My basic heuristic for analyzing the individual health insurance market under the Trump Administration so far is the following:
- >=100% Federal Poverty Line (FPL)($12,020) to <=400% FPL ($48,080) Okay or better off
- <100% FPL minimal changes
- Healthy people above 400% FPL better off
- Not health people over 400% FPL screwed
There are some serious caveats (Medicaid work requirements for instance) but this is my short hand heuristic when I look at the individual market. The recent proposed rule for expanded association health plans and the soon to be released proposed rule on short term plan expansion fits into this heuristic.
The ACA had a significant number of channels out of the regulated individual and small group market. Individuals could pay the mandate, they could enroll in a health sharing ministry, they could have Tennessee Farm Bureau coverage, they could maintain Grandfathered and Grandmothered coverage. Short duration plans are just another out.
Short duration plans are underwritten. Their risk pools will be overwhelmingly healthier people. The people who remain in the ACA risk pool will be sicker and more expensive after short term plans are expanded than before.
Insurers deal with bad risk pools by raising rates. A typical constraint on raising rates is the fear that higher rates will lead to a death spiral.
Kaiser Family Foundation has been tracking premiums and claims through the third quarter of the individual market on a per member per month (PMPM) basis since before the guaranteed issued and community rating reforms were implemented on 1/1/14.
Looking at the Kaiser graph, we see the ACA discontinuity in claims. Claims went up on a PMPM basis by 38% between Q3 2013 and Q3 2014. Premiums did not increase fast enough on the initial attempt due to a combination of expectations that risk corridors would act as a shock absorber, winners curse on the subsidy bid structure and an assumption by some insurers that profitable ACA members would be far stickier than they have turned out to be.
Insurers responded to the new information of what the ACA risk pool actually looks like by raising premiums. As we’ve chronicled here, the base premium does not matter much for subsidized buyers. It matters a lot for non-subsidized buyers. Premiums were probably raised a bit too high for 2017 compared to the underlying claims.
Insurers will respond to a deterioration of the ACA community rated/guaranteed issued risk pool by raising premiums. And this won’t matter to subsidized buyers. Healthy subsidized buyers will leave the market and the people who make too much for a subsidy but can’t get underwritten are whacked.