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Premiums Likely to Rise, More Insurers Will Leave Exchanges

Analysis  |  By Gregory A. Freeman  
   April 05, 2017

Now that health plans have a better understanding of what it is required to do business under the Affordable Care Act, they are likely to increase premiums and more will pull out of the exchanges, some analysts say. They also question the viability of the individual market.

Uncertainty is now the driving factor in the healthcare insurance industry, but in the short run, plans are searching for ways to be successful under the Patient Protection and Affordable Care Act, which remains in place, for now.

It's an interesting time for the industry, says Michael A. Morrisey, PhD, professor and head of the Department of Health Policy & Management in the School of Public Health at Texas A&M University. The demise of the repeal and replace effort in the Congress leaves health insurers in a state of considerable uncertainty, he says.

"Last year insurers finally got a handle on the true nature of the claims experience they had in the exchanges. As a result, this year more insurers moved to offering only narrower panel HMOs, many left the exchange markets altogether, and others raised premiums, sometimes dramatically," Morrisey says.

"The uncertainty is whether the narrower networks and premium increases are enough to cover the claims experience. If not, I think more insurers would exit the exchanges and premiums will rise."

The new administration raises the degree of uncertainty exponentially, he says, citing several areas of concern.

If the funding for the low-income cost sharing subsidies is withdrawn, many people currently covered by the exchanges are likely to allow their coverage to lapse, Morrisey explains, and these are likely to be the healthier enrolled consumers.

"Similarly, if the administration chooses not to enforce the penalties for non-enrollment, many of the disproportionately healthy among the current enrollees will likely drop coverage," he says. "Tinkering with the benchmark definition of the essential health benefits is a more complex problem. Insurers would struggle to cost out new, less generous benefit packages and price them."

On the other hand, he says, if states expand Medicaid as some are currently considering, this is likely to draw off some of the less healthy exchange enrollees and reduce cost pressure on the insurers.

"All that said, unless the administration moves quickly to reassure the industry, one way or the other I think we can expect more insurer withdrawals from the market and much higher premiums," Morrisey says.

The question of subsidies is weighing heavily on health plans, says Kevin Fitzgerald, a partner and healthcare analyst with the law firm of Foley & Lardner in Milwaukee, WI.

Health plans know that the exchanges and tax subsidies will still be available, he says, but nobody knows what approach the Trump administration and HHS Secretary Price will take towards subsidies, employee health benefits, enforcing the individual mandate and other issues that remain open with respect to the implementation of the Affordable Care Act.

"Uncertainty about whether 'repeal and replace' would pass in some form has merely been replaced by new uncertainty around cost-sharing reductions and profitability," Fitzgerald says.

The viability of the individual market is in question, he says. It is unclear whether HHS is committed to supporting the individual market, or at least whether HHS is as supportive as it was under the Obama administration, he notes.

The biggest and most immediate risk, he says, is the possibility that cost-sharing reductions won't be paid this year. The Trump Administration made those payments in February, but there are a number of looming threats to cost-sharing reductions, including the possibility that Congress will not appropriate the necessary funds and the potential that HHS may not be as creative in finding money to make the payments, he says.

"Without the cost-sharing reduction payments, there will likely be no sustainable individual market," Fitzgerald says.

Gregory A. Freeman is a contributing writer for HealthLeaders.

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