The Trump administration can subsidize health care insurers without undermining free market goals.
The Affordable Care Act requires insurers to cover all those seeking to enroll, while also preventing them from charging premiums proportionate to their costs of care. The upshot has been plans made disproportionately appealing to those with the greatest health care costs, leaving most carriers with enormous revenue shortfalls.
Following the expiry of various subsidies intended to set the health care law's exchange structure on its feet, the nongroup health insurance market is on the brink of collapse, and President Donald Trump's administration must decide how to stabilize what remains. But as temporary patches have a way of becoming permanent structures, it must proceed deliberately and ensure that the subsidies do not sprawl beyond where they are truly needed, or serve to establish any permanent impediment to competition.
The Affordable Care Act sought to make health insurance affordable for individuals with pre-existing conditions by requiring insurers to cover them at the same rates given to healthy individuals. This has meant that healthy individuals have been reluctant to purchase insurance that is priced much higher than their likely health care needs, meaning it is often rational for individuals to wait to get seriously ill before getting covered. In 2015, the average medical loss ratio of health care costs – the percent of premium income insurers pay out in claims – relative to premium revenues incurred by insurers on the individual market was 103 percent. As insurers scramble to stay solvent, average premiums have risen 75 percent above pre-Affordable Care Act levels.
However, by making plans even less attractive to healthy individuals, premium hikes may make matters worse, and insurers are fleeing a market in which the rules are stacked against them. In 2016, Wyoming was left with only one issuer serving its exchange market. This year, Alabama, Arkansas, Oklahoma and South Carolina also found themselves in the same predicament – and 41 percent of Americans living in rural counties were faced with a monopoly on the exchange. As carriers file their 2018 rates with state insurance commissioners, they are requesting further record increases in premiums. Yet, even those will in many cases be unlikely to save the nongroup health insurance market from complete collapse.
As insurers struggle to fund their obligations to care for the chronically ill with revenues from a diminishing set of profitable enrollees, they have also been forced to deal with the disappearance of subsidies which had been established to help them get off the ground. The Afforable Care Act had authorized a $20 billion reinsurance fund for 2014 to 2016 to bear the bulk of expenses incurred by insurers of the highest-cost enrollees, but that pool of support has now been depleted. A further $8 billion was distributed to plans with extreme aggregate costs, through risk-corridor payments – but the Republican Congress prevented the Obama administration from making further payments to "bail out" insurers this way.
This stance – along with a lawsuit to prevent the distribution of cost-sharing subsidies to exchange enrollees – may have made sense to force the Obama administration to renegotiate the Affordable Care Act. But now that the GOP controls the White House as well as Congress, a dogmatic position is politically unnecessary and destabilizing to the insurance market. Many states have pushed back the deadline for insurers to file their 2018 rates, while California is allowing carriers to file two sets of proposed rates depending on whether cost-sharing subsidies remain funded or the individual mandate enforced. This added uncertainty has only exacerbated the unwillingness of insurers to participate in the individual market.
Nonetheless, the prospect of bailouts raises legitimate concerns regarding moral hazard, and ad hoc props established during a crisis can quickly become entrenched as pillars essential to the whole system, despite being structurally unsound. Improvisation and incrementalism are often underrated as approaches to public policy, but at critical junctures, decisions may have major lasting consequences and should not be undertaken without a broader sense of purpose and direction.
However, by making plans even less attractive to healthy individuals, premium hikes may make matters worse, and insurers are fleeing a market in which the rules are stacked against them. In 2016, Wyoming was left with only one issuer serving its exchange market. This year, Alabama, Arkansas, Oklahoma and South Carolina also found themselves in the same predicament – and 41 percent of Americans living in rural counties were faced with a monopoly on the exchange. As carriers file their 2018 rates with state insurance commissioners, they are requesting further record increases in premiums. Yet, even those will in many cases be unlikely to save the nongroup health insurance market from complete collapse.
As insurers struggle to fund their obligations to care for the chronically ill with revenues from a diminishing set of profitable enrollees, they have also been forced to deal with the disappearance of subsidies which had been established to help them get off the ground. The Afforable Care Act had authorized a $20 billion reinsurance fund for 2014 to 2016 to bear the bulk of expenses incurred by insurers of the highest-cost enrollees, but that pool of support has now been depleted. A further $8 billion was distributed to plans with extreme aggregate costs, through risk-corridor payments – but the Republican Congress prevented the Obama administration from making further payments to "bail out" insurers this way.
This stance – along with a lawsuit to prevent the distribution of cost-sharing subsidies to exchange enrollees – may have made sense to force the Obama administration to renegotiate the Affordable Care Act. But now that the GOP controls the White House as well as Congress, a dogmatic position is politically unnecessary and destabilizing to the insurance market. Many states have pushed back the deadline for insurers to file their 2018 rates, while California is allowing carriers to file two sets of proposed rates depending on whether cost-sharing subsidies remain funded or the individual mandate enforced. This added uncertainty has only exacerbated the unwillingness of insurers to participate in the individual market.
Nonetheless, the prospect of bailouts raises legitimate concerns regarding moral hazard, and ad hoc props established during a crisis can quickly become entrenched as pillars essential to the whole system, despite being structurally unsound. Improvisation and incrementalism are often underrated as approaches to public policy, but at critical junctures, decisions may have major lasting consequences and should not be undertaken without a broader sense of purpose and direction.
This piece originally appeared in U.S. News & World Report
_____________________
Christopher Pope is a senior fellow at the Manhattan Institute.
This piece originally appeared in U.S. News and World Report