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Are Health Insurers Panicked by the Pandemic? Not Yet

By Jack Pitsor | July 29, 2020 | State Legislatures Magazine

When the coronavirus pandemic first hit, one big question was how much it would cost the U.S. health system, and, in turn, affect the affordability of private health insurance. An initial analysis by Covered California in March estimated health insurance premiums could increase by anywhere from 4% to 40% for individuals and employers as a result of COVID-19 (compared to slight decreases in premiums in the last two years for Affordable Care Act plans).

Fast forward to today: The early panic over large increases in insurance premiums has not played out as anticipated—at least not yet. Limitations on elective procedures have led to drops in patient claims, resulting in cost-savings for many health insurers. With higher profit margins, several private insurers began offering premium credits and other cost savings to health plan enrollees. However, many persistent uncertainties—increasing case counts, the economic downturn, patients returning for elective care, the costs of COVID-19 testing and treatment—could still lead to high costs for health insurers and their enrollees.

All of this has occurred while insurers offering health plans on the ACA’s individual and small-group marketplaces are setting premiums for 2021. Some states have published preliminary (or proposed) premium rate filings—and, so far, health insurers have proposed mostly single-digit rate increases or even decreases for 2021 ACA health plans.

The Premium Rate Review Process

Health insurers participating in the ACA’s individual and small-group marketplaces must go through a rate review process before 2021 marketplace premiums go into effect. Insurers have submitted all proposed rate filings to the Centers for Medicare and Medicaid Services (CMS), which intends to publish information on proposed premiums on Aug. 14. Some states, however, have released or will release these proposed rate filings earlier than that.

Proposed premium rate filings for 2021 health plans are just that: proposed, not final. Health insurers in states using the federally facilitated marketplace (healthcare.gov) must submit finalized rate filings to CMS by Aug. 26, and CMS will release finalized premium rate information no later than Nov. 2. States operating their own insurance marketplace set their own date for submitting finalized premiums (no later than Oct. 15) and publishing final premium rates.

Several health insurers have asked for the ability to adjust rate proposals before they are finalized as more sufficient data on COVID-19 becomes available. Additionally, state and federal regulators often have the authority to change rate review deadlines if insurers need more time to adjust rate filings because of unforeseen circumstances or policy changes.

Preliminary 2021 Rate Filings

In an analysis of 2021 preliminary rate filings across 10 states and the District of Columbia, the Kaiser Family Foundation found insurers in the individual market requesting a wide range of premium rate changes, from a 12% decrease to a 31.8% increase. More than half the insurers, however, are requesting average premium changes between a 2% decrease and a 6% increase. Oregon’s six insurers in the individual market, for example, are requesting an average premium rate increase of 2.2%, while Maryland’s insurers are proposing an average rate decrease of 4.8%.

Some insurers attributed rate increases to virus-related costs such as covering COVID-19 testing free of cost sharing. New York insurers requested an average increase of 11.7% in the individual market and 11.4% in the small-group market.

Role of Reinsurance

Insurers in some states cited reinsurance programs as a reason for keeping premiums generally stable for 2021. A reinsurance program protects insurers from high medical claims by covering part of an insurance claim once it surpasses a certain amount—or by covering the claims for enrollees with certain high-cost medical conditions.

Currently, 12 states have received federal approval and funding to operate a reinsurance program. Three additional states—Georgia, New Hampshire and Pennsylvania—are awaiting federal approval for their reinsurance programs.

Many states have recently pursued reinsurance legislation, some even before the pandemic started. Maine enacted LD 2007 in March to extend its reinsurance program to the small-group marketplace in hopes of lowering health insurance premiums for small businesses. The three health insurers offering plans in the individual marketplace indicated 2021 premiums could have been 5% to 15% higher without the program.

Colorado enacted SB 215 in June to finance the state’s reinsurance program for an additional five years. The bill establishes an assessment fee on certain health insurance carriers and hospitals to fund the reinsurance program and offers insurance subsidies to some health plan enrollees. With the state facing significant revenue shortfalls due to COVID-19, it’s estimated the new funding system will save about $60 million in general fund expenditures.

Jack Pitsor is a research analyst in NCSL’s Health Program.

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