Insurers Relieved as ‘Skinny’ Health Bill Fails But Warn of Rising Rates, Exits From Exchanges

Without Federal Government payments, insurers say premiums will be far higher, and companies may pull out of exchanges

The Wall Street Journal By Anna Wilde Mathews
July 28, 2017

Senate Republicans’ failure to pass their limited health bill is a relief for health insurers, but it leaves the companies struggling with increasingly urgent questions as they make decisions about participating in the Affordable Care Act’s exchanges.

Insurers had already been pressing for legislation aimed at stabilizing the marketplaces, an idea that is likely to now move into the spotlight with the apparent collapse of Republicans’ efforts to repeal the ACA, also known as Obamacare. But it’s not clear that any bill can move forward fast enough to affect the markets for next year, as insurers must file rates by mid-August and make final decisions about participation by late September.

“We really are right now up against it, as far as the deadline is concerned,” said Gary Cohen, a vice president at Blue Shield of California. Even if lawmakers from both parties work to pull together a bill to bolster the exchanges, “my concern is that for 2018, it’s going to be too late.”

The industry had opposed the Senate bill voted down early Friday partly because it would kill the ACA’s requirement for individuals to have insurance, which they say is important in prodding young, healthy enrollees into the markets. However, many companies have said that even if Congress never formally repeals the coverage mandate, they fear the Trump administration won’t strongly enforce it—or consumers will ignore it, figuring that it will likely be toothless.

President Donald Trump likely added to the industry’s alarm with a Friday-morning tweet in which he wrote: “As I said from the beginning, let ObamaCare implode, then deal. Watch!”

Insurers have been equally focused on other policy moves that they say are vital to propping up the exchanges. Most urgently, they want a guarantee that the federal government will continue making payments that reduce out-of-pocket costs for low-income ACA enrollees. Without those payments, insurers say that premiums will be far higher, and more companies may simply pull out of the exchanges. The industry also wants new funding aimed at blunting the cost of covering the sickest consumers.

With their ideas getting little traction so far in Congress, insurers have been issuing increasingly-public warnings about the consequences of inaction.

Late Thursday, before the Senate vote, Daniel J. Hilferty, chief executive of Independence Blue Cross, said the insurer is now “for the first time, asking, if the [cost-sharing funds] aren’t paid and the individual mandate isn’t enforced, are we going to be in the markets.” Independence is the only exchange insurer in the Philadelphia area and Mr. Hilferty is a prominent voice in the industry, serving as chairman of the Blue Cross Blue Shield Association.

The company hasn’t made a final decision, but it would “strongly consider not participating” in the exchanges without the cost-sharing payments and enforcement of the mandate, he said. “It just really begs the question, is this marketplace sustainable.” Independence has asked for a rate increase of around 8.5% on average for next year for its Pennsylvania marketplace plans, and the loss of the cost-sharing payments would add about 4.5 percentage points to that, while lack of enforcement of the mandate would add another 17 percentage points, he said.

Anthem Inc . , which has around 1.5 million ACA-plan enrollees, said Wednesday during a call with analysts that if it doesn’t quickly get more certainty about the future of the exchanges, it will likely further pull back its planned participation for next year. Chief Executive Joseph R. Swedish said that without greater clarity, particularly around the cost-sharing payments, “we will need to revise our rate filings to further narrow our level of participation.” He added that the insurer may make decisions “in a relatively short period of time” and in September at the latest.

Anthem, which has already disclosed plans to leave three of the 14 state exchanges where it offers plans, also said that if the cost-sharing payments are killed, it will need to seek rate increases of around 18% to 20% on exchange plans. The insurer said those increases would come on top of significant hikes it is already requesting, which it said were 20% or more.

A number of insurers, including Anthem, have already cited uncertainty around the future of the marketplaces as a major factor in already-announced decisions to pull back or exit exchanges in 2018. Such moves have left an estimated 38 counties in Nevada, Indiana and Ohio at risk of having no exchange insurers next year, according to the Kaiser Family Foundation.

Among insurers so far planning to remain in the exchanges, many already assumed in their 2018 rate requests that the cost-sharing payments won’t be locked in, and the mandate may not be enforced. Oliver Wyman, a consulting unit of Marsh & McLennan , has projected that premiums might be roughly 9% higher on average if the mandate weren’t enforced, while the loss of the cost-sharing payments might mean an 11% to 20% boost.

In some rate filings that have already become public, insurers offered different estimates. Blue Cross and Blue Shield of North Carolina said that of its 22.9% proposed increase for 2018, 14.1 percentage points were from assumed loss of the cost-sharing payments. BlueCross BlueShield of Tennessee said that of its 21% boost, about 14 percentage points were tied to the lack of cost-sharing payments and 7 percentage points to the loss of enforcement of the mandate.

Insurers say the worry is that such significant rate increases might create a cascading dynamic, as more healthy people leave the market, pushing rates up even more in the future for the shrinking pool of increasingly unhealthy enrollees. Actuaries say this effect might be blunted by the ACA’s premium subsidies, since those protect many consumers from bearing the full brunt of rate increases.