In just over five weeks, open enrollment for the Affordable Care Act (ACA), which is best known as Obamacare, will begin. The upcoming enrollment period could very well rival the first enrollment period (Oct. 2013 – March 2014) as the most challenging yet, given the uncertainties surrounding what might happen to now-former President Barack Obama's hallmark healthcare legislation.
Currently, Republicans are working on last-ditch efforts to repeal and replace the ACA before October 1. Once the new fiscal year hits for the federal government, the possibility of using reconciliation as a tool to repeal Obamacare will come off the table until around March of next year. Reconciliation allows lawmakers to pass bills that have a direct impact on the federal budget with a simple majority vote (51%) as opposed to getting the required 60% of votes needed to make a repeal and replace of Obamacare permanent. Should the ACA be repealed via reconciliation, the new law would sunset in 10 years, reinstituting Obamacare.
Sorry to say, but your Obamacare premiums should be much higher next year
With the GOP in control of the legislative branches of government, but having no luck thus far in coming to a consensus on what should replace Obamacare, uncertainty reigns. And this uncertainty is just one of many factors that could very well push your Obamacare premium through the roof in 2018. ACASignUps.net has calculated out an average requested increase in premiums next year of 16.22%, assuming the Trump administration doesn't make any drastic changes to the current program.
Here's a running list of all the reasons your health insurance premium under Obamacare is probably going to rise by a double-digit percentage in 2018.
1. Trump could pull the plug on cost-sharing reductions
Arguably the biggest boost to premiums is derived from the uncertainty surrounding whether or not President Trump will "go nuclear" on Obamacare. You see, back in 2014 the GOP sued then head of the Department of Health and Human Services, Sylvia Burwell, over the disbursement of cost-sharing reductions (CSRs) to individuals and families earning between 100% and 250% of the federal poverty level. Their argument was that only Congress can apportion funding for CSRs, which help lower the cost of copays, coinsurance, and deductibles tied with a medical visit, and that this apportioning was never properly made. In 2016, a federal judge agreed and gave Republicans the legal victory they'd been waiting for.
However, the verdict has been stayed by an appeal that began with the Obama administration and has continued under Trump's tenure. On one hand, continuing to pay CSRs allows 7 million low-income folks the ability to affordably head to the doctor. On the other hand, Trump wants the ACA repealed, and dropping the appeal to this case would end CSR funding. If that were to happen, these lower-income folks would either choose not to go to the doctor, or they'd stiff insurers with the bill. Either way, it'd be bad news for insurers and consumers. This uncertainty is bound to boost rates big time in 2018.
2. The administration slashed outreach funding
An even more recent issue for the ACA is the announcement from the Trump administration that it would be cutting outreach funding by 90% ($100 million to $10 million) and navigator funding by 41%, for the upcoming enrollment period. The Trump administration justified the cuts by suggesting that navigators haven't been reaching their enrollment goals, while the 90% gutting to the marketing budget for the ACA is simply par for the course on a program the GOP would rather see gone.
While it's tough to pinpoint the exact impact of a major reduction in the marketing expenses tied to the ACA, the expectation is that fewer folks will realize they have options under Obamacare, including the possibility of premium and CSR subsidies. This should result in a reduction of ACA enrollment, which could disincentive insurers from offering plans on the ACA exchanges in the future.
3. SRPs aren't properly incentivizing healthy adults to enroll
Another concern for the upcoming year is that the Shared Responsibility Payment (SRP) will once again not incentivize younger, healthier adults to enroll. The SRP is the penalty that individuals are supposed to pay for not purchasing health insurance during the year, and last year it was the greater of $695 or 2.5% of modified adjusted gross income. According to an analysis from the Kaiser Family Foundation in Dec. 2015, the estimated SRP for a household in 2016 was $969.
Here's the issue: While the average SRP might be close to $1,000, the average bronze-tier plan cost an unsubsidized individual more than $3,700 across the U.S. in 2017, per HealthPocket. Healthy adults could choose to remain uninsured and save themselves around $2,700 for the year. What's more, Trump signed an executive order in January easing the burdens of Obamacare, which allows taxpayers to submit their return without filling in information regarding their SRP payments during the year. In other words, healthy adults have little incentive to enroll, which hurts any shot insurers have of being profitable.
4. Insurers have abandoned the ACA in droves
Higher premiums can also be blamed on insurers, which have been leaving the ACA exchanges in droves. Simple economics would suggest that the more supply you have, the greater chance of competitive pricing. Therefore, the more insurers there are operating in a state or county, the more choice consumers will have to buy a plan that matches their budget. In 2014 and 2015, this wasn't an issue since insurers flocked to Obamacare's exchanges fully expecting tens of millions of enrollees. By 2017, though, we began to witness an exodus as losses from the ACA mounted for national insurers.
UnitedHealth Group (NYSE: UNH), the largest national insurer, wound up slashing its coverage from 34 states in 2016 to just three in 2017, while Aetna (NYSE: AET) and Humana (NYSE: HUM), which had their merger plans denied by regulators, slashed their county-based coverage by nearly 70% and almost 90%, respectively, in 2017. More recently, Aetna and Humana both announced that they were pulling out of the ACA's exchanges entirely for the upcoming year. Even Anthem (NYSE: ANTM), the company behind the Blue Cross Blue Shield brand in 14 markets, is cutting back on its coverage in 2018. Fewer options mean higher prices for consumers.
5. Sustainability and the failure of the risk corridor have crushed co-ops
Building off of the previous point, the failure of the risk corridor has also compromised any incentive for competition among insurers. The risk corridor was a fund designed to collect money from overly profitable insurers, and then divvy that money out to insurers with excessive losses that had priced their premiums too low. It was critically underfunded from the get-go since there weren't many profitable insurers (an issue caused by enrolling too many sick folks and not enough healthy adults), leaving insurers to deal with their losses on their own.
The result? Out of the 23 approved healthcare cooperatives (co-ops), three-quarters have already shut their doors. These co-ops were a critical source of low-cost premiums designed to attract younger adults without a lot of disposable income. Without many of these co-ops in place, there's even less incentive for young adults to enroll.
6. OICs have virtually no power
You can also expect that your Obamacare premium is going to skyrocket in 2018 because your states' Office of the Insurance Commissioner (OIC) has very little power.
An OIC is designed to be an intermediary between the insurer and the consumer, much in the way a pharmacy-benefits manager acts an intermediary between a drugmaker and an insurance company to lower drug costs. Insurers looking for a rate hike (or decrease) of 10% or higher are required to submit those requests to a states' OIC, along with the reasoning that explains the need for the rate hike (or decline). Ideally, that OIC is supposed to negotiate with insurers on behalf of the consumer to push premium prices as low as is reasonable. Unfortunately, OICs have virtually no power to persuade insurers to lower their premiums, paving the way for "reasonable" double-digit rate hikes.
7. Specialty drugmakers are making life difficult for insurers
Last, but not least, we can point at prescription drug costs for some of the expected increase in 2018. We've thankfully witnessed weaker generic drug pricing power of late, but specialty drug costs, such as those that fight diabetes and cancer, have generally been rising by around 10% a year.
If there is a silver lining to higher prescription drug prices, it's that their list prices aren't what insurers are paying, and therefore not what they're trying to pass along to consumers. Usually, pharmacy-benefit managers are able to reduce prescription drug costs significantly (around half, give or take a bit in each direction, and depending on the drug and indication). Nevertheless, higher drug costs only incentivize insurers to push their premiums higher.
No matter how we look at Obamacare in 2018, your premium costs are probably going to be significantly higher.
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