ACA politics, assuming the Texas v. Azar lawsuit eventually gets bounced, is about to get strange in a new direction as premiums look to be about flat and Medical Loss Ratio (MLR) rebate checks are about to get big.
Charles Gaba has been tracking rate increases across the nation:
? UPDATE: With 75% of the individual market accounted for, average preliminary 2020 #ACA exchange premiums are expected to increase by…0.5% nationally.https://t.co/kzEyLOqkdt pic.twitter.com/ziiNp58dFs
— Charles Gaba (@charles_gaba) August 6, 2019
There will be variation, but the general story is that unsubsidized premiums are generically flat. I had expected national rate increases to be around 7% between medical trend and premium taxes. That is not the case. There are several causes of rates, on average, being flat:
- More states filing and receiving approval for 1332 reinsurance waivers
- More insurers entering monopoly markets and increasing competition
- Medicaid expansion in more states removes the most expensive portion of the risk pool from the ACA individual market.
- Insurers significantly overpriced 2018 and modestly overpriced 2019.
The first three reasons are good reasons. These are reasons of pro-active government intervention to correct market failures, competition bringing down prices and expanding a cost effective program to provide direct and indirect benefits to a large population. The last reason was the result of the policy and messaging shock of the inauguration of the Trump administration and the decision to not pay Cost Sharing Reduction subsidies. Insurers were operating under incomplete and uncertain information in the spring and summer of 2017. Insurers had two fundamental choices: run like hell or raise premiums a lot. Some insurers ran like hell, others turtled up to core counties and almost everyone raised premiums by some method of Silver Loading. This produced dramatically cheaper net of subsidy premiums for most of the country and it has been a major enrollment booster even as the ongoing anti-messaging and operational outs that are administration policy has driven down new enrollment.
Pricing 2018 too high out of policy fear interacting with monopoly status allowed for spread games to proliferate and insurers to roll in the dough. 2019 premiums were based on mostly 2016 and 2017 claims experience, some 2018 retention and claims but the rates were submitted with only thirty to forty percent of the year actually hitting the claims system. 2019 rates were also being set in a policy environment where insurers were uncertain how important the individual mandate and the proliferation of new underwritten plans could be. Pricing actuaries had strong incentives to price high in 2019.
This will lead to significant MLR rebates in Fall 2019 for the 2016-2018 period and much larger and more widespread rebates in the Fall of 2020 for the 2017-2019 period. I was cynical in the fall of 2017 as I thought about CSR and I may not have been cynical enough:
in the fall of 2019, rebate checks start showing up just as final rates are to be approved…. rate regulators will have strong incentives of getting great press on being tough on the insurance companies by forcing them to hand out very large checks to tens of thousands of residents.
And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.
We’re about to enter a period of multiple years of effectively flat rates combined with large checks being handed out to tens of thousands of individual policy buyers just as early voting is starting in 2020. Most of the flat rates will be from 2018 and 2019 being overpriced due to policy shocks and uncertainty. Some of the flat rates will be the ACA operating as designed and intended. The big Trump innovation which has contributed to flat rates has been the proliferation of reinsurance waivers. But most of the action has either been a correction for policy shocks or business as usual.
Yet we should expect to see at least some bragging about the ACA rates are fundamentally flat next fall from people who voted to repeal it repeatedly. The politics are going to get weird.