flag_160540827This is the fourth article in our series on the effect of the “slow repeal” of the ACA. This week’s article starts a three-part discussion on the potential impact of the slow repeal of the ACA on the health insurance industry, with this week’s focus on the individual health insurance market.

On February 2, 2017, an important House Subcommittee – the Energy and Commerce Health Subcommittee – began addressing four bills that address portions of the ACA. Although three of the four bills were introduced in previous years, all four measures come at a time when lawmakers are grappling with the impact of “repeal and replace” – or just “repeal” – on the increasingly fragile individual health insurance markets.

President Trump has made it clear that repealing the ACA is a top priority in the Administration’s first 100-day plan. Although no specific details have emerged, then-candidate Trump promised a complete repeal of the ACA, as well as changes to existing law to permit the sale of insurance policies across state lines. Like the bills the House Subcommittee began addressing, President Trump favors the use of Health Savings Accounts to permit Medicare beneficiaries to purchase coverage through private insurance, and allowing individuals to fully deduct health insurance premiums on their tax returns.

Echoing these sentiments, the American Academy of Actuaries “urges members of Congress to consider what would be needed should a repeal proposal not include significant measures to prevent substantial disruption and instability in the individual market.”

Already, the insurance markets are nervously assessing whether, absent the individual or employer mandate, there will be sufficient incentives for people to purchase insurance, and whether the risk of adverse selection will produce the dire results cataloged by the Urban Institute in its December 2016 white paper on the “Implications of Partial Repeal of the ACA through Reconciliation.” The Urban Institute’s analysis was particularly gloomy in its assessment of the potential consequences of the immediate elimination of the employer and individual mandates: “[s]ome people would stop paying insurance premiums, and insurers would suffer substantial financial losses (about $3 billion); the number of uninsured would increase right away (by about 4.3 million people); [and] at least some insurers would leave the nongroup market midyear.”

The challenges of maintaining short-term stability were magnified by the Executive Order issues on January 20, 2017, which directed all federal agencies to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden…or regulatory burden on individuals, families, healthcare providers, health insurers…[and] purchasers of health insurance.” If incoming HHS Secretary Price uses this Executive Order to limit or eliminate the ACA’s federal subsidies, the insurance industry would likely face challenges attracting young, healthy customers to their risk pools.

As uncertainty is the enemy of stability, Congress and the Administration will likely sprint to give greater meaning to phrases such as “risk stabilization programs” and “ensuring stability.” Already, several major insurers participating in the exchanges publicly announced that they will decide whether they intend to continue participating in the exchanges by April 1, 2017, well in advance of the mid-May deadline to participate in the 2018 exchanges. Even the Administration’s decision to cancel certain ACA ads just prior to the January 31, 2017, enrollment deadline drew a response from AHIP, which said that “[a]t a time when the individual market faces challenges, we need as many people as possible to participate – so that costs go down for everyone.”

And then there is the potential fallout of the House v. Burwell case, where a federal district court ruled the Executive Branch unconstitutionally funded the subsidy to cover the out-of-pocket costs for low-income participants because Congress had not appropriated these payments. If the new Administration drops the appeal, these payments would end, likely triggering both a backlash by those dependent on the subsidies and further pressure on insurers to exit the exchanges if they lose the financial support the insurance industry indirectly relies upon to offset actuarial risks.

President Trump’s statement that “we must also make sure that no one slips through the cracks simply because they cannot afford [health] insurance” adds another layer of complexity to an already dense dialogue. While organizations such as the Urban Institute and the Kaiser Foundation weigh campaign promises against many insurers’ self-imposed deadline to decide whether to participate in the 2018 exchanges (and, if so, to propose the rates they would like to charge), it seems more and more likely that some aspects of the ACA will remain in place while congressional leaders undertake the more fundamental debate about the differences between “universal access” tapped by those who want and can afford to pay for that access (see our recent piece on Rep. Price’s testimony at his confirmation hearing), and “uninsured coverage” underwritten by the government.

The prediction here is that the Administration will work with Congress to stabilize the ACA individual insurance markets, even if the exchanges are ultimately replaced with an insurance product available for purchase across state lines. In this era of the “new federalism,” we also predict that states will play a much greater role, where insurers will likely push hard for stricter enforcement of eligibility for replacement plans (i.e., tightening the rules for signing up for insurance outside the open enrollment period), and where the sickest enrollees will be covered by a separate high-risk insurance plan like those that previously existed in many states.

What’s next?

The uncertainty in the individual health insurance market is nothing new. Even the phrase used by insurance professionals – the “nongroup” market – conveys the theme. Still, while the daunting task of developing actuarially sound individual healthcare products is only heightened by the recent developments in Washington, D.C., this is also an ideal time for the individual health insurance industry to influence the design of new insurance products, particularly with respect to high-risk pools. Moreover, if Congress cedes more authority to the states (the subject of an upcoming piece on insuring Medicaid enrollees), we also see a likely investment in policymaking in the state Capitols, not just the U.S. Capitol.

For now, the individual health insurance industry remains united in its focus – preserved stability in the insurance marketplace, and adequately incent individual enrollees to purchase insurance.