Bipartisan Legislation to Lower Premiums and Stabilize Insurance Markets

The Senate and Capitol Dome are seen on Capitol Hill in Washington, Monday, June 26, 2017.

Introduction

In the wake of Senate Republicans’ decision to delay consideration of their health care repeal bill, the “Better Care Reconciliation Act (BCRA), it is clear that their partisan approach has little support and would inflict widespread harm on the American people. This moment is an inflection point where Senate Republicans can choose one of two paths: They can continue to pursue repeal, or they can work with Senate Democrats on a bipartisan basis to stabilize insurance markets.

In its letter of opposition to the BCRA, the American Medical Association (AMA) said that the bill violates the principle of “first, do no harm” on “many levels.” A bill that primarily guts Medicaid to finance tax cuts for the rich is not one designed to fix any problem with the insurance markets. In fact, the nonpartisan Congressional Budget Office (CBO) assessed that the BCRA will do just the opposite; the elimination of the individual mandate will cause premium rate shock in 2018 and insurance markets will collapse in some areas after 2019.

Bipartisan legislation would be simple and easy to put together—it would consist of four pages of legislative text that Senate Republicans have already written as part of the BCRA. It would easily command supermajorities because many Democrats and Republicans would support a bill that fixes the ACA, not destroys it—proving that the majority party can govern and restoring some faith in the Senate as an institution. Most importantly, it would work; the legislation would implement evidence-based policies that have been proven to work in Alaska and Maine.

In this brief, the Center for American Progress is proposing specific legislation, the Market Stability and Premium Reduction Act, included in the Appendix of this column. The Center for American Progress urges senators to chart a new course and work together on a bipartisan basis to first, do no harm, and second, resolve uncertainty in insurance markets.

Current market instability

When the Affordable Care Act (ACA) markets launched in 2014, there were new insurers, new market rules, and a new consumer population. Insurers did not have experience or claims data to accurately price their products. In addition, the markets were hypercompetitive as insurers jockeyed to establish a foothold.

As a result of these factors, insurers significantly underpriced premiums in 2014. The reinsurance program—which subsidized the costs of high-cost enrollees—helped to cushion this shortfall. But the risk corridor program—which was designed specifically to address pricing uncertainty in a new market—did not.

This is because Congress constrained the program and prevented it from operating as intended—requiring it to be budget neutral. Moreover, Congress did so after insurers had already priced their products for both 2015 and 2016 under the assumption that they did not need to be overly conservative. The resulting risk corridor shortfall was responsible for about two-thirds of the financial losses incurred by insurers in 2014.

The average benchmark premium increased by only 2 percent in 2015 and 7 percent in 2016. These increases were not sufficient to close the gap from 2014. Compounding the problem, the reinsurance program began to phase out in 2015 and 2016.

Given this historical context, it is not surprising that the markets were due for a correction in 2017. Although this correction is significant, the ACA’s subsidy structure holds harmless most consumers and acts as a stabilizing force.

From 2015 to the beginning of 2017, the markets gradually began to stabilize. Overall, medical loss ratios—the ratio of benefit costs to revenue—in the individual market improved from 103 percent in 2015 to 96 percent in 2016. Although loss ratios in the low 90s or high 80s are needed to achieve profitability, this constituted real improvement. Furthermore, this trend does not account for any continued improvement in 2017, when there was a big pricing correction.

Despite this gradual improvement, insurance markets are deteriorating rapidly for the 2018 plan year under the current administration. There is now clear evidence that this deterioration is due to massive policy uncertainty. The constant threat of repeal is a big source of uncertainty; in addition, the administration constantly threatens to discontinue payments for cost-sharing subsidies and to weaken enforcement of the individual mandate. According to actuaries at Oliver Wyman, two-thirds of rate increases next year will be attributable to this uncertainty.

In North Carolina, the largest health insurer warned that premium increases will go from 9 percent to 23 percent because funding for cost-sharing subsidies is uncertain. In Pennsylvania, the insurance commissioner announced that premium increases will be 9 percent if nothing changes. But if the administration does not enforce the individual mandate and pay cost-sharing subsidies, premium increases will skyrocket to 36 percent.

In Maine, the administration’s policies are driving double-digit premium rate increases for next year. Harvard Pilgrim specifically cited President Trump’s executive order to weaken enforcement of the individual mandate. This policy alone accounts for 40 percent of Harvard Pilgrim’s rate increase.

According to polling on the ACA conducted by the Kaiser Family Foundation, the vast majority of Americans—including most supporters of President Trump—think the administration should “do what it can to make the current health care law work.” With Republicans controlling the government, 64 percent of Americans—and a majority of Republicans—think Republicans “are responsible for any problems with the ACA moving forward.”

The Market Stability and Premium Reduction Act

The good news is that Senate Republicans have already drafted the necessary legislative text in the BCRA to resolve this market uncertainty. It would not be difficult to determine what policies would be effective; innovations in Alaska and Maine, policy experts across the political spectrum, insurance commissioners, and actuaries have all recognized core common elements of effective market stabilization policies.

