What’s Next for the Individual Market?

The rancor of the recent debate around repealing and replacing the Affordable Care Act (ACA), masked a point of agreement- despite progress, the individual market remains unaffordable for too many and sometimes limits plan choice.

In a changing economy, more of us move from job to job, sometimes with periods of unemployment; many of us work part-time, some leave work to return to school mid-career, more of us are self-employed, –all without access to employer based coverage. Some retire early, before becoming eligible for Medicare. Assuring that the individual market remains affordable and stable is, then, an economic imperative for a changing American workforce.

Given the diverse mix of people who rely on the individual market, products can be difficult to price. Several strategies are in place to address affordability. One provides premium tax credits and cost sharing reductions to help qualifying individuals afford premiums and out-of-pocket costs. Another, requiring everyone to purchase coverage, is designed to assure a good mix of healthy and sick, necessary for spreading risk and improving affordability across markets. The ACA included some safeguards in case the balance of risk was tipped more heavily toward sicker, higher-cost individuals. However, a budget neutrality contingency passed by Congress in 2014, caused one of these safeguards, the risk corridor program, to be severely underfunded, this resulted in issuers bearing greater than expected costs for services; one reason for rising premiums.

The recent proposal to create a stability fund to support state based initiatives to lower premiums in the individual market has promise and could lay the groundwork for meaningful reform. Importantly, it would need to be sufficiently funded to meet the task of lowering premiums in a volatile market and designed solely to support initiatives that lower consumers’ costs of coverage. And, given the limits of state budgets, arguably it should be fully federally funded. As originally proposed, the fund would have required significant state matching funds beginning in 2020, likely leading to billions in state expenditures by 2026. Fully funded, states could invest resources directly toward strategies that will stabilize their markets such as the creation of reinsurance pools, as established in Alaska, or enhance subsidies to encourage more individuals to participate in the individual market, as Minnesota has done.

A robust stability fund to help ease the unpredictability of this market is foundational. But it is not enough.

Absent legislative fixes, new flexibility under 1332 waivers proposed by the administration could provide opportunities for the state and federal governments to negotiate innovative approaches to address the affordability of individual coverage. Some states may become more active purchasers, standardizing offerings and negotiating for lower costs; some could propose a public option. Others may seek to extend subsidies and cost sharing reductions to more lower-cost products, such as high-deductible, HSA eligible or catastrophic plans, in order to increase plan choice and encourage more to gain coverage. This strategy, however, only works if the individual market remains one risk pool and includes guardrails to address consumers who choose low cost, limited benefit plans and will then enroll in more robust plans when illness or accident strikes. The stability fund would be one key to address that problem, funding the expenses of high cost enrollees to avoid the potential of staggering premium increases.

The challenges of the individual market are not new and not the result of the ACA. In fact, the individual market has doubled since 2010 with younger adults, age 19-34 posting the largest coverage gains in that period.[1] It is the nature of the market that requires special attention.

States have enacted and sustained reforms and implemented the ACA often with bipartisan action. That same spirit is required now to take the next steps to improve affordability of products offered in the individual market for the growing numbers of Americans who will rely upon it in a changing and dynamic economy.

[1] http://www.commonwealthfund.org/publications/issue-briefs/2017/feb/how-the-aca-has-improved-ability-to-buy-insurance