The Individual Market at a Crossroads

PLEASE NOTE: This is an unedited transcript. Please refer to the video recording to confirm exact quotes.

SARAH DASH: I’m Sarah Dash, I am President and CEO of the Alliance for Health Reform and I would like to welcome all of you to today’s briefing.

This briefing is part of a series on the future of health insurance and we will actually be doing three summits on the future of healthcare this year, starting with the future of health insurance, moving on to the future of chronic care, and then the future of the healthcare workforce. So, we are really excited that you are here and it’s certainly fair to say that when it comes to health insurance, the future starts here and now in the Senate.

We have a lot to talk about today, but before we do, I want to thank our sponsors for today’s session. Our annual summit series sponsors are: Anthem, Ascension and Health Is Primary, and I would like to thank them. Also, the Blue Cross/Blue Shield Association, CVS Health and our other sponsors for their generous support.

I would also like to just point out one of our board members who is here with us today. One of our new board members is Meg Murray from the Association of Community Affiliated Plans. So, thanks for being here.

We are going to hear a couple brief words from two of our annual series sponsors — first I would like to introduce Shawn Martin. He is Senior Vice President for Advocacy, Practice Advancement and Policy at the American Academy of Family Physicians, here to say a few words on behalf of Health Is Primary. Sean?

SHAWN MARTIN: Thank you very much, and congratulations on securing the Friday after a health reform vote, for this as a discussion. That was excellent leadership.

Good morning, my name is Sean Martin, I’m with the American Academy of Family Physicians, but I’m actually here on behalf of Health Is Primary.

About three years ago, the Academy and seven other family medicine organizations launched a campaign called Health Is Primary, to draw attention to the value of primary and preventative care in our healthcare system. There is a lot of debate taking place in Washington D.C. right now, clearly, but one thing that we know, is that investments in primary care and prevention actually pay long term dividends, and I would point out a recent study that was done in the State of Oregon by Portland State University. They found in that state, for every dollar invested in primary and preventative care, produced $13 in upstream savings to the healthcare systems in the State of Oregon. The Health Is Primary campaign is pleased to sponsor this event here today. Congratulations on your timing again, and we look forward to a really good discussion.

SARAH DASH: Great, thanks Sean. And now I would like to introduce Mark Hayes. Mark is Senior Vice President of Federal Policy and Advocacy at Ascension.

MARK HAYES: Good morning everyone. We are very glad to be a sponsor of this session. Very timely today. If you don’t know about us already, Ascension is the largest non-profit health system in the United States and the largest Catholic system in the world. We are committed to achieving 100% access and 100% coverage, and this session is so timely as all eyes move to the Senate to work the very hard work to strengthen and stabilize the individual market, in particular, and ensure that health plans can participate and have a vibrant competitive market where there is affordable access to coverage, and also to preserve the coverage that we have under current law. So, we are looking forward to the session today. We thank you all for being here, and thank you all for being here, very much. So, have at.

SARAH DASH: Thank you, Mark.

Great, so now we get to the substance. Let me just set a little bit of context for today’s conversation. Clearly in the wake of the House passage of the Affordable Health Care Act yesterday, there are a lot of questions about what happens next, and there are going to be a lot of questions certainly about the politics and the process. We are going to leave those questions to others. We are really going to focus on the policy and the policy details, because as this conversation moves to the Senate and beyond, this is going to be — the policy details are of course going to be critically important.

Secondly, we are going to focus today on the individual health insurance market, because there are immediate questions about what happens next in this marketplace. We know that health insurers today, you know, this week, this month, are making decisions about whether to participate in the market in 2018. They are looking to 2019 and beyond, and there are potentially significant impacts on patients, on families, on the health system as a whole, and on the market. So, we have a fantastic panel today. And without further adolescent, I’m going to introduce them.

Karen Pollitz, to my left, is a senior fellow at the Kaiser Family Foundation, where she works on the program for the Study of Health Reform and Private Health Insurance, and she talks implementation of health reform, with a focus on the consumer protections in the system.

Next, Deep Banerjee is a director with S&P Global Financial Services Ratings Group, which covers a portfolio of publicly traded and private insurance companies and he will tell us more about the market impacts.

Next, Cori Uccello is an actuary and senior health fellow at the American Academy of Actuaries and they provide non-partisan technical assistance to federal and state policy makers and regulators.

Finally, and certainly, last but not least, Brian Webb is Assistant Director for Health Policy and Legislation for the National Association of Insurance Commissioners, which represents insurance regulators in all 50 states, the District of Columbia and five U.S. territories. So, without further ado, we are going to turn it over to Karen for an overview and let’s go — thank you, Karen

KAREN POLLITZ: Thanks, Sarah, and hi, everyone.

I would echo the remarks that this has to be the most timely Alliance event that I have ever participated in, and probably the most aptly named. The individual health insurance market is indeed at a crossroads, and the signs are not yet clear where it’s going next. So, my job today is to remind where this market has been and the change and direction it took to get where it is today, and then tee up discussion with my esteemed colleagues on the panel about issues, raising questions about where it could go in the future.

Just as a reminder, the individual market, this is the smallest part of our health coverage system. Only about 8% of non-elderly people get their coverage through the individual market today. Most of us are covered either at work, in job based plans, or through public programs. Mostly Medicaid CHIP, and then Medicare for some disabled under 65. The individual market is largely a transitional market and a residual market. It’s where people go when they don’t qualify for these other sources of coverage. So, a lot of people kind of move through this market, they may be here for a year or two while they are between jobs, or while they are working in a job that doesn’t offer health benefits, or while they are just coming off or getting ready to go on a public program. About a third of people in this market live here all the time, that would be the self-employed and small business owners who don’t sponsor a group health plan. So, that is about a third of the market, give or take, and those are people who really – this is where they get their coverage and they don’t really belong in any of the other places. So, it’s a small market, but it’s kind of the tail the wags the dog in our health coverage system.

In over a three-year period, as many as one in four adults needs to get coverage in this market at least temporarily and before the market reforms in 2014, it was often very hard to do this. But since new market rules and subsidies, the enrollment in this market has grown, it’s right in the neighborhood of 20 million people now. About two-thirds of them buy their coverage through the marketplaces, a set up under the Affordable Care Act. About 20% are buying ACA compliant plans that follow the new market rules, off marketplace. Either because they are not eligible for subsidies or they don’t know that they are eligible for subsidies. Then we estimate about 12% are enrolled in non-compliant plans in the individual market. These are the grandfathered plans that didn’t have to conform and the so-called grandmothered plans, the transitional plans that people had just as the market reforms came in place in 2014 and they were allowed to keep them temporarily. It is fair to say that this market was entirely transformed by the ACA. Before 2014, this was a voluntary market. Now, we have an individual mandate, there is a requirement to buy coverage and if you don’t qualify in those other places, you are supposed to come here to get it. Before 2014, this was mostly an unsubsidized market. There were few tax credits for the self-employed, but basically paid 100% of the premium with their own after tax dollars. Now, it’s a heavily subsidized market, at least if you qualify for subsidies in the marketplace. Premium subsidy is up to four times the poverty level. Also, help with cost-sharing your deductibles and co-pays up to incomes of two and half times the poverty level. Those two features before the marketplace, the fact that it was voluntary and unsubsidized, meant that insurers were exceedingly nervous about adverse selection. They were worried that in order to part with those high dollars to buy premiums, that people would make decisions based on whether they expected to need to use their health insurance in the coming year and that they were more inclined to sit out, if they didn’t. Insurers always worry about adverse selection, there is kind of a rule of thumb about human beings, that 20% of us in any given year, account for 80% of all healthcare spending. So, we are mostly healthy most of the time, but when we get sick or have a complicated pregnancy, then our claims can get really high. That’s what insurance is supposed to do. It’s supposed to pool risk, but it can’t do that if people stay out when they are healthy and only want to buy coverage when they are sick. Before the ACA, as a result, the individual market was medically underwritten, people would, at application would be turned down or charged more or have their pre-existing condition excluded. So, your ability to buy coverage and to buy affordable coverage was entirely dependent on your health status.

