Who’s to blame for the double-digit rate increases facing New Yorkers in the non-group health insurance market? Why has a major Long Island health plan been losing so much money that it decided to shut down? Why is a second plan being forced out of the commercial market by state officials?
The Cuomo administration has blamed these issues, in part, on efforts in Washington to “destabilize” President Obama’s Affordable Care Act – including Congress’ on-again, off-again attempts to repeal the law, and President Trump’s threat to withhold billions in promised payments to insurers and weaken enforcement of the individual mandate.
While those actions have sowed uncertainty among insurers nationwide – causing some to raise prices on their Obamacare plans and others to quit the ACA market– they do little to explain recent developments in New York.
Here, setbacks for the insurance market were largely driven by flaws in the ACA itself, along with policies set by Albany, not Washington.
Start with the rate hikes for non-group coverage in 2018, averaging 14.5 percent, which the Department of Financial Services announced on August 15.
The department’s press release included the following explanation:
Repeated efforts by Congress to repeal, or repeal and replace, the ACA have sought to destabilize the ACA marketplace, and caused some insurers to raise rates to account for the uncertainty. Moreover, administration attempts to repeal or not enforce the ACA’s individual mandate likewise have caused destabilization of the market. As a result, fewer younger and healthier individuals are purchasing coverage, impacting the risk pool and causing premiums to rise.
However, New York’s health plans did not factor uncertainty about the future of the ACA into their 2018 rates – because the state Department of Financial Services ordered them not to.
“For the purposes of calculating 2018 health insurance premiums for the individual and small group markets, insurers should assume that there will be no changes to the ACA,” the department wrote to the industry in April.
Plans were told to address the potential cost of changes out of Washington in side letters, but not in their formal rate applications. On that basis, plans requested hikes averaging 17.7 percent.
Among the major factors cited in their applications were existing features of the ACA – including the impact of its “risk adjustment” program and the return of a suspended premium tax – along with rising medical costs. Assuming plans followed DFS’s orders, as it appears they did, Republican attempts to repeal, replace, or otherwise undermine the law played no role in their calculations.
In its approved rates, the department did include an adjustment for the potential loss of cost-sharing subsidies, which were ruled unconstitutional by the courts, and which both Obama and Trump have continued while the case is on appeal. But the impact of that loss was only 0.6 percent – much less than in other states, because New York uses most of the cost-sharing funds for its state-run Essential Plan.
Nine days later, on August 24, CareConnect – the insurance arm of Long Island’s Northwell Health provider network – announced it would be winding down operations, eventually displacing 126,000 customers.
In response, DFS Superintendent Maria Vullo issued a statement emphasizing “continued uncertainty across the nation due to the repeated actions of the federal government to undermine the Affordable Care Act” and “recent federal efforts to destabilize markets and threats to dismantle or not enforce the ACA.”
But the major factor behind CareConnect’s shutdown was a feature of the ACA itself: the risk-adjustment program, which obliged plans deemed to have healthier-than-average customers to transfer a share of revenue to plans serving sicker-than-average customers. The goal was to discourage insurers from trying to “cherry pick” the least expensive people to cover.
Also hard hit by risk adjustment was the Bronx-based Affinity Health Plan, which the state has ordered out of the market for commercial non-group coverage as of December 31, citing inadequate cash reserves. The company is to continue offering state-financed coverage for Medicaid, Essential Plan, and Child Health Plus enrollees.
Officials at CareConnect and other insurers losing money to risk adjustment have argued that the program gives an unfair advantage to larger, more established insurers who a better equipped to document how sick their customers are. State officials shared this concern, and used their own authority to blunt the program’s impact. Still, risk adjustment was due to cost CareConnect $112 million this year, or 44 percent of its revenue.
“Everyone agrees that the formula is flawed, but no one is willing to change it,” Northwell’s president and chief executive, Michael Dowling, told Newsday. “I could not take those losses without a light at the end of the tunnel.”
However, the issue of risk adjustment went unmentioned in Vullo’s statement on the plan’s shutdown.
Meanwhile, DFS had taken its own bite out of CareConnect’s finances the week before, by knocking the company’s requested rate hike of 29.7 percent down to an approved hike of 23.5 percent, a drop of about one-fifth.
The industry has complained for years that the department’s process for setting rates, known as prior approval, is politically driven and unpredictable. In filings earlier this year, some plans cited the losses they had sustained from previous rate cuts as a reason for needing bigger rate hikes now.
The state further imposes some of the heaviest health insurance taxes in the nation, along with a hefty list of expensive coverage mandates that seems to get longer with every year – policy choices that contribute to some of the highest premiums in the country, and undermine the goal of universal coverage.
It’s fair to criticize Republicans for undermining the ACA without a viable plan for replacing it. But New York’s recent insurance woes grow out of weaknesses in the law, along with the state’s own policies. Leaving the ACA alone isn’t going to fix them.