Sometimes the cure is worse than the disease.
Republican proposals to avoid immediate harm to millions of Obamacare customers from a potential Supreme Court ruling actually could end up seriously hurting the health insurance market, a leading professional group warns in a new report. (Tweet This)
The group of actuaries said that if implemented the GOP plans could threaten the viability of that market, and would "only delay the inevitable market disruption." Also, the proposals could lead to a disproportionate number of unhealthy people being enrolled in individual insurance plans as healthy people exit the market—an insurance industry bogeyman known as "adverse selection," the report warned.
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That grim analysis by the American Academy of Actuaries—composed of people who play a key role in setting insurance prices—also warned that Republican plans could lead to average costs rising for coverage for remaining customers, and "threaten insurer solvency" if insurers are temporarily barred from raising their prices, as some proposals suggest.
The actuaries' report comes as the Supreme Court is on the verge of deciding whether to effectively bar financial aid to Obamacare customers in 34 states served by HealthCare.gov, the federal insurance marketplace.
In anticipation of such a ruling, a number of congressional Republicans have floated various temporary fixes that would seek to protect at least existing customers from losing their subsidies. The proposals would keep that aid in place temporarily for varying lengths of time.
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But "most of the scenarios on the table leave open real risks for health plans in the market and make it likely that some plans will drop out while others will need to dramatically increase prices," said Caroline Pearson, senior vice president of the consulting company Avalere Health.
The risks are tied to the crucial role that federal subsidies play in Obamacare. The subsidies, which offset monthly premium prices, are available to customers who earn between one and four times the federal poverty level, or $11,670 to $46,680 for a single person.
Nearly 90 percent of the 11.4 million customers of all Obamacare exchanges in 2015 qualified for subsidies. And more than 9 million of those people are enrolled through HealthCare.gov.
It is widely accepted that many, if not most, of the subsidized Obamacare customers would drop their insurance if the aid was removed, either because they would then be unable to afford their plans or because they would opt not to buy them at the full price.
In the pending Supreme Court case, King v. Burwell, plaintiffs claim that the Affordable Care Act only authorizes subsidies for customers of an exchange established by a state, not one created by the federal government. That argument is based on the precise wording of the ACA, which does not discuss explicitly discuss the issuance of financial aid to HealthCare.gov customers, although it does do so for state-run exchange customers.
The Obama administration disputes that claim, arguing that the ACA allows subsidies for customers of all government-established exchanges, be they federal- or state-run.
If the subsidies are taken away for HealthCare.gov, an estimated 8.2 million people, primarily in Republican-led states, would lose their insurance, analysts predict. It would also lead to dramatically higher insurance premium prices as insurers deal with the costs of providing benefits to the remaining people in their plans, who would as a group would tend to be less healthy.
In response to that chance and the political risk it poses to them, several Republicans, despite being opposed to Obamacare, have suggested effectively continuing the subsidies to as late at the summer of 2017.
Some of those proposals, however, would phase out the subsidies over time and bar new customers from getting the aid. They would also end Obamacare's "individual mandate," which requires nearly all Americans to have some form of health coverage or pay a fine.
But the actuaries warned that "a temporary extension of premium subsidies would only delay the market disruption" that would be seen sooner if the tax credits were removed immediately.
For instance, the group said, "if subsidies are made available only to those already receiving them" and not to people newly eligible for the help, "this would lead to lower-overall enrollment in the individual market, as some individuals would transition out of coverage, but few would transition in."
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And, "if the premium subsidies were structured to phase out over time, individuals would begin dropping coverage, with the average costs of those retaining coverage rising. These factors could threaten insurer solvency, especially if, as per some proposals, insurers are prohibited from increasing premiums during the period of subsidy extension," the report said.
The report also said that if the subsidies are ultimately taken away, "potentially millions of people will drop coverage and premiums will increase substantially."
In addition, if the individual mandate were eliminated, there could be "adverse selection," which in turn would lead to an increase in premiums to make up for the loss of healthy customers.
Allowing for insurance to be sold across state lines, as some proposals suggest, could result in adverse selection, and "also could increase competition," the actuaries warned.
Avalere Health's Pearson said, "I think the adverse selection issue is the crux of the issue."
"Virtually all of the congressional proposals on the table would limit the number of individuals eligible for subsidies to people who are already enrolled in exchanges," Pearson said. "Given the high turnover rate in the exchange market, these policies would result in a steady shrinking of enrollment over time. As the size of the exchange market shrinks, the risk pool of enrollees will deteriorate, which drives up plan premiums."
"Additionally, most of the congressional proposals would undermine some or all of the risk-stabilization mechanisms in ACA, including repealing the individual mandate," she said. "Over time, without an individual mandate, healthier people will drop out of the market, premiums will rise, and only high-risk individuals will remain."
Spokesmen for two Republican U.S. senators who have proposed two of the leading contingency plans for the loss of HealthCare.gov subsidies, Ron Johnson of Wisconsin and Ben Sasse of Oklahoma, did not respond to requests for comment on the actuaries' analysis.