BCRA and the individual market

Medicaid cuts are leading headlines, but consumers have more reasons to worry

For justifiable reasons, many headlines surrounding the Senate’s health bill (the Better Care Reconciliation Act or BCRA) focus on the proposed $700 billion in cuts to Medicaid. Less attention has been paid to potential changes in the individual market, one of the major focuses of the Obamacare reform. Patients and insurance companies alike should be suspicious of the Senate’s claims that BCRA will strengthen the individual market.

Republican claims of a “death spiral” in the individual market are commonly used justification for repealing the Affordable Care Act (ACA). Trump has consistently cited rising premiums and insurers pulling out of the marketplace as a sign of market failure, while often in the same breath threatening to obstruct features of the ACA that help stabilize the market.

There is a real need to improve the offerings for consumers buying individual insurance: some counties have only one option when buying through the exchange, and some may find themselves with no options in the future. Unfortunately, the legislation put forth by Senate Republicans does not hold the solution.

The ACA reform tried to tackle the two major issues that plagued the individual market: can people get approved for insurance? and once their approved, can they afford it? To this end, among a raft of consumer protections, the ACA introduced guaranteed issue, the individual mandate, and a system of tax credits that would help families afford the cost of premiums.

Guaranteed issue allows everyone to qualify for coverage, regardless of pre-existing conditions. To offset the increased costs of insuring less healthy individuals, the insurance pool must be large, hence the need for the individual mandate. The Senate health bill still contains guaranteed issue (though states may be allowed to exempt themselves from the requirement), but uses a continuous coverage requirement instead of an individual mandate. Instead of a financial penalty, BCRA’s continuous coverage requirement imposes a six-month waiting period for coverage for people who go more than 63 days without insurance (this change alone is estimated to lead to a 20% increase in premiums). The CBO report on the effects of the bill suggests this isn’t strong enough to compel people to join and will only lead to a slight increase in people who would get insured without a mandate. Further, they estimate this requirement will actually increase the uninsured in 2019, when insurance costs will be too high and people will opt-out altogether (also in 2019: the end of cost-sharing reduction payments to insurers).

For many, the cost and quality of the insurance they receive will change as well. The ACA provided tax credits to help pay for premiums up to 400% of the federal poverty line (FPL). BCRA only goes up to 350% FPL. It also ties the credit amount to a benchmark plan with a lower actuarial value (AV) than the ACA. Actuarial value is an estimate of how much of the incurred cost the insurance company will pay. A plan with 83% AV means that the insurance company will pay for 83% of health care costs (this is actually the AV of the typical employer-sponsored plan). Under Obamacare, individual market tax credits were tied to a 70% AV “Silver” plan. The Senate drops that down to a 58% AV plan, which is a worse value than insurers were legally allowed to provide under the ACA. You can see how these changes play out in the CBO excerpt below.

You can see the lower premiums under BCRA, which is the intended effect of the Senate bill. A lower actuarial value is associated with lower premiums. However, look at the net premium paid — the actual cost to the consumer — and you’ll see that people will actually end up paying more for their insurance. It’s even worse for people who now fall outside the 350% FPL range:

Look at the jump in patient costs for a 64 year-old making $56,800 annually. between the current law and BCRA. If you want a Silver plan, net premiums go from $6,800 to $20,500, a 300% increase and would consume 36% of your annual income. This dramatic increase is also due to a relaxing of the age rating rule. Under the ACA, seniors could be charged no more than 3x that of younger consumers; BCRA increases that to 5x. The CBO says that along with Medicaid cuts, these smaller subsidies are a leading contributor to the 22 million who will lose coverage under the Senate health plan.

For those who keep their insurance, the quality of the insurance will drop as well. The move towards benchmark plans with a lower actuarial value is part of a longstanding Republican push towards high deductible health plans. In exchange for lower premiums, deductibles rise higher and higher, intended to only cover catastrophic medical costs. Under BCRA, monthly premiums would still be expensive despite subsidies, and the deductible would eat up an even greater percentage of income. These aren’t useful or affordable insurance plans. This is captured perfectly in the CBO report: “As a result, despite being eligible for premium tax credits, few low-income people would purchase any plan.”

For seven years, Republicans have foretold the end of the individual market: prices too high, subsidies too low to make plans affordable, or not enough options to create competition. Given the chance to rewrite the law and correct the ACA’s flaws, Republicans have gone the other way. Their proposal makes it even harder for consumers to stay covered in the individual market. Many families, hoping to find relief from rising health care costs, will find instead that insurance has jumped beyond what they can afford altogether. Lacking options and a solution, they will join the host of millions forced to go without health coverage by the Republicans in Congress.