CBO confirms it: #MandateRepeal + #ShortAssPlans = 10-13% higher premiums

Just an hour or so ago I posted about a vice president of the Blue Cross Blue Shield Association stating point-blank what I and every other healthcare wonk under the sun has been warning for months (or years, really, if you include the original justification for the Individual Mandate under RomneyCare):

Kris Haltmeyer, a vice president at the Blue Cross Blue Shield Association, told reporters that the premium increases were in part due to the repeal of ObamaCare’s individual mandate in the Republican tax reform bill in December...“With the repeal of the individual mandate and the failure of Congress to enact stabilization legislation, we are expecting premiums to go up substantially,” Haltmeyer said.

...He said the premium increases are “related to the loss of the mandate and then underlying medical costs.”

“Those two things have the most impact on the rate increases,” he added.

...Oh, and what comes after mandate repeal and underlying medical costs? You guessed it: #ShortAssPlans

Haltmeyer said another factor driving premium increases is the Trump administration’s move to expand short-term plans that do not meet ObamaCare requirements. Like repeal of the mandate, insurers warn that change will siphon off healthy people and raise premiums for those remaining in ObamaCare plans.

Well, by an amazing coincidence (hah!), just moments after I posted that, the Congressional Budget Office released a brand-new projection on how they see individual market enrollment, premiums and subsidies playing out over the next decade:

The market for nongroup health insurance (that is, insurance bought individually rather than through an employer) is expected to be stable in most areas of the country over the decade. Premiums for benchmark plans, which are the basis for determining subsidies in that market, are projected to increase by about 15 percent from 2018 to 2019 and by about 7 percent per year between 2019 and 2028.

And what does the CBO anticipate will be causing that initial 15% jump (as an aside, I've never understood why official government documents spell out "percent" instead of simply using the % sign)?

Well, first, they give a summary review of the main causes of 2018's premium spike:

Gross Premiums for Benchmark Plans in the Marketplaces. Premiums for benchmark silver plans in the marketplaces—which are key drivers of subsidy amounts— increased by an average of 34 percent from 2017 to 2018. That increase occurred for three main reasons:

(Sidenote: I'm not sure where they're getting 34% from...all the data I have suggests it averaged more like 28-29%, which is very close to my own projection of 29.5% nationally.)

  • CSRs. CBO and JCT estimate that gross premiums for silver plans offered through the marketplaces are, on average, 10 percent higher in 2018 than they would have been without the announcement in October 2017 that the Administration would no longer reimburse insurers for the cost of CSRs through a direct payment without an appropriation for that purpose. Because insurers are required to provide lower cost-sharing for enrollees in silver plans purchased through the marketplaces even in the absence of a federal payment, most insurers increased gross premiums for those plans to cover the costs of CSRs. CBO and JCT estimate that the effects of the lack of a direct payment for CSRs will continue to phase in over the next few years, putting upward pressure on premiums for silver plans offered through the marketplaces.

(Sidenote: Again, that 10% CSR-specific chunk is lower than all the other estimates I've seen, including my own, which pegs it at closer to 14%.)

  • Limited Competition. The increase in the percentage of the population that lives in a county with only one insurer in the marketplace between 2017 and 2018 probably contributed to the growth in national average benchmark premiums in 2018, because areas where only one insurer offers coverage through the marketplace tend to have higher benchmark premiums than areas where multiple insurers compete against one another to offer coverage.

(Sidenote: Well, yes...and many of the carriers which did drop out of certain regions or whole states specifically cited the CSR payment cut-off itself as among the main reasons they did so, proving that this is a domino-effect situation.)

  • Uncertainty. CBO and JCT also estimate that some of the increase in benchmark premiums from 2017 to 2018 was related to insurers’ uncertainty about whether the individual mandate would be enforced. Such a reduction in enforcement would probably cause some healthier enrollees to leave the market.

This is precisely why, as I pointed out in a comment response here (scroll down), it is not the same thing for a carrier to raise their premiums by, say, 3-4% in 2018 because they're concerned about whether the mandate will be enforced this year...and the same carrier further raising premiums by 9-10% in 2019 because they know for a fact that the mandate has been completely eliminated starting next year.

The former might result in a small chunk of enrollees taking a chance and bailing on coverage in the hopes of not getting hit with the penalty. The latter will result in everyone knowing for sure that they could bail on coverage without getting hit with the penalty. Night and day.

OK, so that was this year. What about the ~15% projected average hike next year?

The agencies expect insurers to raise premiums for benchmark plans offered through the marketplaces in 2019 by an average of roughly 15 percent over the premiums charged in 2018. Part of that increase is projected to occur because plans are expected to have a less healthy mix of enrollees after the penalty related to the individual mandate is no longer levied beginning on January 1, 2019. In total, CBO and JCT expect, premiums for nongroup health insurance will be about 10 percent higher in 2019 than they would have been if the individual mandate penalty remained in place and was enforced. The lack of a direct payment for CSRs and the rising costs of health care per person are also anticipated to contribute to the overall increase.

After a few years, average premiums for benchmark plans will rise largely with growth in health care spending per person, CBO and JCT expect. As a result, average benchmark premiums in the marketplaces are projected to increase by an average of close to 10 percent per year over the 2019–2023 period and then by an average of roughly 5 percent per year over the 2024–2028 period, after the effects of the elimination of the individual mandate penalty and of the lack of a direct payment for CSRs are expected to be fully phased in. Overall, between 2018 and 2028, the average benchmark premium is projected to grow by an average of about 7 percent per year. Those growth rates are about 2 percentage points lower in real terms (after the effects of inflation are removed).

