Will they really let Obamacare fail?

By now, everyone’s heard the news: the Republican efforts to repeal and replace the Affordable Care Act have failed in the Senate. After three unsuccessful votes—first on the Better Care Reconciliation Act, then on a repeal and delay bill, then on a skinny repeal—majority leader Mitch McConnell declared on July 27 that “it’s time to move on.” For now, repeal & replace is dead, though the efforts could certainly be revived sometime in the future.

While there is much disappointment among Republicans and their supporters at this apparent failure, members of both parties are now saying that they need to work together on a bipartisan solution. Of course, time will tell whether this can really happen, but many lawmakers are saying that they’re willing to give it a try. In fact, as USA Today reports, a bipartisan Senate panel will be holding hearings on September 6^th and 7^th on stabilizing the individual insurance market.

Meanwhile, President Trump is calling for his party to continue with the repeal efforts; after all, he says, Republicans have promised voters for the past seven years that they have a much better plan, so they shouldn’t give up so easily. His criticism of Majority leader Mitch McConnell has also increased in the past few weeks, leading to a rift that some worry will derail the GOP’s other legislative priorities.

Without a repeal bill to sign, President Trump says that we should let Obamacare fail, insisting that when it does Democrats will come to the table and want to negotiate. But would he really let the law collapse, knowing that millions of Americans could be hurt in the process? And what, exactly, would an implosion of the Affordable Care Act look like?

The first question is difficult to answer. Love him or hate him, most people would agree that the President has been quite unpredictable during his first seven months in office. He’s changed positions on a number of issues and sometimes says things just to get a reaction. Keeping people off balance seems to be part of the President’s negotiating style, and he’s very good at creating uncertainty among his opponents, his supporters, and the “fake news” media. We’ll leave it to you to guess whether President Trump is sincere in his threats.

The second question, though, is a bit easier to answer. A “collapse” of the Affordable Care Act would occur if it goes into a death spiral. This could happen if adverse selection and other factors cause premiums to increase to the point that healthy individuals start dropping coverage. As they do, the remaining pool has higher claims risk, so prices increase even more. This causes more people to drop their coverage, and the cycle repeats until the premium dollars coming in are not enough to cover the claims dollars going out and carriers begin to exit the marketplace. Some believe that the individual market is already in a death spiral, but others argue that the market in some cities is beginning to stabilize.

Either way, most people acknowledge that the ACA in its current form has a lot of problems, and even its strongest supporters admit that some improvements are desperately needed. Without a bipartisan effort, it’s hard to see how the current trends will reverse themselves.

It’s entirely possible, though, that the President could speed this along if he wants. Think of it this way:

Insurance companies are really good at managing risk. With a few pieces of information about the medical conditions and other risk factors of the people they insure, carriers are able to price plans appropriately and predict, with a high degree of accuracy, what their claims costs will be across their block of business. The Affordable Care Act, however, eliminated the ability for carriers to underwrite based on most risk factors, including medical conditions and gender, and this made it more difficult for insurers to price plans appropriately. And now, thanks to recent statements by the administration, carriers are facing more uncertainty than ever—so much, in fact, that many have decided not to offer individual coverage in 2018. Other insurers are still evaluating the situation and will make a decision in the near future.

So what’s the cause of all of this uncertainty? It can be summarized in a few bullet points:

1. Lack of commitment to the Marketplace. Under the Affordable Care Act, the government employs a number of methods to drive enrollment, from the “carrot” of the premium tax credits that help people pay for coverage to the “stick” of the individual mandate that threatens people who go without insurance with some costly penalties. The government also spends millions of dollars promoting the individual market, especially during the annual open enrollment period. There’s a question, though, about whether the administration will continue to support these marketing efforts. One of the first things the new administration did after entering office in January was cancel some scheduled Marketplace advertising that had already been paid for. This was near the end of the open enrollment period, a time when people typically need to be reminded that the deadline is fast approaching. What the marketing efforts will look like for the 2018 open enrollment period remains to be seen.
2. Failure to enforce the Individual Mandate: The whole purpose of the individual shared responsibility requirement, as you know, is to reduce the risk of adverse selection. The guaranteed issue provision requires insurance companies to accept all applicants regardless of medical conditions, so without some mechanism to compel healthy people to enroll, insurance companies would lose money. However, the decision by the IRS to accept tax returns from filers who fail to answer the question about minimum essential coverage leads some to question whether the mandate will actually be enforced. If not, it loses most of its power. This concern about the individual mandate is punctuated by the fact that the “skinny” repeal bill would have eliminated the mandate altogether without replacing it.
3. Failure to pay the Cost Sharing Subsidies: The ACA provides cost sharing subsidies for individuals and families with incomes up to 250 percent of the federal poverty level who purchase silver-level coverage through the state or federal marketplace. Carriers place individuals who qualify for these subsidies into special plans with lower out-of-pocket limits and higher actuarial values, and HHS reimburses carriers for the extra claims cost and higher levels of utilization that usually come with more comprehensive coverage. President Trump, however, has threatened to stop reimbursing carriers for these cost sharing reductions, leading some to worry that they could be stiffed by the government for claims they’ve already paid.

All of this uncertainty, combined with the possibility of continued repeal efforts, has made it difficult for insurance companies to make decisions about pricing and marketplace participation. With the filing deadline fast approaching, some insurers have decided to bail on the individual market altogether.

While Republicans are pointing to these market withdrawals as evidence that the ACA is failing, Democrats claim that all of the uncertainty created by the administration is what’s causing the law to fail. It’s possible that both sides are correct.

So what does this mean for you as we speed toward another open enrollment period? It means that, once again, we’re likely to see higher premiums and fewer options than the year before. It also means that your clients will probably be unhappy with the news you have to share. Just remember that this isn’t your fault; you’re only the messenger. Also keep in mind that in times of uncertainty, clients need even more guidance, so while they may be unhappy, most will appreciate the assistance you provide.

If you’re looking for a little good news, here are three parting thoughts:

1. The bipartisan hearings in the Senate on stabilizing the individual market are at least a sign that the two sides might be willing to work together to ensure that Americans have affordable health insurance options.
2. So far, despite the President’s threats, the administration has continued to pay the cost-sharing subsidies to insurers.
3. While it looked at one point like many areas would be left without any individual health insurance options, there’s now just a single small county in Ohio with no carriers participating in the Marketplace. People may have fewer choices than before, but they can still buy insurance on the Marketplace if they want it.

One final reminder: today’s health plans have higher out-of-pocket costs than ever before, and that means that your clients probably need some additional protection. Don’t forget about the accident, critical illness, and other types of supplemental coverage that AHCP offers. You should already be working with the health insurance companies we represent, but we can also help you fill the gaps in your clients’ health plans.