On March 4, the U.S. Supreme Court heard oral arguments on the case of King vs. Burwell. The Supreme Court’s decision, expected to be delivered in late June or early July, could have far-reaching effects on the Affordable Care Act (ACA) and the millions of Americans who depend on it. The suit maintains that the government cannot offer insurance subsidies in states using a federal health care exchange.
Should the Supreme Court rule in favor of the plaintiff, those purchasing health care through the exchanges could lose tax credits. The cost of coverage would increase for those with household incomes lower than four times the Federal Poverty Level (FPL), resulting in more people opting out of coverage. Young and healthy Americans would be the most likely to drop coverage.
A dramatic decrease in enrollment will differ from the assumed 2016 rate filings, as well as the 2015 filings. Given this possibility, insurers need to understand the implications of a ruling in favor of the plaintiff and plan accordingly. They also need to understand their options — exiting the market, refiling rates or keeping their filed 2016 rates. Determining the best option depends on the states where the insurer operates, growth strategies and surplus position, and their appetite for risk.
Modeling the implications
Modeling will help insurers understand the implications of a ruling in favor of the plaintiff. Insurers should consider the following variables in their analyses:
- The shift in market demographics, including the shift in age, income, rating regions, on vs. off exchange, Medicaid, etc.
- Relative risk of the different segments in the market, for example, current subsidized market vs. non-subsidized.
- The impact of the decision on risk adjustment, reinsurance and risk corridor.
- Issuer’s surplus position and the ability to absorb disruptions created by the ruling.
For further analysis of the King vs. Burwell case, please refer to our article, “King vs. Burwell: Implications for issuers.”
About the author
Daniel S. Pribe, FSA, MAAA, Director, Actuarial Consulting, Optum
Dan Pribe is a Director of Actuarial Services with Optum. He has over 20 years of experience working in the health insurance and employee benefits industries. He has extensive experience in provider contracting, medical plan design, health cost projections, experience analysis, and strategic planning and forecasting.
While at Optum, Dan has worked with a $10 billion+ health care system in the development and implementation of a new provider-owned health plan. This included all financial projections for the health plan, analyses of the impact to their entire health system, product and network development, and communication with Senior Management and regional leadership. He has also worked with several payer organizations on assessing the impact of health care reform to enrollment and financials.
Dan received his Bachelor of Science degree in Mathematical Statistics from the Ohio State University. He is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries.