High rate increase requests have left health insurance regulators in Maryland with this challenge: At a time when insurers are pulling out of the individual markets in state after state, how high can you allow them to raise their prices without inflicting steep hikes on consumers?
Maryland Insurance Commissioner Al Redmer will have the final say on Maryland’s rates for 2018. He will have the responsibility of finding that line that will keep insurers in the individual market while still protecting consumers.
“The key to a competitive market is having carriers in the market that are able to operate their business profitably,” he said. “If you’ve got that, and you are not placing regulatory burdens in front of them, carriers will come in and stay in the market.”
Citing losses from 2016, CareFirst, the dominant insurer in Maryland, has requested a rate increase of 50.4 percent in rate filings for the health insurance exchange and individual market released by the Maryland Insurance Administration last week. Cigna, Evergreen and Kaiser also requested increases of 37.4, 27.8 and 18.1 percent, respectively.
But historically, large rate increases have not always been approved. Since 2015, CareFirst’s approved rates have been lower than what they requested.
But it would take a more dramatic lowering of rates for the insurers to consider leaving the market.
“If we were to get really shorted on the rates, we’d have to re-examine that at that time,” said Chet Burrell, CEO of CareFirst, last week. “But I think the going in view here is the same that it’s always been — we are committed to the market. It’s part of our fundamental mission.”
It would be unlikely that the insurance commission approves rates lower than what the insurers need to stay in business, Redmer said.
“We would never knowingly approve a rate in which we expected the carrier to lose money. As a matter of fact the law doesn’t allow us to do that,” he said.
At the same time, Redmer said he must balance the needs of insurers to stay viable with consumers’ desires for lower premiums.
2015’s data showed that the best-performing insurer on the exchange lost about four cents on the dollar, before accounting for marketing and operating expenses, Redmer said.
“I think that if you look at the last three or four years …, the losses that the carriers have seen are, in my opinion, unsustainable,” he said. But the rate increases for consumers have been unsustainable as well.
Repeal and replace
All of this comes at a time when President Donald Trump and the Republican Congress are engaged in repealing and replacing the Affordable Care Act. Across the country, state individual insurance exchanges across the country have been in flux.
States like Iowa and Tennessee have seen insurer participation drop to the point where there is only one plan — or none — available on the individual exchange.
Last month, a Kaiser Family Foundation study found that insurers on the individual market nationally had been performing better financially, which could be a sign that rates could stabilize. However, it also cautioned that there was still a lot of uncertainty in the insurance market.
While the Affordable Care Act left some measures available for the president and the Department of Health and Human Services to work with insurers and states to keep the exchanges competitive, Trump has shown little interest in pursuing them.
He has floated the idea that letting the exchanges collapse would be better for him politically, and he has not committed to paying cost-sharing reduction subsidies key to the Affordable Care Act past this year.
Insurers have also complained that Trump has not enforced the individual mandate in the Affordable Care Act, removing an incentive for healthy people to stay on the exchanges.
But these measures’ efficacy has been doubted.
“The secretary of (Health and Human Services) has some authority in the statute to take various steps to kind of shore up the insurance market,” said Matthew Eisenberg, a health economist at Johns Hopkins University’s School of Public Health. “Is that a fail-safe? Is that going to fix everything? No. It’s not that powerful.”
Dr. Peter Beilenson, CEO of Evergreen, also minimized the effect of the individual mandate.
“In reality, they were not a huge driver, but they were a driver,” he said.
Maryland’s insurance providers seem committed to staying on the exchange, for 2018 at least, even as costs rise.
‘A real risk’
But as rates continue to rise, healthier people are dropping out of the market, increasing the number of sick people in the pool, and the costs of the pool.
“The number of people coming through the exchange will almost assuredly go down,” said Dr. Peter Beilenson, CEO of Evergreen. “The Trump administration is not going to want to pay for advertising.”
Instead, insurers and regulators are focused on the long term, where rising rates could lead to a cycle of a market with more sick people as healthier people drop out of the market, which in turn would lead to higher rates. That cycle could become what economists call a death spiral, but Beilenson cautioned that the state has probably not yet reached that point.
“The Affordable Care Act is far from perfect, but it’s better than what we had before and it clearly needs amendments,” Beilenson said. “I think the death spiral is a real risk but not this year.”
In the Maryland market, the most immediate ramification of the rate requests could be a redistribution of the market share among the four insurers.
Since the exchange opened, CareFirst has been the most dominant player. Burrell estimated that they insured two-thirds of the consumers on the exchange.
Beilenson said that Evergreen, as well as Kaiser, could benefit if the rate requests go through because their plans will be less expensive than the CareFirst plans.
But they could be competing over slices of a pie that continues to shrink as rates go up.