6. Individual Market Premium Impacts due to ACA
Reforms – Before Implementation of Tax Subsidy
There are many changes that will take place in CY 2014 that will affect premiums within
the Individual Market. Some changes will affect just portions of the Individual Market
and others will affect the Market as a whole. We have focused our modeling and
assumptions on the five categories of change listed below. These premium impacts are
shown prior to the implementation of the federal tax subsidy. There will be a portion of
the Individual Market that will be eligible for these subsidies. We have shown the results
including the tax subsidy in Section 7. Additional information on methodology can be
found in the Appendix.
(1) The impact of rating limitations: As outlined in Section 4.2, Wisconsin
insurance carriers will no longer be able to rate this market using their current
rating methodologies. The rating requirements set forth within the ACA will
force carriers to cross subsidize premiums across age demographics, gender, and
health status. This in effect will create “winners & losers”. That is, some
members will receive rate increases and some will receive rate decreases.
However, we believe the rating limitation changes alone will not affect overall
premiums.
(2) The impact of product limitations: While the essential benefits coverage has yet
to be defined, we believe benefits such as pharmacy, maternity and behavioral
health will be included. This will affect a portion of the market as indicated in
Section 4.4. In addition, we believe that the minimum actuarial value allowed in
2014 will be 0.60. This will require some members within the market to “buy up”
and will therefore result in premium increases. Finally, the practice of
exclusionary riders will no longer be allowed. We have estimated the premium
impact due to product limitations to the entire Individual Market to be 6% to 7%.
(3) The impact of merging the Wisconsin HIRSP with the Individual Market: In
CY 2014, we have assumed that the Wisconsin HIRSP and the Individual Market
WI HIRSP WI Individual Marketwill be one rating pool. In addition, we have assumed the provider subsidies and
insurer assessments used specifically to subsidize the HIRSP population will no
longer exist. If these subsidies were applied to the combined Individual and
HIRSP Market we believe premiums could be reduced by approximately 10%. In
the absence of these subsidies, we estimate that merging the HIRSP Market with
the existing Individual Market will increase overall premiums for the Individual
Market by 16%.
(4) The impact of the new exchange market: In CY 2014, with the introduction of
the individual mandate and the tax subsidies provided within the exchange, there
will also be new Individual Market entrants. These new Individual Market
members will come primarily from the uninsured and to a lesser extent from
employer sponsored insurance. These new members will have an impact on the
existing Individual Market premiums and the magnitude of the impact will
depend on how their risk profile compares to the risk profile of the Individual
Market. This last modeling exercise was performed by Dr. Gruber using his
microsimulation model (GMSIM). Neither we nor Dr. Gruber have incorporated
in our modeling the impact of the risk adjustment, reinsurance, and risk corridor
programs that are mandated by the ACA, which may mitigate premium changes
due to the law. In the absence of these programs, we find that premiums for the
entire Individual Market may increase an additional 13%.
(5) Managed Competition Effect: The introduction of an exchange and
corresponding tax subsidies provides insurers with a membership growth
opportunity. Insurers may strive to achieve efficiencies which may lead to lower
premiums within the exchange. Dr. Gruber has assumed a 7.5% reduction in
premiums due to this effect, which follows the efficiencies assumed by the CBO
in their analysis (and is consistent with evidence from the benefits of managed
competition in the Wisconsin state employees program).
