Insurers exposed as enhanced ACA subsidies set to expire

Health insurance companies, providers and millions of policyholders would suffer significant disruptions if President Joe Biden and congressional Democrats fail to extend the enhanced subsidies that drove record enrollment on the health insurance exchanges.

The extra financial assistance, temporarily enacted as part of the federal response to the COVID-19 pandemic, will disappear at year’s end without legislative action. Lower enrollment in exchange plans would result, depriving insurers of premium revenue, exposing providers to more unpaid medical bills and leaving millions of people uninsured and with reduced access to healthcare.

Biden, who campaigned on improving Affordable Care Act benefits, and Democratic lawmakers, who face a stiff midterm challenge to their slim congressional majority, are under pressure to get it done.

The insurance association AHIP, the Blue Cross Blue Shield Association, the American Hospital Association, the Federation of American Hospitals, the American Medical Association and other healthcare groups are urging Congress to extend the enhanced premium tax credit subsidies before lawmakers leave Washington for their August recess and begin focusing on their election campaigns.

“There is broad, multistakeholder support for this solution,” said Molly Smith, group vice president of public policy at the American Hospital Association. “We have joined with partner organizations—insurers, doctors, groups that we don’t even necessarily deal with on issues—to really underscore the importance of it.”

The ACA offers premium tax credits on a sliding scale to households with annual incomes between 100% and 400% of the federal poverty level—$23,030 to $92,120 for a family of three—that don’t have access to coverage from employers or programs such as Medicaid.

The American Rescue Plan Act of 2021 enlarged financial assistance for people with lower incomes and eliminated the cutoff at 400% of poverty to guarantee that no one eligible to purchase insurance from an exchange pays more than 8.5% of their income on premiums. Health insurance exchange enrollment swelled to a record high of 14.5 million people after this policy took effect.

Allowing the enhanced subsidies to go away could cause 8.9 million Americans to pay higher premiums and 1.5 million to lose subsidies, according to the Health and Human Services Department.

Congressional inaction would affect all customers who purchase insurance on the marketplaces—and their insurance carriers.

Enrollment and adverse selection

Health insurers will begin developing marketing and outreach materials for open enrollment in August. If Congress doesn’t pass legislation before notices are sent to customers in October, the messages may include inaccurate information about premiums and benefits, said Heather Korbulic, senior policy and strategy lead for the brokerage GetInsured and former executive director of the state-run health insurance exchange Nevada Health Link.

“Unless Congress takes action in the next month, we’re gonna have to start sending notices,” Korbulic said. “If they choose to take action after those notices go out, the damage will already be done. People will already be confused, and it’s going to be really hard to put the cat back in the bag.”

Confusion over marketplace operations, along with higher premiums, would spur more members to opt out, said Brad Ellis, senior director of insurance at Fitch Ratings.

Moreover, allowing the enhanced subsidies to expire would have detrimental effects on risk pools, Ellis said. Younger, healthier consumers who perceive the least need for health coverage are the most price-sensitive and most likely to drop insurance when premiums rise. Correspondingly, older and sicker people with healthcare needs are more likely to retain coverage if they can budget for it.

Health insurers would respond to the exit of younger, healthier customers by raising premiums, said Katie Keith, a professor at Georgetown University’s Center on Health Insurance Reforms. “They’re setting their rates a little bit higher to account for a sicker risk pool, to account for what they expect could be adverse selection if (the subsidies) go away,” she said.

A costlier customer base is disadvantageous to any insurer, but some are more exposed than others. Companies such as Oscar Health that have banked their business on attracting younger exchange customers through a technology-enabled experience would be most affected, Ellis said. The insurtech also is more reliant on the exchange market than other, larger insurance companies that have strong presences in the commercial, Medicare and Medicaid markets.

A significant enrollment decline at Oscar Health could translate into lower earnings per share, Ellis said. “I wouldn’t expect these things to have an impact on the overall margin, but the amount of money that margin produces, their earnings per share, could decline,” he said. Oscar Health didn’t respond to an interview request.

One in every 13 exchange customers is enrolled in an Oscar Health plan, CEO Mario Schlosser said during an earnings call in May. The company had nearly 1.1 million members at the end of March, up 98% year-over-year thanks to growth in sales of individual and exchange plans.

Oscar Health could lose up to 20% of its individual and exchange membership without the more generous subsidies, Schlosser said. “It would take a lot of political irrationality to undo those subsidies,” he said.

Centene expects its exchange membership to decline by 15% if the enhanced tax credits aren’t renewed, executives told investors last month. The company is pricing for next year based on the “current law of the land,” Kevin Counihan, senior vice president of products, said during the investor day. “The challenge of the tax credit loss is actually that this kind of thing cascades throughout the whole membership,” he said. Centene didn’t respond to an interview request.

Implications for providers

A rise in the uninsured rate also would result in more unpaid bills for health systems, said Eliot Fishman, senior director of health policy at Families USA, a liberal health policy advocacy organization.

“The proportion of the American population that’s uninsured is now at the lowest it has ever been, in part because of these higher subsidies,” Fishman said. “That means, for hospitals, the chances that somebody is going to be uninsured and they’re going to be provided care without reimbursement is now the lowest it has ever been. If these subsidies are not extended, we’ll be going backwards on that.”

Legislative plan

Last week, Biden urged Democrats to pass legislation including the enhanced subsidies, saying that families would “sleep easier” knowing that they would remain. Biden abandoned major planks of his economic platform after Sen. Joe Manchin (D-W.Va.) demanded a slimmed-down package focused on the subsidies, curbing prescription drug prices and reducing the federal budget deficit. Senate Majority Leader Chuck Schumer (D-N.Y.) said he intends to advance legislation that meets those qualifications.

House Democrats broadly support the healthcare provisions, but the path in the 50-50 Senate is less certain because every Democrat’s vote, plus a tiebreaker by Vice President Kamala Harris, is needed to pass a bill unless some Republicans support the measure. Democrats plan to move the legislation under budget reconciliation, which isn’t subject to filibusters and allows a bill to pass on a simple majority vote. Congressional Republicans have long opposed the Affordable Care Act and the policies that comprise Biden’s health agenda.

With midterm elections coinciding with open enrollment in early November, the expiring subsidies are a political time bomb for Democrats.

If Congress fails to extend the subsidies, policyholders could experience sticker shock when they see their premiums skyrocket next year, Korbulic said.

Health insurance premiums will rise an average 10% next year, not counting the effects of subsidies, according to a Kaiser Family Foundation analysis of insurer rate filings in 13 states and the District of Columbia. Policyholders would pay up to 53% more in premiums without the enhanced tax credits, according to a Families USA analysis.

“No one wants to have their customers, their citizens or their voters get a letter saying the cost of your insurance is going up dramatically because Congress didn’t take action,” Korbulic said.

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