More Required to Stabilize ACA Individual Market

At the beginning of August, Minnesota health insurance companies released their expected changes in premium costs. The proposed average changes were separated into two major groups: changes with reinsurance and changes without reinsurance. As a quick reminder, Minnesota passed reinsurance legislation in April in an attempt to control premium spikes in 2018.

Reinsurance works by directly paying $542 million over two years to health insurance companies to pay for high-cost patients, creating an “invisible high-risk pool.” The plans that include reinsurance generally reduce or stagnate the monthly premiums Minnesotans would pay in 2018, while plans without reinsurance generally continue to grow in price. This is, on the surface, very encouraging news. A Kaiser study found that the Twin Cities area would already experience one of the lowest increases of premiums in the country without reinsurance; it would likely have the best or second best rate change with it; however, a more in-depth analysis exposes both short and long-term challenges that must be addressed soon.

Primarily, the issue is that these changes in premium costs, however encouraging, are likely not enough to make insurance genuinely affordable or enticing enough to restore the individual market to the heights established in 2014 and 2015. The Kaiser study determined that the “benchmark” silver plan in Minneapolis would cost $383 per month, but it doesn’t mention that the deductible would likely still cost at least $2,200, per the MNsure Cost Calculator.

If a Minnesotan makes over 250% of the Federal Poverty Level (FPL), they are ineligible for cost sharing reductions (CSRs) that lower deductibles and copayment costs. This effect feels more pronounced in Greater Minnesota, where the monthly premiums are even higher. For instance, Rochester and the rest of Southeastern Minnesota will have five silver plans available to purchase in 2018: one from Blue Cross and four from Medica, according to the System for Electronic Rates and Forms Filing (SERFF). The “benchmark” plan, meaning the second cheapest silver plan’s premium costs will increase by 0.4% with reinsurance. That’s among the best rates in the country, but the premiums will still cost $557 per month for a 40-year-old non-smoker, with a $2,300 deductible. For those who are just above 400% FPL (and even those between 250% and 400% FPL), that plan is difficult to cover as is.  The table below highlights these benchmark plans by region.

Insurance coverage table Minnesota

The second-cheapest silver plans available by region of Minnesota, with changes over past years. Source: SERFF

Other areas of Minnesota, like in the northwest and Twin Cities, have plans with lower premiums, but they are still unaffordable to many, and include health savings accounts (HSAs). HSAs have lower deductibles than similarly ranked plans (although they are still $1,300 for individual silver plans), but they include a tax-deductible account so people can save a few thousand dollars a year for future out-of-pocket expenses. These plans certainly can be useful to those who can afford it.

HSAs can be carried over between jobs and through retirement, and they lower taxable income, but for those who are utilizing the silver level plans for the tax credits and the cost-sharing reduction payments (think a family of four making $55,000 annually), utilizing these plans is nearly impossible after factoring insurance premiums, mortgage or rent payments, utilities, and daily expenses. That’s why in practice, it is usually wealthier people who reap the benefits of these plans, while those looking for cheaper monthly costs and deductibles either purchase bronze level plans or forgo buying health insurance altogether.

These problems are further exacerbated as the purchaser ages. In Rochester, the 2018 individual marketplace could be downright terrifying for those in their 50s and 60s. Outside plans that only provide catastrophic coverage (meaning they are designed not to be used), there won’t be a single plan on the individual market that costs less than $1,000 per month with reinsurance, presuming that person earns more than 400% FPL. For families in that area who have retired or been laid off before they reach age 65 (and becoming eligible for Medicare), the cost of insurance is astronomical. This problem has contributed to a very significant reduction of Minnesotans on the individual market.

The current costs for health insurance have largely driven healthy working- and middle-class Minnesotans out of the marketplace. In 2015, approximately 300,000 Minnesotans purchased health insurance on the individual market, according to the narrative for the 1332 waiver proposal. The plan mix was diverse, and people mainly purchased silver and gold plans because of their quality and cost-effectiveness; however, the health plans were losing money at extraordinary rates.