Now, of course, that is not allowed under the ACA in return for making this market mandatory and subsidizing it, insurers are required to take everybody and charge them basically the same rate. Benefits were highly variable in this market, in particular, it was unusual to see policies that covered maternity care, unless state law required it. We often saw limits or the absence of coverage for other benefits like mental health, substance abuse treatment, rehab, prescription drugs. The definition of health insurance under federal law before the ACA was anything a health insurance company sells. With the ACA, essential health benefit standards were added, and also limits on cost-sharing. So those were done to kind of make coverage meaningful, but also just definitional. If we are going to require that people have something and we are going to subsidize it, we want to know what it is. So, now, health insurance in the individual market has to be major medical coverage. It was inefficient before. Lost ratios were low, that is the amount of premium dollar that insurers spend on benefits. They were writing, I don’t know, 60-70% before the individual market. Now, they have to be at least 80%, or else insurers have to give people a rebate the following year. I haven’t had any trouble hitting that 80%, I will talk about that in a minute.

This market, I think has been entirely transformed. That transition was difficult. I think challenging for insurance companies, they really had to adopt an entirely new business model. And when the new individual market and marketplaces opened in 2014, insurers were offering products that they hadn’t necessarily offered before. They were selling them to a public that they weren’t used to covering. They had new competition by plans that they hadn’t competed with before. Actuaries, Cori will tell you, they like to do their estimates based on experience, and they just didn’t have any experience with this new market. So, we saw a lot of volatility in pricing in the early years, and a lot of insurers really underpriced their policies in the first year, in particular. The premiums came in way lower than anybody expected. Sometimes that was just a calculation error. Other carriers, I think, were pricing very aggressively, hoping to kind of tie up new market share early on. So, insurers have had to get used to that, and that has been tricky.

There were other things during the implementation, it is fair to say that the early years of implementation did not run like clockwork. Lots of things didn’t work out as expected. There were risk stabilization programs, I will let my colleagues talk about those a little bit more, but they were meant to kind of push in these mistakes in estimating and push in losses in the marketplace. They didn’t operate the way that folks expected. There was, I think, ongoing concern, and still is, is the mandate strong enough, and are the subsidies high enough to kind of cure this adverse selection? About, I don’t know, 70% or more of people who are uninsured claim an exemption from the mandate, because coverage isn’t affordable. The subsidies are on a sliding scale up to four times the poverty level, but at two and a half times, they kind of run out. So, that has been an issue. Then the website didn’t work in 2014, there were a lot of things. Then were also things unique in individual market areas that fueled the volatility and made it harder for insurers to work.

This is a map that you have probably seen on our website that just shows the number of insurance companies participating in the marketplace by county in the United States. The orange areas are areas where there is just one insurance company selling. The blue areas are two, and the gray areas, there are three or more insurance companies competing in the marketplace. Lots of reasons why the orange areas are the way they are, but two in particular, when you look at the all-orange states — Wyoming and Arizona and Alaska and so forth, Alabama, those are all states, number one, that have high concentration of rural areas. And low population. It’s hard for multiple insurance companies to compete when there aren’t very many people buying in the first place. And there are also areas in states that did not elect the Medicaid expansion. It turns out, and one of our papers in your packet talks about risk scores of market participants by states. The health status tends to be lower and the risk score higher in areas that haven’t expanded Medicaid. Poverty turns out to be correlated with health problems and there is also a lot of enrollment volatility at low income levels as income changes, and so eligibility for subsidies change. So, that is sort of a common theme, but there are also other areas where there is stuff going on. Tennessee, which is almost all orange for example, has sort of an interesting thing going on that works against stability in the marketplace. There is an organization called the Farm Bureau, which is not a licensed health insurer, and so it doesn’t have to follow the market rules, but they sell health coverage. They basically get to cherry pick the other insurers in the marketplace. Then Iowa, which mostly now is gray and blue, but that may go orange or we’ll need a new color for zero. It’s a state that has a very high concentration of non-compliant plans. About half of the people in the individual market in Iowa are in these grandfathered or grandmothered plans. So, insurers that are selling it that market are kind of cannibalizing their own risk pool and that leads to problems as well. Elsewhere, you do see a lot of insurer participation and about 57% of people who participate in the marketplace are in an area where there are three or more companies participating. And I think that’s a sign that at least in a lot of areas, the marketplace is stabilizing. I should point out, this is what the market looks like today, but this is all reflects insurer decisions made last summer. Before the election, before all the stuff that we are doing now, this was just sort of based on, how are they doing, with all of this other kind of problems going on with implementation.

I think insurers are kind of getting the hang of it. Their MLR data shows that their margins are coming back up and that we probably aren’t in a death spiral. I’m going to let our panelists talk about that some more. So, that leads us to where we are now.

Since the election, there is a new kind of political x-factor that is causing a lot of uncertainty in the marketplace. In particular, insurers are really worried about whether these cost-sharing subsidies are going to continue to be paid. If not, they are on the hook for providing the subsidies, but they don’t get reimbursed by the government. These cost between seven and ten billion dollars a year, and insurers have said, one has said they will leave the marketplace all together if these payments stop or aren’t guaranteed for 2018. Other insurers now, I think, are filing kind of two sets of rates for 2018. One, if these payments get made, and one if they don’t. But also, talking about leaving the marketplace altogether. The individual mandate is still kind of a question mark. The first executive order by the President on healthcare was, let’s look for ways to not enforce any kind of burdens on people or companies. The secretary has broad authority to grant exemptions, just hardship exemptions to the individual mandates, so there is some concern about what will happen there absent the mandate with keeping everything else in place. CBO has said, that alone will cause premiums to go up 15-20%.

Then just kind of the future of outreach. How will the next open enrollment work? The new administration also came in and cancelled the final week of outreach activities during open enrollment 4. They have since announced that the next open enrollment is going to be half as long as we thought it was going to be, so that raises — and just questions about how active will the outreach be, given that Obamacare is horrible and a mess and is that going to be kind of an effective selling job to get people to sign up for 2014.

Then of course we’ve got what is going on in the Hill. The House bill passed yesterday. It makes a lot of changes to the marketplace. And I think it raises real questions about how it could operate going forward and how or whether insurers will want to participate. The House bill does make this a mandatory market again, repeals the individual mandate, actually retroactive to last year. It keeps in place the market rules and the essential health benefits, but it reduces the subsidy substantially and then it keeps in place the Medicaid expansion, but substantially reduces federal matching money for that population and in fact, the entire Medicaid program. This kind of adverse selection factor is back again and I think insurers are worried about that. Changes were added to the bill over the course of amendments, to try to offset that, including flexibility for states to elect to waive the essential health benefits and also to waive community rating, to actually ease up on one of those market rules, so that insurers would have the ability to screen out of the pool some of the most expensive people. Then in addition, this fund for states, the $100 billion fund that is available for a lot of purposes to offset some of the other changes in the bill. States could use that for the cost sharing subsidies to replace some or all of those that were repealed. They could use it for reinsurance, which worked pretty well in the first year of the ACA, they could use it for high risk pools, for a lot of different purposes. So, we don’t know yet if this is going to be enacted or a different version of this, but I think it’s pretty clear if something does get enacted, insurers are going to have start over again, new learning curve, figuring out how to compete in a new market under these new provisions, and what that will mean for the cost of coverage and who can participate and what will happen to people they are sick. I guess we will find out. So, I’m going to leave it there.

SARAH DASH: Thank you so much. Deep?

DEEP BANERJEE: Hi, good afternoon. Yesterday when I was leaving home to fly to D.C., my wife said, be careful. And that’s when I realized she has been watching CSPAN all day. So, if you are still watching, I’m fine, honey.

So, I’m going to continue a little bit what Karen talked about, focused on the individual market in its current form, how it is, and perhaps the questions we can talk about, a little bit about the longer future. But we also have a near term forecast, which is more immediate, and we will talk about that a little bit. If you see me leaning in, there is a giant clock with my time on it, so that’s why I’m leaning in sometimes.