In other words, the mandate repeal will cause a 10-point hit next year and a gradually-decreasing impact for several years after that. What about the other 5 points? Well, that's a bit tougher to parse out. They do say, in a special "boxed off" section, that:

By CBO and JCT’s estimates, starting in 2023 (when the effects of both rules are estimated to be fully phased in), roughly 6 million additional people would enroll in either an AHP or STLDI plan as a result of the proposed rules, with about 4 million in AHPs and about 2 million in STLDI plans. (Of the 2 million additional enrollees in STLDI plans, fewer than 500,000 would purchase products not providing comprehensive financial protection against high-cost, low-probability medical events. CBO considers such people uninsured.)2 The agencies estimate that the rules would decrease the number of uninsured people by roughly 1 million in 2023 and each year thereafter, with the majority of the previously uninsured enrolling in STLDI plans.

Hmmm...this actually kind of, sort of runs counter to the CBO's warning back in December 2016 that they aren't gonna count "junk plans" as insurance. At issue is where the line should be drawn on "junk plans" vs. "comprehensive insurance policies"...and they appear to have split the difference:

In developing those estimates, CBO and JCT consulted with numerous policy and legal experts, industry associations, insurers, and state insurance regulators. On the basis of those conversations, the agencies expect that if the proposed STLDI regulation was finalized, a range of new STLDI insurance products would be sold. A small percentage of those plans would resemble current STLDI plans, which do not meet CBO’s definition of health insurance coverage. In addition to those plans, insurers would, CBO expects, offer new types of short-term products resembling nongroup insurance products sold before the implementation of the Affordable Care Act. Those new products would probably limit benefits, be priced on the basis of individuals’ health status, and impose lifetime and annual spending limits, and insurers could reject applicants on the basis of their health and any preexisting conditions. The majority of those plans would probably meet CBO’s definition of private health insurance because they would still provide financial protection against high-cost, low-probability medical events

In other words, the CBO is basically saying they expect most of the new "Short-Term Plans" to effectively be identical to current Grandfathered or Transitional policies, which generally include perhaps 80% of the ACA's EHBs but can also discriminate against those with pre-existing conditions via medical underwriting and so forth.

In 2023 and later years, about 90 percent of the 4 million people purchasing AHPs and 65 percent of the 2 million purchasing STLDI plans would have been insured in the absence of the proposed rules, CBO and JCT estimate. Because the people newly enrolled in AHPs or STLDI plans are projected to be healthier than those enrolled in small-group or nongroup plans that comply with the current regulations governing those markets, their departures would increase average premiums for those remaining in other small-group and nongroup plans. As a result, premiums are projected to be 2 percent to 3 percent higher in those markets in most years.

In other words, the CBO says that #ShortAssPlans will tack on another 2-3 points. However, they also state that they don't expect this to happen until 2023, which doesn't tell us much about what they expect the short-term/association hit would be next year (2019) specifically. A generous reading of this section of the CBO projection would be that they only expect the 10-point mandate repeal hit next year but don't expect any #ShortAssPlans hit until 2023. A worst-case reading would be 10% due to mandate repeal + 3% due to #ShortAssPlans, or a 10-13% rate hike in 2019 due specifically to the new types of sabotage by the Trump Administration this year on top of the sabotage hit from last year (CSR cut-off, mandate uncertainty, etc).

The CBO estimates of the sabotage factors for each year are somewhat lower than other analysis by the Urban Institute, Covered California, Actuary Magazine and even the Chief HHS Actuary himself...which the CBO openly acknowledges in the projection:

Comparison With Other Estimates

CBO and JCT’s assessment of the effects of the AHP and STLDI rules is in line with other published analyses, although comparing results is difficult because the policy scenarios evaluated are different. One outcome that is straightforward to compare is the effect of the rules on premiums for the small-group and nongroup plans that comply with the current regulations governing those markets. For that measure, CBO’s estimate of a 2 percent to 3 percent increase in premiums accords with most other published estimates but is lower than the 6 percent increase estimated by the Chief Actuary for the Centers for Medicare & Medicaid Services (CMS). Similarly, CBO’s estimate of 4 million enrollees in AHPs is similar to other estimates.

For the STLDI regulation, different analyses have reported very different measures, but most have reported the number of people leaving nongroup plans that comply with the current regulations governing that market. On that measure, CBO and JCT’s estimate is significantly higher than the Administration’s estimate contained in the proposed rule but lower than estimates in other published analyses. Specifically, the Administration estimates in the proposed rule that fewer than 0.2 million people will leave the nongroup plans for STLDI plans, and other analyses show a range of 1.1 million to 2.2 million—compared with the agencies’ estimate of almost 1 million departures in most years for both AHPs and STLDI plans (most of those for the latter).

In short, the CBO is playing it fairly safe here: 10% mandate repeal hit immediately, 2-3% #ShortAssPlans hit but not until 2023.

Which projection will prove accurate? Who the hell knows...but I'm willing to bet the carriers are going to tend to err on the side of caution by assuming a worst-case scenario...