Even health insurers that don’t expect many of their plan members to drop insurance coverage after the individual mandate penalty is zeroed out may still have to raise individual market premiums in 2019. That’s because their payments from the ACA’s risk-adjustment program will change thanks to the mandate loss.
Buffalo, N.Y.-based insurer Independent Health doesn’t expect a large number of its 5,000 ACA exchange members to drop coverage when the individual mandate penalty is effectively repealed starting in 2019. Its population skews older and sicker, and most members need their insurance coverage. Its average member is about 49 years old, and about half receive federal premium subsidies.
Even so, Independent asked state regulators for a 21.3% increase in its individual rates next year, attributing 16.6% of that figure to loss of the mandate.
Independent tends to receive millions of dollars each year through the ACA’s permanent risk-adjustment program, which is meant to keep insurers from cherry-picking healthier plan members by collecting payments from plans with lower-risk members and distributing that money to plans that enrolled higher-risk members. Independent received about $15 million from the zero-sum program to offset 2016 individual and small group costs, according to the CMS’ latest data.
Other insurers in downstate New York with healthier, younger populations tend to pay into the risk-adjustment program because they have a less risky population. But without the individual mandate, experts expect some young and healthy people to forgo coverage. Those insurers that sustain a significant loss of healthy membership because of the mandate repeal could end up seeing more risk-adjustment dollars than they had previously, or pay less into the risk-adjustment program, meaning fewer funds would go to insurers like Independent.
“This is a cascade phenomenon,” Independent Health President Dr. Michael Cropp said. Insurers “are likely to lose more membership downstate because of the loss of the individual mandate, and that’s going to dramatically impact the total pool across the state,” he explained.
The scenario Cropp described could occur in other states across the country where one or a group of insurers tends to cover meaningfully sicker people and other insurers cover meaningfully healthier people, said Matthew Fiedler, a fellow at the Brookings Institution who has studied the impact of the individual mandate on insurance coverage. Where that pattern occurs, insurers would need to price it into their premiums, he said.
“The way to think about it is, Independent is going to need to raise premiums more than the impact (of the mandate repeal) on their enrollment would suggest, and the downstate issuers are going to have to raise premiums less than the impact on their enrollment would suggest,” Fiedler explained.
The National Association of Insurance Commissioners declined to comment because they have not evaluated the mandate repeal’s effect on risk adjustment. Some insurers and legislators have doubted the impact of the individual mandate’s repeal on 2019 exchange premiums, saying the penalty for not having coverage was never high enough to encourage healthy people to enroll.
Centene CEO Michael Neidorff has said he doesn’t expect the insurer’s heavily subsidized membership to be affected by the mandate repeal.
Other insurers have factored the mandate repeal heavily into their rates. Fidelis Care, for instance, asked New York regulators to hike 2019 individual market premiums by an average 38.6% total, with 25.9% of that figure attributed specifically to the mandate repeal. Centene is in the process of acquiring Fidelis, but a Centene spokeswoman said the insurer had no say in Fidelis’ 2019 rates because the deal hasn’t closed.
In May, the Congressional Budget Office predicted that benchmark exchange premiums would rise an average 15% in 2019 largely because of the repeal of the individual mandate penalty. The agency also said the number of insured would rise by 3 million in 2019 for the same reason.
“The market as a whole is going to get sicker, and so premiums as a whole need to increase to keep pace with the fact that the market-level average risk is going to increase, even if an insurer’s average risk stays the same,” said Erin Trish, a health policy professor at the University of Southern California.
Even insurers with the healthiest members have to price their premiums with the risk of the entire market in mind because risk adjustment requires insurers to subsidize the plans saddled with the sickest members, she said.
“Even if any given insurer doesn’t actually expect their members to dis-enroll, they still have to raise premiums because this is community-rated market,” she said.