Individual Market Sustainability, and Options for Addressing Challenges
New research from American Academy of Actuaries, Washington, DC. Visit here.
WASHINGTON January 23, 2017 — With the 115th Congress on course to weigh potentially historic changes to the individual health insurance market through repeal and possible replacement of the Affordable Care Act, the American Academy of Actuaries’ Individual and Small Group Markets Committee is providing an overview of the market’s sustainability and options to address challenges in a new issue paper.
“As Congress and the new administration consider major changes, it’s essential for policymakers to take stock of the individual market, its challenges and successes, and the possible effects of any changes,” said Academy Senior Health Fellow Cori Uccello. “Our new issue paper outlines what’s needed for a sustainable individual market, assesses how well the ACA has achieved those conditions, and explores how ideas for addressing the challenges would affect the market.”
An Evaluation of the Individual Health Insurance Market and Implications of Potential Changes acknowledges improvement on some key measures in the nearly seven years since ACA enactment, such as lowering the uninsured rate.
However, enrollment has been lower than initially expected and enrollees have been less healthy than expected. In addition, there have been recent declines in insurer participation and consumer choice. The paper examines the pros and cons of a variety of different ideas put forward to address those challenges, including enhancing enrollment incentives, modifying insurance rules, and establishing high-risk pools.
Excerpts from the paper
What options have been proposed to improve the sustainability of the individual market?
Many options have been put forward to improve the sustainability of the individual market under the ACA. In addition, ACA replacement approaches have been proposed. The impact of any option or set of options depends on the specific details. This paper makes no recommendations and instead assesses the positive and negative implications of various options, including:
- Stronger incentives to purchase coverage. Strengthening the incentives to purchase coverage, through increased penalties for non-enrollment, increased premium subsidies, or a permanent reinsurance program, could help increase enrollment and improve the risk pool. Reducing the 90-day grace period and tightening special enrollment period (SEP) eligibility also have the potential to improve the risk pool by decreasing the potential for abuse of these protections.
- Greater variation in premiums by age. Widening premium variations by age could increase participation by young adults, but could result in higher uninsured rates among older adults and increased federal costs for premium subsidies, due to higher premiums for older adults.
- Restructured premium subsidies. Current premium subsidies are based on premium levels relative to income. The impact on enrollment, net premiums, and federal spending of basing premium subsidies instead on age or other factors depends on the amount of the subsidies relative to premiums.
- Reduced regulatory uncertainty. Releasing rules in a timely fashion would help reduce uncertainty for insurers. In addition, applying rules consistently among insurers is important to maintain a level playing field.
- Allow insurance sales across state lines. Allowing insurers to sell coverage across state lines, which states already have the ability to permit, could create an unlevel playing field and threaten the viability of insurance markets in states with more restrictive rules. This could reduce the ability of individuals with pre-existing health conditions to obtain coverage.
- Enhanced state flexibility. States could pursue approaches tailored to their specific situations through Section 1332 State Innovation Waivers or through other enhancements to state flexibility. Such efforts could include the pursuit of different enrollment incentives, subsidy structures, benefit coverage requirements, premium rating rules, etc.
View the paper here.
About the American Academy of Actuaries
The American Academy of Actuaries is a 19,000 member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.