Similar to Karen’s talks, you know, 2014, the way we think about it is year one. Obviously, ACA was passed in 2010, but more of the things that we consider to be a part of the individual market today, came into effect in 2014, including the exchanges. So, we consider that to be year one. Year one was pretty bad for insurance. Excluding just a few handful, everybody made losses that year, in the individual segment of their business. 2015 actually got worse, and that was a little alarming. We expected maybe an improvement, but it wasn’t. There was a good reason for it though. Because insurance companies put in their price, well in advance of the year they are supposed to market their products. So, although they had a feeling that 2014 probably wasn’t going as well as expected, they just didn’t have enough time to make the corrections they needed to. So, 2015 got worse.

Also, another big thing that happened in 2015 was the news that one of the three “R’s”, you know, there are three “R’s” that were set up in the ACA that were considered to be premium stabilization forces. One of them, the Risk Corridor, wasn’t going to be funded. And they found that out after the fact, and that also didn’t help. But then came 2016 and we focused on that quite a bit. Because the question was, if ’16, where they had a little more time to correct, to make some changes to pricing and product, if ’16 was actually worse, then perhaps this wasn’t a manageable market. Now, the data shows that ’16 was actually better than ’15. What you are seeing on this slide, is what is commonly referred to as medical lost ratios, or MLR’s. Now MLR’s are part of ACA, part of the law, but well before ACA, MLRs is a number or a ratio we use to look at as analysists, to understand how a company is doing. So, if you look at the individual market, MLR, 2014 was 97.5%. Now, what does that mean? That means, for every dollar in premiums that came in the door, they had to pay out 97 cents, or 98 cents as claims, so that went out the door. 2015 was worse — 102.3%. That means they actually paid out more than a dollar of premiums that came in the door. And then 2016 shows kind of a marked improvement. The reason we put in the group market MLRs next to it, is to give you a benchmark. We see the group market MLRs are far better, but more importantly, far more stable, which goes to the point that individual market today isn’t as stable as the insurance companies probably would like it to be. It may not come to the same level of profitable as the group market, but probably could come to some stability in the future.

This slide is showing gross margins. It is simply another metric we look at. It’s kind of the — if you take the MLR and turn it on its head, you get gross margins. Similar thing that I talked about before, if you see 2015 was worse, you have a negative 2% margin and 2016 gets better. The one thing I want to point out there is gross margin is before any administrative cost that the insurance companies have. So, this is purely premiums, minus medical claims. So, if you tack on to these numbers, admin cost, you will realize that the insurance companies made on average an underwriting loss for all of these years, actually. Now accompanied with the group market, the gross margins are obviously much higher. So even if you take on the admin cost, they would have still made a profit.

Let’s talk about the future a little bit. So, I’m going to talk about two kinds of forecasts. One is business as usual. What we mean by that is, everything stays with obviously some changes, but no big overhaul to the rules of the marketplace. If that is the case, what do we expect? Well, we expect 2017 to be a year when more insurance companies get to break even margin. So, break even, zero percent, so no loss, break even margin. And then continued improvement in 2018 where they get to small, single digit margins in this line of business. It is still a very fragile market and it needs time to stabilize.

Probably the more important discussion is business unusual or business interrupted forecast. So, there is obviously a lot of pricing and insurer participation issues in the marketplace today, going into 2018. One of the biggest things that we look at, is the CSR, which there is some uncertainty about the future funding of that. The reason the CSR is important — it’s not because just the dollar amount that goes towards it, but more importantly it is paid to the insurance companies after the fact. So, the insurance company on day one, accepts members who are CSR eligible and stop paying out claims based on the fact that they will receive a CSR. The only receive the federal government funding for the CSR later on. So, insurance companies don’t want to be in the situation where they find out six months into the year, hey, guess what, you don’t get that money anymore. What we expect to happen are two options available to insurance companies. One, they would price with what we are calling an uncertainty buffer. So, let’s say they were expecting to price high single digit premium increases for next year. They will probably tack on a little bit of this uncertainty buffer, because they don’t know what is going to happen. They can load the silver plan with the CSR that they are not going to get. So, you will see the silver plan premiums go up. The second option, which is probably a little more drastic, is they get more selective about participating. If there is greater amount of uncertainty, they could decide to pull out of certain counties or certain states. And the third one, which is probably important to mention too, that the marketplace has a set of rules. If the rules are changed after you are already playing the game, it becomes harder to adjust. So, rules like the individual mandate or the special enrollment periods, enforcement of that will also be critical for the future stabilization of the marketplace. Perhaps we will talk about (indiscernible) later on, when questions come up.

SARAH DASH: Thank you so much, Deep, and let me turn it over to Cori Uccello. Thanks.

CORI UCCELLO: First I would like to thank Sarah and the Alliance for inviting me to participate today.

As others have already pointed out, we are in a different situation today then maybe we were a couple days ago, but I am going to still focus my remarks at a fairly general level and discuss the kinds of actions that are needed to improve the stability and sustainability of the individual market. Before getting to those potential improvements, I think it’s important for us to know what the goals are.

So first, I will talk about what is necessary in order to have a stable and sustainable market. First, we need enrollment levels that are high enough to reduce random fluctuations and a balanced risk pool. In other words, we need enough healthy people so we can spread the cost of the high cost people over a broader pool. Second, we need a stable regulatory environment that facilitates fair competition. And that includes not only a level playing field, but also consistent rules that are known in advance. Third, we need enough insurers participating to have insurer competition and consumer choice. And as Karen mentioned this, the correct – -the optimal number of insurers probably varies by area. Last, but no least, because most premiums go toward paying medical claims, it’s important not to overlook the need for continuing to control healthcare spending and improve quality of care.

So, how is the market doing compared to these criteria? Well, the ACA dramatically reduced uninsured rates and participation in enrollment in the individual market increased. Nevertheless, in general, enrollment in the individual market was lower than initially expected, and the risk pool was less healthy than expected. Now, in the market, competing rules do generally face the same rules. There is pretty much a level playing field. But, the uncertain and changing legislative and regulatory environment have contributed to adverse experience among insurers. This has led to a decrease in the number of participating insurers both in 2016 and 2017 and there is an indication there will be a further reduction of insurers in 2018. Continued uncertainty could lead to more insurer withdrawals, leaving consumers with fewer plan choices or potentially none at all. And as Deep has alluded to, insurer experience has stabilized, but the market itself is still fragile.

This leads me to the actions that should be taken to improve the market. I feel like I’m piling on here, but first and foremost is the need to fund the cautionary reductions. Not paying for these reductions or even uncertainty about whether they will be funded, could lead to higher premiums. As Karen said, the Kaiser Family Foundation has estimated that on average, not paying for those CSRs could result in premium increases of nearly 20%. That’s on top of the premium increases that will already occur due to medical inflation and other factors.

Second, the individual mandate needs to be enforced. The mandate is intended to increase enrollment and encourage even healthy people to enroll. That’s what’s needed for a balanced risk pool. As Karen mentioned, the mandate itself is already fairly weak, because the financial penalty is low, many people are exempt from the penalty and enforcement itself is weak. But further weakening it, would make it less effective and would lead to higher premiums. Strengthening it could improve the risk profile and put downward pressure on premiums. But enforcement itself isn’t enough. I think there are a lot of people out there who don’t even realize the mandate is still in play. And so, it also needs to be publicized in order to be effective. Alternatives to the mandate are being explored, such as the continuous coverage requirements that were in the house passed bill. But it’s difficult to structure those kinds of mechanisms, so that they encourage healthy people to enroll sooner rather than later, while still providing protections to people with preexisting conditions.

