The Endangered Individual Health Insurance Market

And then there were none? The individual health insurance marketplace is endangered and policymakers need to start thinking about a fix now, before we pass the point of no return.

Health plans aren’t officially withdrawing from the individual and family market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits.

From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than is group coverage. The Affordable Care Act’s requirement guaranee issue coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect.

Add to this higher costs to administer individual policies relative to group coverage and the greater volatility of the insured pool. Stability is a challenge as people move in-and-out of the individual market as they find or lose jobs with employer provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. Those carriers in the individual market tend to be very good at it. They have to be to survive.

Come 2014, when most of the ACA’s provisions took effect, these carriers suddenly found their expertise less helpful. The changes were so substantial historical experience could give limited guidance. There were simply too many unanswered questions. How would guarantee issue impact the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on.

Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers towards mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition to a new world: the risk adjustment, reinsurance and risk corridor programs.

Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by Health and Human Services; health plans with claims greater than 103% of this target receive funds. You can think of risk corridors as market-wide shock absorbers helping carriers make it down an unknown, bumpy road without shaking themselves apart.

You can think of them as shock absorbers. Senator Marco Rubio apparently cannot. Instead, Senator Rubio views risk corridors as “taxpayer-funded bailouts of insurance companies.”

In 2014 Senator Rubio led a successful effort to insert a rider into the budget bill preventing HHS from transferring money from other accounts to bolster the risk corridors program if the dollars paid in by profitable carriers were insufficient to meet the needs of unprofitable carriers. This provision was retained in the budget agreement Congress reached with the Obama Administration late last year. Senator Rubio in effect removed the springs from the shock absorber. The result is that HHS could only reimburse carriers seeking reimbursement under the risk corridors program just 12.6% of what they were due based on their 2014 experience. This was a significant factor in the half the health co-operatives set up under the ACA shuttering.

Meanwhile individual health insurers have taken a financial beating. In 2015 United Healthcare lost $475 million on its individual policies. Anthem, Aetna, Humana and others have all reported substantial losses in this market segment. The carriers point to the Affordable Care Act as a direct cause of these financial set-backs. Supporters of the health care reform law push back on that assertion, however. For example, Peter Lee, executive director of California’s state-run exchange, argues carriers’ faulty pricing and weak networks are to blame. Whatever the cause, the losses are real and substantial. The health plans are taking steps to staunch the bleeding.

One step several carriers are considering is to leave the health insurance exchanges. Another is to exit the individual market altogether; not formally, but for virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy and insurers are usually barred from reentering the market for a number of years (five years in California, for example).

There’s more than one way to leave a market, however. A method carriers sometimes employ is to continue offering policies, but make it very hard to buy them. Since so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero and agents lose money on each sale.

While I haven’t seen documentation yet, I’m hearing of an increasing number of carriers eliminating agent commissions and others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions please provide documentation in the comments section).

So what can be done? In a presidential election year not much legislatively. Republicans will want to use an imploding individual market to justify their calls repealing the ACA altogether. Senator Bernie Sanders will cite this situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, begin mapping out the solution and inoculate herself from whatever happens later this year.

Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must take notice of the endangered individual market as well. They have a responsibility to assure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing and attract new carriers into the individual market.

If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends. Monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now.

The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. Just not a lot of time.

3 thoughts on “The Endangered Individual Health Insurance Market

  1. CA Individual Sales Organization Update
    February 1, 2016
    Anthem Blue Cross (Anthem) has made some organizational updates to our Individual business structure in California; this will change how we support our agent partners for Individual sales.

    We’re transitioning to an internally based sales model and will no longer have external, field-based sales associates as of March 1, 2016. We’re in the process of defining new territories as well as the sales team that will manage them.

    Our expectation is that it will take several weeks to finalize the new organization. Detailed territory and contact information for the new structure will be provided when completed. However, the existing field-based Regional Sales Managers will still be available to provide assistance and support service issues until March 1, 2016.

    Our goal at Anthem has not changed and we will continue to help our valued agent partners grow and retain their book of business and we look forward to working with you in 2016 in our new sales model.

    As always, if you have questions, contact Broker Services.

  2. Blue Shield of California eliminated their individual RSMs a while ago. Kaiser has no one, and their so-called Broker Services line is staffed by 2 people – one covering southern California and one covering northern California, so obviously there is no support. Cigna in 2015 and forward will only pay commission on Bronze level plans and then only for plans written during open enrollment. They pay zero for special enrollment business. The only actual live rep we have for individual is Mike Suess with Health Net who covers individual and group and is run ragged. Anthem hadn’t had a rep since Luis Chilbas went out on family medical leave, then briefly had a rep. During that time, we have had, and still have, David Nila from the home office who does webinars and updates several times a month. It’s pretty grim out there. 🙁

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