Actuary Magazine Analysis: "Ass" part of #ShortAssPlans will likely jack up rates at least 1.4 - 4.4%

I've written quite a few entries bashing the Short-Term Plan portion of Donald Trump's executive order opening up the floodgates on non-ACA compliant policies. However, I've written far less about the other shoe he's dropping: Association Health Plans, or AHPs. In fact, while I discussed AHPs briefly in Part Two of my Risk Pool video, the only blog post I've written to date which specifically focuses on them just quoted from this Avalere Health article:

Association Health Plans (AHPs) are health insurance arrangements sponsored by an industry, trade, or professional association that provide health coverage to their members—typically small businesses and their employees. Health insurance coverage offered through AHPs aims to make coverage available and affordable for small groups and individual employees. Importantly, these arrangements are currently governed by state and federal requirements and are subject to state oversight, including standards related to premiums and benefit requirements.

A recent Department of Labor’s (DOL) proposed regulation would seek to broaden access to AHPs by expanding eligibility and potentially allowing a larger number of these arrangements to be exempt from certain Affordable Care Act insurance protections—including coverage for essential health benefits and community rating requirements.

The proposed AHP changes are expected to have an impact on enrollment and premiums for existing individual and small group market plans. Individuals and small businesses shifting out of their respective markets into AHPs are expected to be healthier than average, fueling adverse selection. This adverse selection could increase individual and small group market premiums and could lead to decreased competition in those markets due to changes in issuer participation.

The report that follows estimates the premium and coverage impact of the DOL proposed rule over a 5-year period (2018-2022). If the rule is finalized as proposed, we estimate the following impacts on the individual and small-group markets:

  • Higher premiums in both the individual and small-group markets. If the proposed AHP rule is finalized, Avalere projects premiums would rise in the current individual (2.7% to 4.0%) and small group (0.1% to 1.9%) markets relative to current law, largely due to healthier enrollees shifting into AHPs. This trend will lead to the individual and small group market risk scores rising.
  • Increase in the number of uninsured Americans. The proposed rule is projected to lead to 130,000 - 140,000 additional individuals becoming uninsured by 2022, compared to current law. The increased number of uninsured is largely caused by premium increases in the individual market as healthier enrollees shift into AHPs.

Well, the Avalere analysis has been confirmed (and then some) by another study published in The Actuary magazine, as reported by Susannah Luthi of Modern Healthcare:

Obamacare exchange enrollment could drop up to 10% as people turn to cheaper association health plans for their insurance coverage, according to a new study Friday.

Association plans' ultimate effect will depend on how the U.S. Department of Labor finalizes and implements its proposed rule, but in both cases the people exiting the exchanges are likely to be far healthier than those who stay.

The projected drop could be anywhere from 3% nationwide to 10% of the exchange enrollees from the individual market, according to insurance experts for The Actuary magazine. Their analysis looked at two scenarios of how the regulation could influence the number of healthy people who might leave the individual market to find coverage through an association health plan (AHP).

The Actuary magazine is the official publication of the Society of Actuaries. This analysis was written by Sabrina Corlette, Josh Hammerquist and Pete Nakahata. I'm most familiar with Corlette, of the Georgetown University Center on Health Insurance Reforms.

In the lower estimate, analysts project a 1.4% average increase in claims for Obamacare insurers; the high estimate sparked a 4.4% average increase in claims. Individual market premiums would also go up.

Claims increases aren't quite the same thing as premium increases, of course, but it's pretty safe to assume that if claims go up 1.4 - 4.4%, premiums would go up at least as much.

The lower 3% projected drop in Obamacare enrollment assumed that self-employed individuals can opt for AHPs, but that they would be subject to strict verification requirements established by the Department of Labor. An estimated 24% of the Obamacare individual market is made up of self-employed workers, even though only about 10% of people nationwide count as self-employed according to 2015 data.

Sidenote: That's actually an interesting and useful statistic which I haven't seen before (I'm among those 24%). I knew self-employed folks were a large part of the ACA indy market, but I never knew how large/small it was until now.

...The higher scenario of a 10% nationwide drop in individual market enrollment assumed that the Department of Labor drops its nondiscrimination provision from the final rule and preempts some state regulatory authority — which many states and insurance companies strongly oppose. It also assumed that the final rule includes weak vetting at best of an enrollee's self-employed status and that AHPs play aggressively in the market.

...While the analysis focused on nationwide data rather than a breakdown of individual states, whose regulations and market conditions vary considerably, the projections aligned with insurance commissioners' concerns about how AHPs could impact their states.