So, if the mandate is the stick to encourage enrollment, premium subsidies are the carrots. More external funding in the form of higher premium subsidies, or funding that will offset the cost of high cost enrollees, such a through high risk pools or these invisible high risk pools, or reinsurance, could help improve the pool. It’s important to note that there are many — we use the word “high risk pools” a lot, but there are actually several different ways that high risk pools can be structured. In your packets, there is a paper from the academy that talks about the different ways that that could be done. Like I said, they could be done in terms of the traditional high risk pools that were in place prior to the ACA, they could be invisible risk pools so that the person enrolling in the private market stays in that plan, but their claims are paid through this external funding, and that could be their eligibility for those risk pools, could be based on either having certain conditions or having spending that exceeds a particular threshold.

Finally, it’s important to not only take actions to improve the market, but also avoid actions that could make things worse. So, for instance, allowing the sales of insurance across state lines, or expanding the availability of association health plans, could actually lead to market fragmentation and higher premiums. So, with that, I will turn things over to Brian.

BRIAN WEBB: Well, thank you very much. I agree with all of them. So, it’s good to go last, I don’t have to speak quite as much.

What I want to focus on today, is just — we talk so much when we are out here in Washington D.C., very broadly, very nationally, and we hear things like, it’s collapsing everywhere, everything is terrible, everybody is going to lose their insurance. Or, people say, hey, everything is fine, no problems, don’t change a thing. The reality is, it depends on where you are at. There are some areas in the country, in some states, where it’s collapsing. There are many areas where things are going pretty good. Little small changes will be fine. That’s why I strongly encourage everybody here, as you consider kind of how we move forward, talk to your state regulator. Find out what actually is going on in your state. Where are the carriers? What are the prices? What are the issues going on in your state? And work with them to try to figure out how can you solve it for your state. Because the reality is, you look at one state, you see one state. That’s — every one of them is different, the markets are different, the regulatory environment is different. Provider provision of care is different, demographics is different, it goes right down the line and you just really have to work at a state level to figure out then how can the federal government promote better state solutions to solve a lot of these problems? So, as you kind of talk to your state regulators, you should ask them, “Are carriers pulling out of the exchanges?” Or, as we have seen in some states, are they pulling out of the individual market all together? Inside and outside. Now, is that just in some areas? How do we address that in certain areas? Or is it the whole state? And why? Why is this happening and what can be done to solve it? Are there fewer options on the exchange? Meaning just HMOs? Just narrow network HMOs. Or, are there broader, better options available? Again, if it’s just very narrow networks, only HMOs, how can we solve that problem? Where are the premiums? Are they stabilizing as they are in some areas? Or they very volatile and likely to see, again, major increases in 2018? Are commissions being eliminated? This is something that we are seeing in a lot of states where the carriers are not paying any commissions in the individual market. Some just on the exchange, some inside and outside.

Now, why is that a big deal? Well, health insurance can be complicated for people. I was liking it to, if I’m just filing a 1040 EZ, I have very little income, I could probably do that by myself. But if I have a lot of issues and a lot of investments and things like that, then I had better talk to somebody who knows what they are doing. Same on health. I mean, if I’m not expected to really use a lot of health, then I’m just going to go pick a plan. But if I have health needs and prescription drugs and things like that, you really should talk to an agent. And if they are not getting compensated, that could be a problem. Lower uninsured rates. Where is the uninsured rate in your state? Just about everywhere it has gone. Which is a good thing. People with preexisting conditions and things like that, are getting coverage. But can we continue to make better inroads there? How do we get the rest of the people insured and in the marketplace? And then access for vulnerable populations. Again, that is a good thing. How do we make sure that continues, even if there are changes? So, talk to your state. What is going on?

Now, as we look at just insurance in general and what has been going on over the last few years, it comes down to the biggest problem we have right now is uncertainty. Insurance — like, everybody at this table agrees, insurance hates uncertainty. You will pull out of a market, you will do that, if there is uncertainty. And right now, there is still a tremendous amount of uncertainty, so the question for us is, as now the Senate moves on its efforts, how can they bring more certainty into this marketplace? We have seen unsustainable cost growth — can we address that? Maybe not easily, but can we start addressing that in the long term? Unstable risk pool, how do we get the younger, healthier, people into the marketplace, and not just waiting until they get sick? How can we stabilize this marketplace, or can we use reinsurance or high risk pool, invisible otherwise, to try to stabilize a risk pool that is relatively unhealthy? Unreliable funding. Everybody has said it, I’m going to say it, CSRs, cost sharing reduction payments must be assured for 2018-2019 or we are just going to see a system that is going to continue to deteriorate. This also goes for other — any kind of other funding. Anything else you come up with, do not just say, hey, every year we may or may not appropriate this. That is not a good, reliable funding source. Think about that, as you think about this, because remember, carriers are figuring out their rates, figuring out whether they participate well before any appropriations or any kind of other decisions are being made in the federal government. They need to know the answer.

Then the uncertain regulatory environment. States and federal government have to work together better. We are working on that. We are working with the Trump Administration. You have seen the market stabilization regulation. We expect other ones that we will just keep working with them on. Maybe not full regulations, but just how can we better regulate so that carriers get a single answer that they know what the answer is going to be. We need to keep working on all of these things, and again, talk to your insurance commissioner about that. What are they doing? What can be done at the federal level to make sure these underlying issues are addressed as we move forward.

That leads us to what is next. You know what is next. Next is legislation. What is the Senate gonna do and when? I will make the pitch right now: If this is going to go into hearings and months and months and months of discussions, can I strongly encourage you to take care of CSRs right away? If you are going to do any kind of reinsurance or anything like that, high risk pools, or any kind of funding like that, do that right away. We need to move on those to stabilize 2018 as soon as possible. Regulations we will work on, waivers, states are working on waivers to see if they can get some of these issues, because again, very much state specific solutions we need to work on. And we are still watching lawsuits. Not just lawsuit like, (indiscernible) which deals with CSRs, but some of the risk corridor, lawsuits as well. Where do those go? Can that bring some funding back in? But really, it’s that top one. That’s happening now. Will carriers participate in 2018? They are making that decision when? Now. What areas of the state will they participate in? Will they be on the exchange or off the exchange? Will they pull out of the individual all together? You have seen the news. You have seen Aetna make some high-level decisions. Anybody from Virginia? Anybody have Aetna? You see people like Molina, whose been an expanding insurance company, say, hey, if I don’t have insurances on CSR, I may pull out of the thing all together. Those decisions are being made now, and the rates and forms are being filed in May, June, mid-July — July 17th is the last day. so, decisions have to be made by then, or else the companies are going to start building in what we call “loads”. They are just adding more rate increases, just to kind of hedge their bets, if they stay in at all.

That is what we are facing. We are facing a timing issue, we are facing uncertainty and none of that is good right now for what is going to happen in 2018-2019. So, we encourage you, talk to your state regulators, figure out what is necessary for your state, and let’s get moving as quick as we can to try to resolve some of these issues. Call me anytime.

SARAH DASH: Thank you, all, for your presentations. So, I’m going to kick it off with a few questions for the panel and then we will open it up to audience Q&A. Let’s start with this issue of uncertainty because it’s something all of you have mentioned and all of you have mentioned in some form or another. Brian, you just used the word “a load”. Deep used the term “uncertainty buffer”. Cori, you said it most plainly, it just means premiums will go up, right? With uncertainty. And that is that actuaries will price for uncertainty. Let me kick it off with a little bit of a maybe provocative question. On the CSRs we knew that this lawsuit was in effect, you know, the House (indiscernible) — are we in a situation where insurers — what would have happened if they had priced for that uncertainty back then? How much can we expect actuaries, insurers, to price for this kind of future uncertainty? I don’t know if any of you want to kick that off and then maybe tie that into if there is, then continuing uncertainty as to whether high risk pools will be funded or not, or what a stabilization fund will look like, obviously, those things are subject to appropriation, people on the CSRs have raised serious constitutional questions. How does that all play out?

