Sens. Lamar Alexander, R-Tennessee, and Patty Murray, D-Washington, just created a bipartisan bill to improve health insurance markets. The deal allocates funds for cost-sharing reductions, which reduce out-of-pocket costs for low-income beneficiaries. The senators’ bill is a welcome step to stabilizing the individual markets nationally as well as in the state of Indiana.
One of the main reasons the individual market is unstable is because it lacks enough young, healthy enrollees paying premiums to offset the claim costs of older, sicker enrollees. Actuaries project that millennials must constitute 40 percent of the individual market pool if rates are to be stable. But only 28 percent of enrollees are 34 or younger.
Consequently, health insurers have struggled. Anthem lost $374 million selling such policies in 2016. Many insurers are responding to these losses by reducing or eliminating agent commissions or pulling out of the individual market altogether. Nearly 40 percent of those that sold plans in 2017 won’t do so next year. Over the past two years in Indiana, several major carriers have made the decision to exit the individual health insurance market. In 2018, only two insurers will offer individual health coverage on the federally facilitated marketplace in Indiana.
The insurers that are sticking around have raised premiums drastically—this year, by an average of 25 percent. In 2018, premiums could increase even more. This is unsustainable. Repeated hikes discourage healthy people from enrolling. Only sick people with high medical bills would still find these plans attractive. Insurers would have to boost premiums further to cover their costs. That would cause even more healthy people to drop coverage. Eventually, the individual market will collapse.
Congress could prevent these price increases and lower premiums by eliminating the Health Insurance Tax. This sales tax on health plans is expected to increase premiums by $158 for individual plans and $188 for large group insurance in 2018.
Congress already suspended the tax for one year in 2017. Lawmakers would be wise to eliminate it completely.
Lower premiums would make plans more attractive—particularly for young, healthy Americans who previously went without health insurance. The more people in the individual market, the easier it is for insurers to accurately project overall costs—and avoid the need for massive rate hikes from year to year.
Congress could also give states more funding and flexibility to enact their own reforms. For instance, Alaska previously implemented a $55 million “reinsurance” program for high-cost enrollees. Essentially, the state helped pay claims for extremely sick enrollees. That reduced the financial burden on insurers and enabled them to lower overall premiums 24 percent.
While states should have the flexibility to innovate on health reform, Congress should establish safeguards to promote positive outcomes and maintain a functioning employer-based coverage system that protects businesses and individuals.
Several regulatory changes could help stabilize the individual market, too. The administration can start by easing the enrollment process. Last year, three in four people shopping for an individual plan who received personal assistance from people like insurance agents or brokers ultimately enrolled in plans.
In addition, cracking down on the abuse of “special enrollment periods” would enable insurers to better predict claims costs—and reduce the need for premium hikes.
Most people buy coverage during open enrollment, which begins in November. But if people lose their jobs, move or experience certain other life events, they can sign up during a special enrollment period. In 2015, people who signed up during special enrollment cost 41 percent more to insure than regular enrollees.
This disparity suggests that some are going without coverage to avoid paying premiums. When they get sick and need medical care, they claim they’ve experienced a qualifying life event.
To prevent fraud, regulators could require people to prove they’re eligible for special enrollment. For example, they could check with an employer to confirm that a would-be special enrollee lost his job.
The individual health insurance market is not sustainable. Lawmakers need to take action now to protect the millions of Americans who are faced with rising premiums, fewer choices, and uncertainty due to the instability of the individual market.•
Wright is the president of the Indiana State Association of Health Underwriters