First, the legislation would need to guarantee continued payments for ACA subsidies that reduce enrollees’ cost-sharing—removing the administration’s threat of sabotage. This guarantee would not actually add any costs to government spending because these subsidies are already being paid. But resolving the uncertainty would lower premiums significantly: The nonpartisan Kaiser Family Foundation estimates that premiums would be 19 percent lower with guaranteed cost-sharing payments.

Second, the legislation would follow the model of states like Alaska and Maine that reimburse insurers for high-cost enrollees. In Alaska, this so-called reinsurance recently lowered premium increases from 40 percent to less than 10 percent. Similarly, Maine implemented a reinsurance program in 2011 for the state’s pre-ACA individual market that helped reduce premiums by 20 percent in the first year. This is not hypothetical or abstract; it is a solution that works in the real world.

If the legislation provided $15 billion to states for reinsurance, this would lower premiums by more than 14 percent. Because this funding would lower premiums, it would save money on tax credits—resulting in an overall cost of slightly more than $4 billion per year.

If the legislation provided this reinsurance for 2018 and 2019, senators working together in good faith could easily find $8 billion in savings to pay for it. CAP presents here just two options:

  • When there is a generic version of a drug, Medicare could eliminate beneficiary costs for the generic drug and increase costs for the brand drug. Congress could also speed up discounts for brand drugs for beneficiaries in the doughnut hole. These two policies would save $32 billion over 10 years, according to the CBO.
  • Reform payment for health care to pay for value and quality. For instance, when he was a member of Congress, U.S. Health and Human Services Secretary Tom Price sponsored legislation to reform Medicare payments for care after discharge from the hospital. Under Price’s bill, Medicare would pay a fixed rate for a bundle of services over a period of time, allowing providers to share any savings. CBO estimates that such bundled payments for post-hospital care would save about $10 billion over 10 years.

Third, the legislation could use carrots to encourage insurers to enter markets where there is a single or no insurer. With respect to counties that were underserved as of June 1, insurers that enter such counties could be exempted from the health insurance tax. The government could offer a Guaranteed Choice Plan in areas where there are not sufficient choices, particularly in rural areas. People in underserved counties could be allowed to buy into the Federal Employees Health Benefit Program (FEHBP). Sens. Bob Corker (R-TN), Lamar Alexander (R-TN), and Claire McCaskill (D-MO) have all supported the concept of filling in the gaps in underserved counties until the other stabilization policies have a chance to change market dynamics.

Conclusion

These policies are commonsense solutions. Insurance commissioners, actuaries, economists, the CBO, and policy experts across the political spectrum can all testify that such policies would stabilize insurance markets and lower premiums. The only barrier standing in the way of real improvement in insurance markets is the partisan rush to repeal the ACA.

Appendix: The Market Stability and Premium Reduction Act of 2017

To amend federal law to ensure the stability of individual health insurance markets and lower premiums immediately.

Be it enacted by the Senate and the House of Representatives of the United States of America in Congress Assembled.

SEC. 1.  SHORT TITLE.

This Act may be cited as the “Market Stability and Premium Reduction Act of 2017.”

SEC. 2.  GUARANTEE OF COST-SHARING REDUCTIONS.

There is appropriated to the Secretary of Health and Human Services, out of any money in the Treasury not otherwise appropriated, such sums as may be necessary for payments for cost-sharing reductions authorized by the Patient Protection and Affordable Care Act (including adjustments to any prior obligations for such payments).

SEC. 3. STATE INNOVATION MODELS FOR STABILITY.

(a) APPROPRIATION.—There are authorized to be appropriated, and are appropriated, out of monies in the Treasury not otherwise obligated, $15,000,000,000 for each of calendar years 2018 and 2019, to the Administrator of the Centers for Medicare & Medicaid Services (in this section referred to as the ‘Administrator’) to provide funding for an individual market stabilization reinsurance program in each State. Funds appropriated under this section shall remain available until expended.

(b) PROCEDURE FOR DISTRIBUTION OF FUNDS.—Not later than 30 days after the date of enactment of this Act, the Administrator shall publish a notice in the Federal Register specifying:

(1) the procedures for providing and distributing funds under this section.

(2) the amounts that the Administrator shall make available to each State for each calendar year for reinsurance programs under this section; and

(3) the time and manner in which a state may elect to have the Administrator operate the reinsurance program on behalf of the state.

(c) NO MATCH.—No state matching requirement shall apply to funds provided to health insurance issuers under this section.

(d) USE OF FUNDS.—The Administrator shall use amounts appropriated under this section to establish a program under which the Administrator or States shall make reinsurance payments to health insurance issuers offering qualified health plans in the Federal or State Exchanges established pursuant to title I of the Patient Protection and Affordable Care Act with respect to high-cost individuals enrolled in individual market coverage offered by such issuers that are not grandfathered health plans or transitional health plans for any plan year beginning with the 2018 plan year.

Neera Tanden is the president and CEO of the Center for American Progress. Topher Spiro is the vice president for health policy and a senior fellow for economic policy at the Center.