DEEP BANERJEE: I can start off, Sarah. So, here are some numbers. If you look at the 2017 premium hike that went into the marketplace, it was pretty significant. On average, it was somewhere between 20-25%. We looked at that and we consider that to be a correction. Not something that would continue forever every year, but more of appraising correction that was needed to be made, because premiums were lower than the risk in the marketplace. However — and so, we expected for 2018, if you look forward, yes, premiums go up every year. That’s kind of almost a fact of insurance, because cost goes up every year. Inflation cost goes up every year. But we expect the premium increases to be high single digit to low teens. Kind of that would be the way premiums would go up. So, well below what it went up in 2017. However, if the CSR uncertainty is not resolved and they have to — and insurance companies want to participate and add in a buffer or a load, that number could again take us back to the rates we have seen in 2017. So, you are looking at 20% or higher rate increases again. So, obviously pretty significant. Now, what happens when premiums go up? That is also a critical question. For someone who receives a subsidy, we have seen that in ’17, because how the subsidies work today in the ACA, the impact is almost negligible. Because the subsidy, based on the income, obviously, is linked to the actual price of the plan. The second cheapest leveled plan. So, if the second cheapest level plan goes up 20%, your subsidies should align with that as well. The (indiscernible) won’t be felt by on-exchange subsidized enrollees, however, it will be felt by the off-exchange non-subsidized enrollees. They have to pretty much pay sticker price, they don’t get a discount. So, we would expect that the marketplace would probably not decline significantly because of a premium hike in ’18, but the off-exchange market will probably decline, because as an impact, of two years of continuous 20% plus premium hikes.

CORI UCCELLO: I would just add that, whether and how an insurer can incorporate this uncertainty into their 2018 premiums somewhat depends on their state regulation. I mean, some states are requiring insurers to submit two sets of rates. So, one assuming the CSRs are paid, and one not. But others are requiring only rates that assume that they will be paid. And I think if we talk about adding in this buffer, I think it’s pretty hard to add in a buffer of 20%, when a risk margin is much, much lower than that. So, I think that’s a pretty difficult thing to do. So, that’s when you start — companies, I think, are starting to think, well, do we even want to participate at all?

BRIAN WEBB: Your regulators are talking to the carriers, trying to figure out if they are going to stay in. and this is one of the biggest issues that they raised. Pennsylvania was told that one carrier would be 15 to 20%, but then of course, the regulator says, well, I don’t know. I don’t know if I’m going to be able to allow that, or justify that, just because it’s a “I don’t know”. Your rates have to be according to what you actually will have, or expect to have. So, there are a couple of states, just a couple, that are getting two sets of rates. Most states are saying, just give it to me assuming CSRs are going to be paid, but if it looks like that changes, we will have you resubmit those rates. Even after they have been submitted, we will have you change them before we do any kind of final, which again, is going to create more — what’s the word? Uncertainty about what people are going to see the next year. And again, until they sign that dotted line and say, “Yes, I’m going to participate” which is — you know, that’s in September. We could not know all the way through the summer into early fall, who is even in and out next year. And the more this isn’t resolved, the more we won’t know.

SARAH DASH: Let me ask a question to see if we can sort of follow the breadcrumbs a little bit. Let’s just play this out. Say premiums go up, in any given scenario. If premiums go up, if you are subsidized, Deep, as you said, under the current subsidy structure, that maybe doesn’t affect you so much. Of course, it would affect the federal budget, right? If you are un-subsidized, how does that play into — how does that affordability factor play into adverse selection and the health of the market?

DEEP BANERJEE: Yeah, I mean, for sure the off-exchange is where probably more of the risk is if premiums keep going up 20% or plus, because then someone buying that product, who right now is paying sticking price and probably needs it, you are going to probably see that market shrink a little bit more, so it will be left with individuals who really need insurance, are not eligible for a subsidy, and are paying for it. So, the possibility of adverse selection does increase on off-exchange market quite a bit, if this continuous double digit or high double digit premium increases going on.

KAREN POLLITZ: I think that is why the question about how strong is the mandate and how good are the subsidies, how adequate are the subsidies? It just becomes critical. So even at — even for people who are subsidized, I think — who are protected from the rate increase, they still are required to pay a two and a half times poverty — you are required to pay more than 8% of your household income for the premium and then that doesn’t take into account — you don’t get any cost sharing subsidies at that level. That doesn’t take into account what you would have to pay in addition, out-of-pocket, every time you go to the doctor, because that hits your high deductible. So, this adverse selection problem is not geared for sure, and the more people have to pay out-of-pocket for insurance, the tougher that decision is. You know? if it’s going to cost me the average — I think it’s about $300 a month for a young person, right? $300 for a month for a young person? That’s a car payment. So, are they really going to part with $300? Well, if they are thinking about maybe starting a family and having a baby, sure. And if they are not, and they think they are invincible, and they are not my kids, because they know better, then maybe they won’t participate. The tougher that financial trade-off decision that people make, the more insurers know, adverse selection is going to be driving the decision.

SARAH DASH: Let me get to something — Karen, you alluded to the structure of the subsidies under the current Affordable Care Act. So, tied to a percentage of income and tied to the premium on the exchange. So, the American Health Care Act would of course change the way that the subsidies are structured to more of a flat tax credit, based on age, and so, can anyone on the panel comment on what happens? What is the impact if the structure of the subsidies — you know, we could talk about levels, but this is a very different structure in terms of considerations going forward.

DEEP BANERJEE: So, the two things that are happening with AHC that we took into account when we analyzed the impact on enrollment as well as insurance companies’ earnings: One is the proposed structure is changing from linking the subsidy to the actual premium off the marketplace, to being a flat amount that you get, based on your age. Also, what is changing is the rate band. This is critical. Right now, an insurance company can charge the oldest person in the pool, three times the price of the youngest person. So, we call it the “three to one” premium rate band. ACA brings proposes a five to one rate band. So, you can charge the oldest person five times the youngest person. If you take those two together, so there is five to one rate band, and you remove the subsidy link to the actual cost of the marketplace price, then you will see, we expect that on the higher age groups, are declining enrollment, because affordability becomes a greater issue as you go older in your age group. It will actually — may have some positives on the younger side, because five to one gives the insurance company flexibility to price a little lower for the younger population, and one thing that was noted earlier on the panel, that that is an issue with this marketplace. The mix isn’t great in terms of morbidity, so perhaps that will help. But, we expect a sharper decline on the older population, somewhat offset by the younger population, but net impact will be a declining enrollment, when you combine the way the tax credits will work in the ACA, with the five to one rate band.

CORI UCCELLO: I just want to add something to that. I have said this in front of this group before, but I am going to say again, that it’s important that when we are talking about having a balanced risk pool, that it’s not just about young and old and getting young people into the pool. You want healthy people of all ages to participate. And if what Deep suggests would happen, is the — as the older adults would face higher premiums, well, the people who are more willing to pay those premiums, are going to be the ones who think they need a lot of healthcare. So, you are going to get more adverse selection among that age group, and that could actually worsen the risk profile of that pool. So, it’s something else to keep in mind when we are — it’s not just about getting young folks into the pool and lowering average premiums that way. What we really need to have for a healthy balanced risk pool is healthy people of all ages.

DEEP BANERJEE: Sarah, if I can add just one thing real quick. The other point to be made is that — I think Karen talked about this also, although ACA or AHC in the future is a federal law, insurance and, as Brian pointed out, is still very local. Every state is different. Even with ACA, which does a lot of standardization, if you go to every market, there are key differences in every market. One of the key differences is the average premium charged in every market is significantly different. So, what ACA subsidy does, is because it’s still linking you to your local premium price, you can be any state in the country, but receive effectively the same benefit. What ACA is proposing is a standard premium support, no matter where you live. So, if you are in a state where premiums are higher, the value of the subsidy is much lower to you than your state where premiums are lower. The disparity among states might also increase because of this construct.

SARAH DASH: That’s very helpful, thank you. So, that leads into my question, which I wanted to ask Brian, which is, you know, we have heard a lot in the HCA, but also in other legislation that has been proposed about giving the states more flexibility, giving them more options to, for example, waive community rating. To waive essential health benefits. Can you talk a little bit about how states are looking at that right now, and at those choices and what is the likely effect if you can predict that?