According to the Minnesota Health Market Review of 2016, all but one plan lost money in 2015, with Blue Cross losing $240 million, the most in the state. This led to a major course correction in 2016 and 2017, with big insurance companies driving up premiums to make up for losses, and forcing thousands of Minnesotans out of the marketplace; now, only 170,000 Minnesotans remain on the individual market. Those that remained in the market switched to plans with lower actuarial values (i.e. gold to silver, silver to bronze). These plans still aren’t particularly profitable, but the market is more stable now. Overall, it will take significantly more investment in reinsurance and cost-sharing reduction payments to not only maintain the stability of the market, but to reduce the premium costs so working- and middle-class Minnesotans can afford quality health insurance plans for themselves and their families.

Given the status of the individual marketplace, there are three broad possibilities moving forward from 2018. The first is to keep the status quo and leave the marketplace alone for 2019 and beyond. This would mean letting the reinsurance payment sunset and hoping that the cost-sharing reduction payments provided by the federal government continue. This plan is inadvisable, as the rate filings provided by the five health plans in Minnesota stated that the rates would increase without reinsurance. For example, a silver plan from Blue Cross in southeastern Minnesota will cost a 40-year-old non-smoker $757 per month after reinsurance (a 5.6% increase from 2017). If that plan loses its reinsurance, the new cost would likely grow by around 20% (Blue Cross’ estimated upper bound of change without reinsurance is 31.7%), or $860 per month. That’s an extra $1,236 per year, not including the small change in cost due to aging. Similar increases would occur regardless of the quality of the plan and where in the state the plan is purchased, but the largest increases in cost would be in Greater Minnesota. This would further destabilize the market and force Minnesotans out, and make it even more expensive as the market shrinks. This is known as a “death spiral,” and it is the worst-case scenario.

A better option would be to prop up the individual market. This could include several mechanisms, none of which are mutually exclusive. Further funding cost-sharing reduction payments would stabilize silver level plans for those making under 250% FPL (or even expand it to those above 250%). The state could further fund reinsurance, which isn’t ideal, but it will help the market to tread water. Strengthening the mandate in Minnesota would also force healthy people to remain in the market. Expanding the range of people eligible for premium tax credits would make insurance significantly more affordable for those making over 400% FPL. Any or all of these ideas would strengthen the market and help it grow, but it would come at a pretty massive price.

The Congressional Budget Office found that spending on subsidies for the market will grow significantly without additional policy changes; the federal government will spend $63 billion in 2018, and that will grow to $93 billion in 2022, and $110 billion in 2027. Minnesota spent $542 million between 2018 and 2019 on reinsurance (although this might be subsidized by the federal government). Increasing these subsidies would be incredibly costly to federal and state governments, the lion’s share of the payments would end up with the insurance companies, and (most importantly) only a stronger mandate would reduce the uninsurance rate below four percent in Minnesota. By spending huge sums of money on subsidies, we would never address the underlying problem: how expensive health care is. Subsidies can only expand access to care, not address the costs.

Fortunately, there is another option that does address the actual costs of care: a public option or buy-in program. This could be expanding Medicare, Medicaid, or MinnesotaCare to all Minnesotans, a new program altogether, or an early buy-in of any of these programs. This would be an ideal way to control the costs by capping reimbursements to health care providers, therefore beginning the process of addressing the cost of care in America, long known to be the most expensive in the developed world. For those wary of a total overhaul of the health care delivery system to single payer, a buy-in program would be a way to retain the overall structure of the employer-based health care system while providing an option that is less expensive for the consumer by definition.

Regardless of how Minnesota and the U.S. move forward on health care, the primary concern that must be addressed is the price of health care for consumers, and the practices that drive those costs. For-profit health insurance companies maximizing profits on peoples’ health has led to a system that spends more on outpatient care, inpatient care, pharmaceuticals, and administrative costs than any other industrialized society.

This system has led to massive salaries for the CEOs of supposedly non-profit insurance companies while working- and middle-class people pay the equivalent of a second mortgage payment to those companies. This system incentivized unnecessary utilization of technology, pharmaceuticals, and high-cost treatments while less expensive options that produced the same outcomes were ignored. At some point, we will have to redefine the system if the goal isn’t to maximize profits for the wealthiest few, but to provide quality health care without forcing Minnesotans to forgo care because of how costly it is.