Uncertainty in the health insurance market and the role of subsidies

Yesterday the Office of the Insurance Commissioner (OIC) announced that no insurer has filed to participate in the individual health insurance market in Grays Harbor or Klickitat counties in 2018. According to the OIC, as of March, 1,119 people in Klickitat County and 2,227 people in Grays Harbor County purchased insurance through the individual market. The OIC notes,

Under current state law, if no health insurer is available in a particular county, the only coverage option is through Washington state’s high-risk pool, WSHIP. However, because WSHIP is not a qualified Exchange insurer, subsidies would not be available.

Subsidies are available for those purchasing health care through the Washington Health Benefit Exchange, depending on income level. These include tax credits for individuals and cost-sharing reductions (CSRs) that reduce the amounts that low income customers pay for deductibles and copayments, for example. The federal government has been making payments to insurance companies to cover the CSRs.

According to the latest Washington Health Benefit Exchange enrollment report, as of Feb. 2017, 71,982 around the state benefited from cost-sharing reductions, while 113,350 got tax credits. In Grays Harbor County, 1,492 were enrolled in a qualified health plan (QHP) through the Exchange; in Klickitat County, 670 were enrolled in a QHP. 

Insurance Commissioner Mike Kreidler blames uncertainty at the national level as to the status of health care reform for the proposed drops in coverage. The CEO of the Washington Health Benefit Exchange, Pam MacEwan, adds, “This federal uncertainty is tied to whether the administration will continue to fund cost-sharing reductions (CSRs) or enforce the individual mandate.” 

There is indeed much uncertainty as to how the Trump Administration will proceed with the CSRs. The payments were made by the Obama Administration, but the U.S. House of Representatives sued on the grounds that they had not been appropriated by Congress. A federal judge ruled in the House’s favor last year, but the payments continued pending appeal. 

The subsidies have been paid through May 2017, and the Trump Administration has asked for a 90-day delay in the lawsuit. Politico reports, “The administration declined to say if it will make more cost-sharing reduction payments.” The situation was not clarified at a Ways and Means Committee meeting yesterday

According to the Kaiser Family Foundation,

If the CSR payments end – either through a court order or through a unilateral decision by the Trump Administration, assuming the payments are not explicitly authorized in an appropriation by Congress – insurers would face significant revenue shortfalls this year and next.

Many insurers might react to the end of subsidy payments by exiting the ACA marketplaces. If insurers choose to remain in the marketplaces, they would need to raise premiums to offset the loss of the payments.

Meanwhile, 15 states (including Washington) filed a motion last month to intervene in the House lawsuit, lest the Trump Administration drop the appeal. 

Regarding the importance of subsidies, a new paper from economists Amy Finkelstein, Nathaniel Hendren, and Mark Shepard looks at low-income individuals’ willingness to pay for health insurance. They find,

. . . enrollee willingness to pay is three to four times below own expected medical costs. As a result, we estimate that take-up will be highly incomplete even with generous subsidies: if enrollee premiums were 25% of insurers’ average costs, at most half of potential enrollees would buy insurance.

Further, “subsidizing insurer prices by 90% would lead only about three-quarters of potential enrollees to buy insurance.” Additionally:

If we interpret our willingness-to-pay estimates normatively as individuals’ value of insurance, they suggest that most low-income enrollees would prefer being uninsured to having to pay a significant fraction of their expected cost of coverage.

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