BRIAN WEBB: I cannot. But basically, what every state commissioner, along the with the governor and the legislatures, they are all looking at their market and trying to figure out how can I balance? Balance is the key. Yes, you want to protect consumers, you want to make sure they can get the coverage they need, when they need it, and get to doctors and all of that. But you have to balance that with making something that is affordable. And also, a marketplace where insurance companies actually want to participate. That’s why it’s so difficult, especially when a lot of them are kind of national standards, kind of just put down and that’s where the flexibility, we think, is necessary. To be able to take those national standards and say, okay, while that may work in that state, or that area of my state, in this other area, where it’s more rural possibly, or because of the mix of demographics, or because of the structure of things, I need to be able to change things up a little bit, so they can get actual carriers participating and I can get affordable coverage to people. That’s a balance that is going to have to be made at the state level. While that can create some concern about the impact on certain populations or things, it’s something, if we are going to make it actually work, it’s a discussion that has to be made. Since you are involving state legislators and governors and even some elected state regulators, the people will have a say in this. But we are just trying to work with the insurance carriers, the consumer groups, the stakeholders, the providers, to try to figure, okay, this is the way it’s working or not working now, how can we make it better? That will require some tweaking at the state level.

SARAH DASH: See if anyone else on the panel wants to comment on that? Then we will start to open it up to the audience for Q&A.

KAREN POLLITZ: I think — I agree with Brian, there is no way to know what states would do if they were given this new flexibility, but I think it’s pretty likely that the insurance industry in most states would go to the capital and lobby for these waivers. Certainly, the community rating waivers. They have been clear all along, and I remember sitting on a panel with (indiscernible) back in 2009, saying, we will do this guarantee issue community rating thing, but you have to have a strong mandate in there. We cannot do that in a voluntary market. We had experience in states that tried doing this in a voluntary market — New York, New Jersey, Vermont, before the ACA. And it’s just really hard to offer stable, affordable premiums, even with some subsidy money on the table. It’s just hard to do that in a voluntary market. So, I think if they have to live in a voluntary market, they will go to their state capitals and say, you’ve got to give us some relief on this rating thing. And we have experience with that as well. In the ‘90s after the Clinton Health Reform thing didn’t work, Congress enacted HIPAA, which did the privacy stuff that we all remember, but there was also a title that created portability rights into the individual market for some people who were leaving employer coverage. They lost their jobs or retired or whatever. Under the federal rule, under the federal law, those people could not be turned down, they could not have a pre-existing condition imposed, but there was no limit on what they could be charged. And the HIPAA premiums were really high, because insurers said, you can’t make us do this. You just can’t make us do this and waive underwriting for people, because we know who is gonna step up and who isn’t. So, the HIPAA premiums were often three, four, five times standard rates. In Denver, I think, there was a 2000% of standard rate that was filed for HIPAA policies. So, it invites back, I think, the instability to have the rules kind of uneven in that way.

SARAH DASH: And just to follow-up on that, so we have heard a lot about pre-existing conditions and what is really going to happen to people with pre-existing conditions if the rules under the ACA change? So, can you walk us a little bit through — you just talked a little bit about essentially a continuity of coverage protection under HIPAA, but then the interplay with the premiums. What did the ACA do? What happens under a change to that. While you are answering that, for folks who do have a question, there are mic’s on that side of the room and that side of the room. It’s a little crowded, so I will give you time to get over there. There are also green cards in your folders if you would like to write a question down and wave it, somebody will come and get it and hand it to me. Thanks. So, pre-existing conditions.

KAREN POLLITZ: So, under the current law, people still do fall in and out of coverage. But in the months when they are uninsured, they owe a penalty, unless they qualify for an exemption. So, the idea is, you know, the longer you wait to get back into coverage, the more months of penalty you have to pay. We do — I didn’t bring my numbers, but we do see millions of people every year owning that penalty when they file their tax return. We see millions more qualifying for an exemption, and that is because the subsidies are limited and once you owe roughly more than 8% of income for the lowest cost plan, you can be exempt from the penalty. The late enrollment penalties that we are talking about now, I think even CBO has said, those are meant to kind of counter the adverse selection, but they could kind of back file, because now you don’t pay the penalty until you reattach to coverage. So, if you are healthy this year and — you know, I have to make my car payment, so I’m going to stay out. Fine. Then next year — uck, now I would owe even 30% more, because of the late enrollment penalty, but I’m still feeling pretty good and I don’t expect to have a baby, so I’m going to stay out another year. But if I do expect to have a baby, then I will pay the 30%, because I have to get back in, otherwise I have to pay for the delivery out-of-pocket. So, the late enrollment penalty, the timing is off. And it actually rewards healthy people for staying uninsured longer. So, that’s why I think we then got to this amendment that said, well, okay, then what if we only penalize them when they sign up when they are sick? And that gets to sort of where we are in the McCarthy amendment. Then that raises other issues about why is it that people experience a lapse in coverage? Are they just being irresponsible? Did they miss a payment? Did they lose a job, so they didn’t have income? A lot of the things in life that dislodge coverage, also change people’s income, and they can’t afford to just kind of pick back up and resume coverage under some other way, or they just can’t move that fast. So, I think there are millions of people who experience a gap in coverage in any given year, and a lot of people who could then face these penalties when they go to sign back up again, and if they have pre-existing conditions, it could be really tough to get back up.

CORI UCCELLO: I just want to make an observation about allowing states to have a waiver that would allow underwriting if people don’t have continuous coverage, and then later signed up. I think a potential implication of that, is actually getting rid of community rating more broadly. Even for people who have continuous coverage. Because what could happen is, if healthy people who have continuous coverage, they could decide, well, wait a minute, I could go get underwritten and get a lower rate, potentially. So, who do you have left in this continuously covered pool, is just the not healthy people. Well, what is going to happen then? The premiums are going to go up to reflect the health status of that pool. So, in effect then, unhealthy people are going to be paying high premiums regardless of whether they have continuous coverage. So, that’s just something to kind of keep in mind in why the details of these different kinds of provisions matter.

BRIAN WEBB: Just one question on this. You talk “pool”. Do you read it as saying, they can actually take those people and put them in a separate pool? Or will they still be part of the single risk pool? Which would be very different than HIPAA.

SARAH DASH: It’s not clear.

BRIAN WEBB: Clarity would be excellent. Because under HIPAA, it was a problem, because basically they were saying, most states, just one single plan, that’s the one you can buy, separate risk pool, obviously, everybody in there is sick. The only reason why they would do it, otherwise they will just do COBRA for a while and then get out, or whatever. But if they are still in the single risk pool, that will ameliorate at least some of those problems. Obviously, they can still rate at the actuarially sound way of rating based on health status. But at least they wouldn’t be in a known sick pool.

CORI UCCELLO: And the complication is: How do you run a risk adjustment program to transfer the money between those plans? I think it just becomes a lot more difficult.

SARAH DASH: So, the details of the risk stabilization funding matters. So, let me get to the mic and then we have a couple questions on the cards. Go ahead, sir.

AUDIENCE MEMBER: I’m John Gabel, from NORC. If we go back to the years before 2014-2010 when we had medical underwriting, as I recall, insurance companies would go into not only the medical claims files, but also go into physician’s offices maybe, or go into hospitals, et cetera, to determine the health status of the applicant. So, my question is for the panel: How much did that cost per case? It sounds expensive to me.

KAREN POLLITZ: It was expensive. I don’t know if I could give you a dollar per case, but medical underwriting was very expensive. It involved at first just a questionnaire, right? That people would fill out. And that was easy to screen. And if someone checked yes to: I have diabetes, I have cancer, I have HIV, you were done. So, that was inexpensive. But then, if you had any other information, and you always — it was standard on these forms, you had to check a box that said, I grant the insurance company access to all medical records ever maintained on me, anywhere. So, if there was any reason to investigate you, they would pull the records. They would also subscribe to pharmacy claims databases — that was another kind of cheaper shortcut. You can tell a lot about people just by the drugs they have taken in the last year. But it could be a very involved process and it often took, you know, a month, six weeks, to complete. I think with online medical claims, it’s likely that if medical underwriting were to return, there would be some sort of technology advantages that might make it faster and cheaper, but it absolutely was an administrative expense that insurers don’t have incur today.

