With subsidies settled, insurers look ahead to rate battles

The U.S. Supreme Court's decision to uphold the Affordable Care Act's premium subsidies in all states was a huge relief to health insurers, potentially encouraging them to step up their participation in the individual exchange market. Now attention turns to tension between insurers and regulators over moves to raise premiums for 2016.

Insurers say the ruling in King v. Burwell means millions more Americans, including younger and healthier people, will sign up for exchange plans in future years, making that business more viable. That depends, of course, on the fate of the ACA following the 2016 elections. And insurers will continue to scrutinize the demographics and medical utilization of the exchange population to make their rate calculations.

Last week, insurers and regulators expressed satisfaction that the high court had preserved the subsidies and avoided a meltdown in the entire individual insurance market in states using the federal exchange. It's estimated that 18 million Americans have coverage through the individual market. Of that total, 6.4 million receive coverage through the federal exchange.

“The decision allows regulators, consumers and the industry a level of certainty that supports stability for insurance markets in our states,” said Monica Lindeen, president of the National Association of Insurance Commissioners and the head of Montana's insurance department.

Experts had warned that eliminating the subsidies would have led to a death spiral in the individual market because coverage would have become unaffordable for many of those losing premium assistance. Healthier people would have dropped their plans, while sicker people would have scrambled to keep theirs. Insurers would have sought giant rate increases or dropped out of the individual market.

“If the subsidies had not been upheld, substantial numbers of our patients would have had to give up their coverage,” said Dr. J. Mario Molina, CEO of Molina Healthcare, a publicly traded insurance company with 266,000 exchange plan members in nine states. Most are in Florida, which uses the federal exchange.

The loss of the subsidies would have hurt some insurers more than others. Provider-owned and regional plans and not-for-profit co-op plans created by the ACA cover many low-income people who have premium subsidies.

“This ruling may prevent some families from having to make the intolerable decision between medical care or food and shelter,” according to a written statement from Land of Lincoln Health, a co-op insurer in Illinois. The finances of many co-op plans, created by the ACA to foster greater competition in the insurance market, already are shaky. Losing tens of thousands of customers because of subsidy cutoffs could have sent them into a tailspin.

Health Care Service Corp., a Blue Cross and Blue Shield company that offers exchange plans in five states, said the King ruling allows it to “remain focused on providing an array of affordable products and services.”

Aetna, Anthem, Humana and the other national for-profit insurers had some stake in the continuation of the subsidies because they offer exchange plans in states using the federal marketplace. The ruling may prompt them to ramp up their exchange business.

Now, insurers will have to focus on ways to improve and stabilize the individual and small-group markets. Some carriers have requested hefty premium increases for 2016, though a Kaiser Family Foundation analysis found that 2016 rate requests are up only modestly over 2015. Insurers used a full year's worth of exchange plan data for their 2016 rate filings. Some found that medical claims were high for a significant portion of enrollees.

Experts agree that the greater certainty of ACA premium subsidies continuing bodes well for future rate planning. “This is good for rates,” said Mike Mascolo, a national employee-benefits practice leader at Wells Fargo. “That's going to expand the risk pool and bring in both healthy and unhealthy people.”

But insurers still may need a few more years before they feel comfortable that their rate calculations are actuarially sound. “Everyone's adjusting to the new program and the shifting dynamics, and we're still not at the steady equilibrium of enrollment and premiums,” said Cori Uccello, senior health fellow at the American Academy of Actuaries. “There's still some uncertainty in the rate development process.”

With the legal case on subsidies settled, elected officials and consumer groups will be pushing state regulators to keep pressure on insurers to moderate premiums, said Brietta Clark, a health law professor at Loyola Marymount University in Los Angeles. “This requires continued vigilance and continually looking at what's happening at the market,” she said.