Health Insurance Cost Concerns for Middle America

(This article previously appeared on Commonwealthfund.org.)

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The Affordable Care Act (ACA) has accomplished much that its drafters intended. There is considerable evidence of increased access to health care and reduced medical debt. But there is growing concern about affordability of health insurance coverage for middle-income working-age consumers — those whose household income exceeds 400 percent of the federal poverty level (about $100,000 for a family of four) — who do not have coverage through their work.

This is virtually the only group of Americans who, when insured, do not receive some form of direct federal financial assistance or tax subsidies for health care coverage.

It was hoped that the push of the ACA’s individual mandate and the pull of the premium tax credits would create large and stable markets for individual insurance. However, since its beginning, several factors have weakened the individual market — and Trump administration policies and repeal threats from Congress have accelerated its destabilization.

Actions such as the defunding of cost-sharing reduction payments and the 2019 repeal of the individual-mandate penalty make it difficult for insurers to offer stable and affordable rates. Steep premium increases are likely in much of the country, and while premium tax credits will expand to cover these increases for lower-income consumers, individuals not eligible for tax credits will have to cover the full increase themselves.

The administration’s response has been to propose lower-cost alternatives for young and healthy middle-income consumers, for example by expanding short-term coverage. Short-term coverage, intended to cover brief gaps in insurance, is not subject to any of the ACA’s requirements because it is not meant to serve as major medical coverage. If consumers are offered full-year “short-term” coverage, 4.3 million (likely healthier-than-average) consumers may flee the comprehensive insurance market, increasing premiums for those who remain.

Another administration proposal would allow small employer groups and individuals who are — or claim to be — “working owners” to enroll in association health plans. These plans would not be subject to many of the ACA’s individual and small-group market consumer protections. They also would attract lower-cost consumers, leaving those with higher risks behind to face higher premiums.

Some states are seeking their own solutions.

In January, Idaho proposed authorizing “state-based” plans that would ignore some ACA requirements. Insurers offering state-based plans, for example, could charge higher rates to individuals with preexisting conditions and exclude some ACA-required benefits.

The U.S. Department of Health and Human Services (HHS) informed Idaho that if it failed to enforce the ACA, HHS would have to do so. Idaho is reportedly still trying to find a way around the ACA, but it is unlikely that any insurer will offer ACA noncompliant coverage in the face of threatened HHS enforcement.

In contrast to Idaho’s frontal assault, Iowa has opted to crawl through an ACA loophole. The ACA only regulates “issuers,” that is health insurers licensed and regulated under state insurance law. Entities that offer coverage but are not insurers are not subject to the ACA’s insurance reforms. Recently adopted Iowa legislation would allow the Iowa Farm Bureau to offer health coverage free from all state insurance regulation — including solvency and consumer protections.

The Farm Bureau plans would be administered by Wellmark Blue Cross plan, but Wellmark would not function as an insurer and thus would not be subject to the ACA’s insurance reforms.

Each of these approaches will inevitably segment the market. As they make cheaper insurance available to the young and healthy, they will make coverage more expensive for older and less healthy consumers.

Consumers who are not eligible for premium tax credits must bear the full cost of these increased premiums, and many will not be able to afford real insurance coverage.

The Urban Institute projects that 2.6 million fewer people will have minimum essential coverage by 2019.

There are, of course, steps states could take to stabilize the market for all.

They could enact their own individual mandate, for example, as Maryland and the District of Columbia are considering. State reinsurance programs under ACA state innovation waivers, like those adopted by Alaska, Minnesota, and Oregon and being considered by Maryland and Wisconsin, could reduce premiums across the market.

State efforts to regulate short-term or association health plans could fend off the destruction of the ACA-compliant market. Massachusetts, New Jersey, and New York, for example, apply extensive consumer protections, including guaranteed issue, to all new policies in the individual market and do not permit medical underwriting for short-term plans.

In the end, however, the federal government must confront a basic question of fairness. It subsidizes the purchase of insurance for the vast majority of Americans — the employed, the poor, the elderly and low-income individuals in ACA marketplaces — but not for middle-income Americans who must purchase insurance on their own.

There are a number of options the government could consider to reduce the cost of insurance for this remaining group.

For example, reinsurance for the entire individual market significantly reduced premiums for all during the first three years of the ACA and could be reinstated. Insurers whose highest claims are shared with the federal government would be able to cover consumers of all income levels for less, and the individual market would stabilize. RAND has found that extending the ACA’s reinsurance program could result in both lower premiums and deficit savings. Reinsurance does not have to be politically controversial: all of the major Republican ACA repeal proposals of 2017 included it.

For eight years, fierce political conflict has prevented needed improvements in the ACA. If the United States is to avoid the specter of a growing number of uninsured — and unhappy — middle-class consumers, Congress will likely need to act soon to address the fact that many middle-income purchasers of individual insurance in the U.S. face unaffordable insurance prices without the financial assistance that so many of their countrymen receive.