmark plans and only three states had increases that exceeded 20 percent. Several factors have contributed to this somewhat surprising stability in rates:

  • Insurer participation. After several years of declining insurer participation, including market withdrawals by three of the five largest national insurers, participation is improving across different carrier categories for 2019—from startups like Oscar and Bright Health, to traditional insurers like Wellmark, to fast-growing companies like Centene and Molina, both of which have successfully leveraged their deep Medicaid experience to steadily build their Marketplace footprint. Barring last-minute changes, it appears that at least 13 states will have more insurer competition in 2019 than they did in 2018.
  • Claims costs. Large rate increases in 2017 and 2018, mostly due to Trump Administration changes in Affordable Care Act (ACA) rules, have improved insurer balance sheets. Another KFF study shows improved insurer profit margins in the first half of 2018, suggesting that carriers have achieved more stable pricing in spite of the uncertainties that surround repeal of the individual mandate and other market upheavals. State regulators will be considering these financial improvements as they determine what portion of proposed rate increases should be granted in their rate approval decisions.
  • Fewer surprises. The recent suspension of risk adjustment payments and cuts in Navigator funding are a reminder that nothing is certain when it comes to ACA implementation. If the risk adjustment issue is not resolved, it could magnify insurer concerns about market stability. However, barring additional policy surprises, states should be able to complete their rate review processes on time this summer without the level of uncertainty that led to last-minute rate increases in prior years, such as the termination of cost-sharing reduction payments last year.

Challenges remain for long-term market stability

Regardless of where rates end up in each state for 2019, states will continue to face challenges in achieving long-term stability in their individual markets. Among those challenges are the following:

  • Short-term and other underwritten products. The administration is expected to release its final rule on short-term limited-duration plans in the near future. That rule could have a dramatic impact on long-term rates in states that promote short-term plans as a cheaper alternative for the young and healthy, which is why many states have already acted to limit these plans and others may act as they have the opportunity to review the final rule. For states that are so inclined, there are other potential ways to introduce underwritten products into the individual market, including the Tennessee approach of defining certain products to be exempt from insurance regulation and a revised Idaho proposal to authorize products that comply with most but not all ACA requirements. Finally, the association health plan (AHP) rule will have some impact as well, depending on state regulatory response to the guidance, though the impact will be primarily on the small group market.
  • Mandate replacement. Three states—Massachusetts, New Jersey and Vermont—and DC1 have enacted state-level individual mandates to prevent the kind of gradual erosion in their risk pools that was experienced in the handful of states that required insurers to cover all applicants prior to the ACA. Massachusetts was the only state to reverse this trend pre-ACA with an individual mandate, and now there will be at least three states testing this approach. Other states could gravitate toward a mandate if it proves successful, especially if other alternatives, such as reinsurance, are not as effective at stabilizing rates.
  • Affordability. States are wrestling with two distinct affordability issues. First, there has been a marked enrollment decrease for the unsubsidized population that has had to bear the full brunt of cumulative rate increases in the past few years. Second, enrollment by the portion of the subsidized population that is not protected against high cost sharing (those with incomes from 250 to 400 percent of the federal poverty level) has lagged far behind enrollment by those with costsharing protections. One answer is increased subsidies, but that takes new resources, which is why states are likely to look at various forms of a public option with the potential to grow enrollment and spread costs across a broader funding base.

The states are likely to have more flexibility over the remainder of the Trump Administration, leading to growing variation among the states over the next few years. For many states, 2019 is shaping up as a year of relative stability. However, the recent policy changes of risk adjustment, AHPs and short-term plans and reduced funding for Navigator grants continue to pose challenges to Marketplace stability.

1 Passed by the DC Council, but the House of Representatives recently approved a rider prohibiting DC from using funds to implement it.

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