Insurers’ Sweet Screaming Nightmare Scenario: A Health-Law Death Spiral

supreme-court
Anna Wilde Mathews reports: As the Supreme Court hears arguments on Wednesday in the latest challenge to the Affordable Care Act, health insurers are struggling to prepare for a decision that could unravel the marketplaces created by the law.

“Without the tax credits, insurance-industry officials say, the individual insurance markets in those states are likely to start collapsing, as many people drop coverage they can no longer afford, leaving only those less-healthy consumers who value insurance because they’re likely to need care…”

The ruling could come in June—but insurers must make regulatory filings before then about their 2016 plans. Utah’s Arches Health Plan, for one, says it may propose an array of insurance product designs this spring. Then, depending on what the court decides, the insurer would be poised to drop some of them before they’re finalized with regulators and offered to consumers. The insurer may also come up with two different sets of rates for next year, one for each potential court outcome.

“…That would drive up premiums, because insurers would raise rates to cover the costs of this smaller, sicker pool. Then even more people would likely refuse the ever-more-expensive coverage.”

“We’re hedging our bets right now,” says Ferris W. Taylor, chief strategy officer.

The Supreme Court case focuses on federal subsidies that help lower-income consumers purchase plans. The plaintiffs argue that these tax credits aren’t authorized by the law in states where the federal government provides the online insurance exchange—which total as many as 37. Avalere Health, a consulting firm, estimated that around 7.45 million people could lose the federal financial help if the court rules against the subsidies.

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“What happens is, you go into a classic death spiral…It doesn’t hang together.”

— Janie Miller, chief executive of nonprofit insurer Kentucky Health Cooperative Inc

Without the tax credits, insurance-industry officials say, the individual insurance markets in those states are likely to start collapsing, as many people drop coverage they can no longer afford, leaving only those less-healthy consumers who value insurance because they’re likely to need care. That would drive up premiums, because insurers would raise rates to cover the costs of this smaller, sicker pool. Then even more people would likely refuse the ever-more-expensive coverage.

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An analysis by researchers at the Urban Institute, a liberal-leaning policy research group, projected that in states where the subsidies disappeared, individual insurance premiums would go up 35% on average in 2016. That increase would affect all consumers purchasing their own plans in those states, including people who didn’t buy through the government marketplace, the researchers suggested. The financial blow would be particularly tough for smaller insurers that can’t dilute the impact with other, unaffected business, like employer and Medicare plans.

 “The impact would be substantial enough that I would expect many carriers to consider pulling from the market. There’s a question, if the subsidies are struck down, if it’s an insurable market.”

— Tom Snook, an actuary with consultants Milliman Inc. who is working with a number of insurers offering exchange plans

“What happens is, you go into a classic death spiral,” says Janie Miller, chief executive of nonprofit insurer Kentucky Health Cooperative Inc. “It doesn’t hang together.” Her nonprofit’s home state wouldn’t feel the direct impact of a ruling, because Kentucky has its own exchange. But the insurer has said that next year it will go into West Virginia, where the subsidies could potentially be affected. Ms. Miller said the co-op would have to re-evaluate its expansion plans if the court struck down tax credits there.

Insurers offering products in the federal-exchange states are worried that they could be caught short this year. An antisubsidy ruling could potentially take effect—and prompt consumers to drop coverage—as soon as this summer. Insurers are locked into rates for 2015 and typically wouldn’t be able to raise prices midyear. And partly because of state regulations, it isn’t clear if or when insurers would be able to withdraw from the federal marketplace before January…(read more)

WSJ

Write to Anna Wilde Mathews at anna.mathews@wsj.com

 



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