Insurers Struggle to Finalize 2018 Premiums Amidst Uncertainty

By Ana B. Ibarra, Kaiser Health News

Covered California’s board made several multimillion-dollar decisions Thursday, all addressing one unsettling theme: uncertainty.

Over and over, board members blamed “uncertainty” at the federal level for interfering with their ability to finalize premiums for 2018 and prepare consumers for open enrollment, which begins Nov. 1.

In response to that uncertainty, the board agreed to delay a critical decision on 2018 rate hikes, boost Covered California’s marketing budget by more than $5 million and allow its participating insurers to make higher profits in the future — under certain circumstances.

“The lack of clarity and direction at the federal level continues to be a challenge,” said Covered California Executive Director Peter Lee. “While we are doing our best to manage a difficult situation, we hope Congress and the administration will provide clear guidance on how [they intend] to stabilize the individual insurance market.”

One of the most pressing questions facing Covered California and other Obamacare exchanges across the country is whether President Donald Trump will continue to fund critical subsidies that help reduce many consumers’ out-of-pocket expenses.

The White House announced this week it would fund those so-called cost-sharing subsidies this month but did not say whether it would continue to do so after that.

Covered California is seeking a long-term commitment to fund the subsidies, which are only available to consumers whose incomes are low enough to qualify and who purchase silver-level plans, the second-least expensive among the exchange’s four tiers of coverage. The subsidies reduce what they pay for medical expenses such as copayments and deductibles.

Earlier this month, the exchange announced proposed average statewide rate hikes of 12.5 percent for 2018. It also floated an additional average surcharge of 12.4 percent on silver plans if the federal government does not commit to making the payments.

Covered California was supposed to decide by the end of this month whether to apply the surcharge next year. But on Thursday, its board announced it will push the deadline back to Sept. 30.

“Our hope is that by changing the deadline to allow Congress to act, we will not have to deal with the … surcharge,” Lee said.

The surcharge would vary by region and plan, ranging from 8 percent to 27 percent — on top of the regular annual premium increases, Lee said.

Covered California consumers who receive tax credits to reduce their monthly premiums would not bear the full brunt of the increase, however, because those credits would also rise.

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Delaying the decision until the end of September doesn’t leave Covered California — its health plans — with much time to finalize rates and prepare consumers to renew their health plans or shop for new ones, said Diana Dooley, board chair and secretary of the state Health and Human Services Agency.

But the board doesn’t want to raise silver plan rates prematurely, in case Congress acts next month to fund the cost-sharing subsidies on a more durable basis, she said.

If Congress doesn’t act until the very end of September, “that will put extraordinary pressure on our system,” she said.

Charles Bacchi, president and CEO of the California Association of Health Plans, said 1.2 million renewal packets will have to be dispatched to enrollees on a very tight timeline.

“It is going to be a heavy lift, but the plans will work to do the best we can under difficult circumstances,” he said.

The board also agreed to modify its contracts with participating insurers to allow them to make higher profits in 2019, 2020 and 2021 if they lose money next year as a result of continued uncertainty or changes in existing federal policy.

For example, one way insurers could lose money is if the federal government stops enforcing the Obamacare requirement to have health insurance, known as the individual mandate, Covered California said.

The change also requires plans that reap increased profits next year — again, because of uncertainty or changes in federal policy — to lower their premiums over the next one to three years.

Lee explained that Covered California’s insurers usually make a profit of about 1 to 3 percent annually. But, for example, if one should lose money next year, its profit margin could grow to 6 to 8 percent in the subsequent three years, he said.

Any profit increase would be decided on a case-by-case basis and depend on the amount of the loss, he said.

The contract amendment would not change any laws or violate any rules, such as the Medical Loss Ratio provision of the Affordable Care Act, Lee said. That provision requires most insurance companies that cover individuals and small businesses to spend at least 80 percent of their premium dollars on medical care and the remaining 20 percent on administration, marketing and profit.

Consumer advocates testified Thursday that they were initially skeptical of the change, but they now hope it will save consumers money in the long run.

“We like the idea that it is balanced and if [there is profit], it could go to reducing premiums,” said Doreena Wong, project director at Asian Americans Advancing Justice, a Los Angeles-based civil rights group.

In another move tied to the uncertainty over federal policy, the board agreed to increase its marketing budget by $5.3 million, bringing the total to $111.5 million for 2017-18. The additional money will pay for more radio and television spots, and more direct mail to consumers.

Some of the advertising will target Covered California enrollees who are losing their Anthem Blue Cross plan next year.

Anthem will exit the individual market in 16 of the state’s 19 pricing regions, which will force 153,000 enrollees to find new plans. Anthem cited uncertainty and market instability for its pullout.

“This open enrollment is going to be our most challenging since year one,” Lee said.