U.S. Court of Appeals for the 5th circuit considers appeal of Texas judge’s decisionIssues a new brief: DoJ ACA Filing: More Uncertainty and Pressure for Health Insurers
OLDWICK, N.J., March 27, 2019—The U.S. Department of Justice’s move to give support to a court case that could overturn the Affordable Care Act (ACA) puts pressure on the health insurance industry by increasing uncertainty around the law’s major provisions, according to a new AM Best briefing.
The U.S. Court of Appeals for the 5th Circuit is considering on appeal a Texas judge’s December 2018 decision that the ACA should be struck down given the elimination of the individual mandate. The DOJ said on March 25, 2019, in a court filing that it was changing its position and that it would no longer defend any parts of the ACA. Major ACA provisions that potentially could be eliminated or changed substantially include Medicaid expansion, individual exchanges, premium subsidies, essential health benefits and coverage for dependents up to age 26.
According to the Best’s Briefing, titled, “DoJ ACA Filing: More Uncertainty and Pressure for Health Insurers,” if Medicaid expansion and/or the individual exchange programs are eliminated or changed substantially, the health insurance industry could face a loss of premium, excessive administrative overhead and financial losses. States may not be able to absorb the full cost of providing Medicaid coverage and may change the eligibility definition to reduce enrollment. A rollback of Medicaid expansion mainly would affect the publicly traded carriers, while changes to the individual exchange business will have a larger impact on Blue Cross Blue Shield and regional plans. If provisions such as essential health benefits, free preventive care, limits on out-of-pocket maximums and coverage for dependents up to age 26 are no longer required, commercial groups may choose to offer a lower level of benefits, thereby reducing premium levels.
Conversely, many companies that exited the individual market after ACA implementation would be able to come back and offer policies similar to pre-ACA products, in which a policyholder decides the level of benefits needed and medical underwriting protects carriers from adverse selection. The elimination of the Health Insurance Fee also would have a positive impact on profitability for the entire industry.
To provide health coverage through Medicaid expansion and exchanges, health insurance companies invested significant resources to adapt their business models and processes in line with new rules and regulations. From 2014 to 2016, the individual exchange business incurred extensive underwriting losses, putting many carriers in a difficult financial position. However, in 2017 and 2018, following rate increases and product modifications, the individual line of business recovered and generated profitable results.
AM Best does not expect the decision in Texas v. United States to impact 2019 results. However, as the industry is getting ready for 2020 selling season and rate filings, the prospects of uncertainty will be disruptive. AM Best will continue to monitor the judicial, legislative and regulatory developments and will discuss with rated carriers their contingency plans in the event of a major ACA overhaul.
Excerpts from the DOJ/ACA brief
- An ACA repeal that leads to a return of medical underwriting, flexible benefits design, and the elimination of the minimum loss ratio requirements could have a positive impact for smaller and medium-sized carriers that were not able to play in the exchange or Medicaid market due to lack of scale. Many companies that exited the individual market after the ACA implementation will be able to come back and offer policies similar to pre-ACA products, in which a policyholder decides the level of benefits needed and medical underwriting protects carriers from adverse selection. The elimination of the Health Insurance Fee (HIF) can also have a positive impact on profitability for the entire industry. However, the HIF impact is likely to be much smaller than the negative effect of potential premium losses and excess expenses.
- If Medicaid expansion and/or the individual exchange programs are eliminated or changed substantially, the industry may face loss of premium, excessive administrative overhead, and financial losses. If Medicaid expansion is eliminated, states may not be able to absorb the full cost of providing coverage to these individuals and may change the eligibility definition to reduce enrollment. A Medicaid expansion roll-back will affect mostly the publicly traded carriers, while the changes to the individual exchange business will have bigger impact on Blue Cross Blue Shield (BCBS) and regional plans.
- The recent change in the DoJ’s position regarding Texas v. United States puts pressure on the health insurance industry by increasing the near- to medium-term uncertainty around the ACA and its major provisions, among them, Medicaid expansion, individual exchanges, including premium subsidies, essential health benefits, and coverage for dependents up to age 26. Since the ACA became effective, 37 states have adopted Medicaid expansion and 17 million people have gained coverage under that program. ACA exchanges currently provide health insurance benefits to 11.4 million individuals, 87% of whom are receiving premium subsidies.
To access the full copy of this briefing, please visit here.
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