DEEP BANERJEE: If I could add something on medical underwriting. So, the size of the pool matters, so if you look at the group market today, there are several reasons for the stable market for insurance companies. One is scale and the second is maturity. If you sign up with your employer, you don’t have to do a blood test. This is not new, because it’s a big enough pool that insurance companies are willing to not do medical underwriting on an individual person if it is a large group. The issue with the individual market is it neither has scale yet, nor is it mature. So, the reason medical underwriting could be something that insurers would like, especially the wide (indiscernible) selection, is because of those factors. So, the other way to think about it is: If the market was to mature, or if the market was to grow to a size that is considered a good scale, you may actually not need medical underwriting at the level that we are thinking about today.

AUDIENCE MEMBER: Hi, Heather Foster with the Association for Community Affiliated Plans. I was wondering if the panel could talk a little bit about some of the potential consequences, including unintended consequences of the idea of having these age-based tax credits that were set out in the American Health Care Act, and sort of — I have heard some talk of, well, maybe there would be a copper type plan. A more catastrophic coverage. And trying to structure benefit design around what could fit in that $2,000 to $4,000 range. Wondering if you can talk a little bit about what the impact of that would be? Would that actually be adequate coverage for people with chronic conditions, things like that?

SARAH DASH: I’m going to take your question and add a twist, which is: For people who are in that older adult age range. What is the impact on Medicare? Does anyone know? So go ahead and answer that question, and for those of you, who I understand need to pack up, et cetera, please just fill out a blue evaluation if you do need to leave. Thanks.

DEEP BANERJEE: There are always unintended consequences of setting up a health insurance program, because it’s so complex, they have so many ends that need to be tied. But to your point, the issue at hand is, without linking the subsidy or the tax credit, to the actual price of the marketplace, your (indiscernible) hoping that the price matches up to the subsidy. That’s it. That’s the best-case scenario. Unfortunately, that’s not how things work. So, the first consequence is obviously it becomes an issue for individuals on the higher age band. The second thing is actually it adds more selection. I think Cori pointed out, it’s not just the young who are healthy, you can be older and healthy too. We just assume, because we have to figure out a way to create a rate band that young people are more healthy than older. But that is not the case. So, you can have people not sign up, even if they are healthy, even if they are older, because they can afford it. So, (indiscernible) is an issue as well.

AUDIENCE MEMBER: Emma Blake, I work with Representative Beyer’s Office, over on the House side. My question is about these cost sharing reductions. Can you talk through — if the funding is removed, what the insurer thought process looks like? What is a compelling reason for insurers to stay in the marketplace markets? I have heard the possibility that the insurers might be able to sometime in the future sue the federal government to actually get those payments funded. Is that a possibility? Do you think there is a case there? Can you talk about what that looks like five, ten years down the road?

KAREN POLLITZ: I think we have learned with the ACA, there is always the possibility for a lawsuit. I think the insurers are worried. As Deep pointed out, they provide this subsidy to the enrollees now, and then they get reimbursed later in the month, each month, for people enrolled. So, insurers that are in the market now are worried. And some have even talked about — this was the Molina announcement — we would get out now. We’d file our 90 day notice and we would be out by September or whenever. As soon as the word comes down that we are not going to get reimbursed any longer. So, they could price for the higher, but as was pointed out, that’s a pretty big buffer. So, I think they are wrestling with this now. The market has grown. It’s not as big as we thought it was going to be, but it’s still 20 million people, and I think the insurers that are participating now, have a history, and intended to, you know, kind of have a presence in this market. You can exit the marketplace and not the market. The rule is, if you leave the market, right? In and out of the marketplace, you can’t come back for five years. But you can kind of step across the line and sell policies outside of the marketplace, not in the marketplace. When you are outside of the marketplace, you are not going to be liable for the CSR’s, because those are only delivered in the marketplace, but you are also not going to have as many people. So, I think stepping out would sort of let them kind of maintain a presence without leaving, but they would really have to scale back on their revenue and on their enrollment. Then you do have insurers, not so much, I think, for the CSR’s, but for other reasons, that — including what is going on in Iowa. Who are actually talking about getting out of the compliant market all together. Still keeping those grandmothered and grandfathered plans in place, which I think are very profitable. So, I think that is what insurers are wrestling with right now. How much do I want to kind of leave my option open to be in this market, if it can stabilize? And how much am I not willing to risk this kind of immediate term uncertainty and additional losses?

AUDIENCE MEMBER: Hi, David Sholke with Health Quality Strategies. My son gave me permission to ask this question. In our family, we are thinking a lot about lifetime caps right now and about the risk pools. My son has cystic fibrosis, he is extremely for a kid with cystic fibrosis. Technology and he works really hard at it; he is doing great. But he figures that in a very generous plan, with a very generous lifetime cap, he would have insurance for about six years, and then he would be out there hunting around for somebody probably on a risk pool. And the history of these pools, seems to me, that the funding — they are almost always underfunded. I’m not hearing a lot of thoughtfulness in the mechanisms for funding the high-risk pools that people — not just my son, would have to rely upon. What do we know about the best way figure out funding for high risk pools, and I’m not clear at all about whether states could be automatically, by default, waived out of the lifetime cap regulations that are in the ACA. So, would it be automatic by default, as it says in the House bill? What is the best arrangement for a risk pool, to make sure people get a piece of paper that is not worth anything.

SARAH DASH: Thank you. And in answering that question, let me ask the panel, because there is a question in here about invisible high risk pools too. If you use the word “invisible high risk pool”, can you also define what that is?

KAREN POLLITZ: I will just jump in and say hi to David. We work together, up here, a long time ago and our sons are the same age, so I look forward to catching up. I remember when they were born. So, the high-risk pools — remember, I said at the beginning, you know, 20% of people account for 80% of spending in any given year. Some of us, when we are in that pool, are just in the expensive end for a little bit. Some, if you have a lifetime condition like CF, are in there for their whole lives. So, when you are in that latter category, that’s when you can run into a lifetime limit. And it’s not that hard. Either way, if you are going to take out of the pool and put into a separate risk pool, right? The high cost people in a government program, that’s what a state high risk pool is, then the government has to have a lot of money to pay those claims. A lot of money. Not a couple of billion dollars. Many billions of dollars every year, if we were going to sort of create that as a way. Taking those high costs out of the pool would take a lot of pressure off insurance premiums for sure, and they would come down. But you can’t do it on the cheap. In 2011, when we had 35 state high risk pools, they were already spending combined more than a billion dollars a year to cover just over 200,000 people. So, these are expensive folks and every one that you sign up, you are going to lose a lot of money on, even if you make them pay significant premiums. So, the invisible high risk pool goes the other way and says — it’s re-insurance. I don’t know who thought up — someone in Maine called it — because it sounded better, I guess, politically. But at any rate, it’s the same thing. So instead of letting insurers move people out into a separate government program, everyone stays in the insurance pool, but you relieve pressure on the premium by saying to the insurers, instead of paying those high cost claims with your premium revenue, send it over to the reinsurance program and we will pay the high cost claim. Or a part of the claim. It just depends on how it is designed. In the first year of the ACA, ten billion dollars for one year was made available for reinsurance for the individual market insurers. And that is credited with kind of saving about 10% on the premiums. Then in the next year, the money went down, and all of the high cost claims that got submitted to the reinsurance pool in the first year, could be paid. In the next year, when the reinsurance money phased down six billion, only about half of the claims could be paid. Then for final year, it’s down to, I think, four billion. So, it takes a lot of billions every year to pay for this. Then the other way to do it is to just say to the high cost people, you don’t get to be in the pool. You just don’t get insurance. That makes the premiums cheaper for the people who stay in the pool, but it leaves those other families in a very difficult position.

DEEP BANERJEE: Can high risk pools work? Sure. But history show it hasn’t really worked very successfully. But what actually has worked really well is the reinsurance program. So, the reinsurance program for insurance companies actually paid out more than they expected. Of the three “R’s” that were a part of the ACA, reinsurance was probably the most positive. But the point we made and Karen mentioned this. Data indicates even with the positive reinsurance program, the impact on premiums was only ten percent. And I raised this point, because if your average premiums are already 300 dollars, even with the best reinsurance program, let’s say you just copy what was there in ACA today and keep going with it, you only have a 10 percent benefit. The reason I say this is because everything is trying to fix how much premiums are, how much premiums are going up. But very little has been done towards the actual fundamental cost of care. Premiums are a (indiscernible) and simplifying it of two things: One, profits. Insurance companies want to make profit. Those are low single digit profit that is in there. The majority of the premium that you pay represents the actual cost of claims, actual cost of healthcare. So, even with trying to figure out a way to keep premiums down, it will only go so far without actually looking at the actual cost of care.

SARAH DASH: Let me ask a follow-up because someone actually asked this question specifically about Maine, and the question is whether invisible high risk pools limit risk or exposure for insurers and the questioner notes, the Maine invisible high risk pool caps the insurers liability. I think the question is, is there a difference between exposure and risk? What exactly does that mean in terms of the insurers risk exposure? Maybe you can touch on that?

CORI UCCELLO: I’m not as familiar with Maine’s program, but I can speak to Alaska’s. What happens in Alaska, so they have an invisible risk pool. What happens is, somebody is in the private market and if during the year, they have a claim that indicates they have one of 33 conditions, they are put into this invisible pool. So, they are — they stay in their plan, but they are kind of in this segregated place. All the premiums for those people that they pay, now go into this high-risk pool funding. And then out of that pool, all the money to pay the claims is from. Whether or not a plan, an insurer, is offloading all of its risk to this high-risk pool, really depends on how the risk pool is structured. Risk pools can be structured — the invisible ones where the insurer kind of retains the people in that pool, depends on whether — for the reinsurance program, for example, the reinsurance program could cover 80% of the claims that exceed a certain level. So, the insurer would still be on a hook for 20% of those high cost claims. So, there is not one way to structure these programs, so it’s hard to give it a yes or no answer.

KAREN POLLITZ: I would just add, in Iowa where we are seeing a lot of change in what is going on, the federal reinsurance program didn’t actually help that much. The federal reinsurance under the ACA had an attachment point. Instead of conditions, it was just when a person’s claim exceeded I think $45,000, it got seeded to the reinsurance pool, which paid it up to a cap, so there was also a cap of $250,000. If a claim was bigger than that, it went back to the insurance company and they had to pay the rest. In Iowa, there is one person whose been covered for a couple of years under a compliant plan. Remember, most of the people are in incompliant plans. So, they are not in this pool at all. Who had 18 million dollars in claims in one year. The federal government paid up to a quarter million and then it was back on Wellmark to pay this again. This year, the person was expected to have 10 million in claims. I don’t know what the condition is, but it’s really bad and really expensive, and to get away from that claim, if Wellmark just leaves the compliant market, then they don’t have to cover this person anymore. So, reinsurance, if it were designed differently, may have kept Wellmark in the market. If Wellmark had brought more people into the pool — you know, all of those people out in the non-compliant plans, I promise you, are healthy people, because they could be rated up otherwise and then they would find their way into the compliant pool. So if they could broaden their pool and have more premium dollars kind of helping to contribute to that claim, that would help as well. But the design details are very important.

SARAH DASH: Brian, if you wanted to jump in, then the young lady.

BRIAN WEBB: I would just echo that point. Every state is going to deal with it differently and that’s — they do want that flexibility. Some want to do what Idaho, Maine, Alaska have done, which is more of identifying certain people seeding that risk over. Some do what to do the reinsurance, but set it at different attachment points, which is where it starts in different caps and different coinsurance. Others want to do a high-risk pool, where it’s actually a government run program. So, people want to do it differently, and we think they should be able to do it, depending on kind of — how best it would work in their market.

CORI UCCELLO: I just want to add one more thing to this. There is private reinsurance, so companies could get private reinsurance to cover some of the cost of their high cost people. The problem is, a reinsurer is also an insurer. They don’t want to take on risks that they don’t have to. So, maybe if somebody comes in, they have coverage, and they have this multi-million-dollar claim, well, the reinsurer could reimburse the insurer for that high cost. The problem is, the next year, that reinsurer is not going to cover that person. They don’t have guaranteed issue. They can pick out those people who they know are going to have high costs. So, I just wanted to kind of make that point that the private reinsurance market can only help so much in these kinds of situations.

SARAH DASH: So, just to summarize, it sounds like we are talking about high cost claims being part of a broader pool, and then the challenges of getting healthier people — healthier paying customers into that pool, versus a different approach, whereby there is some kind of a segregation as you said, of putting someone physically in a different high risk pool, or paying their claims differently through some kind of an invisible high risk pool, it sounds like what we are hearing. Your question and then we will wrap up. Thanks.

AUDIENCE MEMBER: Thank you. Molly Smith with the American Hospital Association. So, we have talked a lot about the size of the market and how important that is, as well as what we just talked about, the balance of risk. Yet, if you look at the individual market both on and off marketplace, it’s actually bigger than the Medicare Advantage enrollment, and by just definition, the MA population is older. Now, maybe they are the healthier of the Medicare population, but they are presumably going to be older, and probably sick or have higher healthcare needs in the individual markets. But that is a market that is highly sought after by commercial insurers, so what are some lessons and things that you have talked about that apply in MA that we should be thinking about bringing to the individual market, and one factor that I would like to hear some comment on, is the role of the states. One of the things we’ve heard up here is just how much variation there is in performance, somewhat or to a large extent based on policies that states have adopted, whether it’s allowing the continuation of grandfathered or grandmothered health plans, whether it’s choosing to expand Medicaid or not. Whether it’s allowing entities that are not traditional insurers to continue to keep back the healthy working population from within the market, all of these sorts of things that state decisions are making, and yet, states have a very, very small role in oversight of the MA program and no role in setting policies. I’m just curious if you can take some lessons learned from the MA world and see if there is any application for the individual market.

DEEP BANERJEE: That’s actually a great question, because a lot of the things that are in ACA actually have been borrowed from MA, like some of the three R’s that are being used in ACA do exist in Medicare Advantage. But if you go back, Medicare Advantage, probably, when it first started, had some issues of its own too, but it is a mature market now. The reason private insurers like the market, is because it’s a growing market. People are getting older and signing up for Medicare Advantage quite frequently. The other reason, which is why these two markets are very different, is how payment actually happens. So, with Medicare Advantage, the insurance companies get paid from the federal government, based on the risk off their member. So, risk coding is a big issue there. So, if you code your members correctly, the federal government will tell you, this is how much I’m willing to pay for it. Then you have to figure things out. So, because the payment structure is very different, it doesn’t work the same like the risk adjustment program works in the individual market, which is a closed program, whereas the risk adjustment, which is effectively asking the federal government to pay you for the risk you are taking, it’s kind of an open program. So the fundamental structure of those programs are different. Also, it’s an attractive market, because it’s a growing market.

SARAH DASH: I will let Brian jump in and then we will wrap up.

BRIAN WEBB: Yeah, I would also say, in MA, they can very much choose where they want to operate within a state, and if they don’t operate statewide, there is something called Medicare. Traditional. So, they can find areas that are more profitable than which we are trying to keep the private insurance market from doing that, and have them go statewide in all areas. And as far as state decisions, yes, state decisions will always impact not just ones you mentioned, but just policies in regard to how providers are done and how practices are done and contracting is done and all of those will all have impacts and that is why sometimes it takes that balance at the state level.

SARAH DASH: Officially out of time. I’m sorry. We could probably talk about this for days and days. The Alliance, we are here, we will be back. Fill out your blue evaluation forms. Tell us what you want to hear about, and please join me in thanking our panelists.