In late March, I put out a post expressing concern about the shape of the claims curves for states with 1332 attachment point reinsurance waivers.
These are not normal times. States with attachment point reinsurance programs could be facing an unusual and unprojected claims curve…
States built their program budgets on the assumption of a normal experience year with lots of low and medium dollar claims and few big claims. Insurers priced their premiums on similar assumptions regarding reinsurance payments. A bad COVID19 month could put a lot of people into the ICU with high cost claims that don’t displace too many other expected high cost claims as those claims are likely for cancer, or other must treat conditions…
So far, I have been wrong. (I am glad to be wrong).
I’ve talked to some nerds in the know and they are not seeing a ton of ACA insured individuals landing in the ICU. At least they are not seeing more ACA insured individuals landing in the ICU that has not been compensated for by the incredible reduction in almost all other utilization, elective and in normal times not elective. The cost curves have moved down and to the left.
There was one other factor that I had not considered in March that is worth considering. Special Enrollment Periods (SEPs) occur when there is a significant life changing event. They allow people to buy insurance outside of the normal open enrollment period. The most common SEP is loss of insurance through job loss. There has been incredible amounts of job loss. Several state based marketplaces have also opened up a SEP for anyone who fears COVID-19. The Urban Institute estimates millions of more Americans will be insured through the ACA Exchanges this year and next year. Some of those individuals are enrolling through the SEP system.
SEP enrollees have traditionally been more expensive than full year enrollees but once you pull out mid-year newborns (those adorable expensive balls of poo and giggles), SEP enrollees have historically tended to be well risk-adjusted. There is a decent reason to expect in 2020 that SEP enrollees who start coverage on May 1 or later are going to be very low cost enrollees as far more of the SEP enrollees just had coverage through work. And the small group ACA market has lower average risk scores than the individual ACA market segment on a state by state basis.
So there is likely to be a big infusion of relatively healthy folks into the ACA individual market. These folks will be paying premiums either in full or with APTC assistance. The 1332 waivers are structured so that the federal government passes through to the state programs the incremental extra amount that would have been spent without the waiver. There are a lot more people getting a little bit less subsidy which means the federal government is generating more pass-through savings to send back to the states.
My March worry neglected the increased pass-through revenue when I was initially worried about the shape of the claims curve.