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Two weeks ago our CEO, Brad Wilson, wrote about the future of the Affordable Care Act (ACA) and what it means for individual premiums in 2018. Today we’re following up by announcing the proposed rates we’ve filed for ACA coverage next year in all 100 North Carolina counties.

Our ACA customers will receive an average rate increase of 22.9 percent for coverage purchased on and off the exchange. That’s according to our proposal filed with the North Carolina Department of Insurance for their review and approval. The increase is a little less than last year’s approved rise of 24.3 percent for this year’s coverage.

In our view, with so many North Carolinians struggling to afford health care, the 2018 increase is still too steep. But higher premiums are necessary because key federal funding for health coverage appears to be going away. Other reasons for the rate increase include a tax on health insurers under the ACA that’s scheduled to go into effect in 2018, as well as the higher costs of covering medical claims.

One important point about our 2018 rate filing: While our intent at Blue Cross NC is to offer exchange plans next year, simply filing rates does not guarantee it. We’ll continue to evaluate the market and make and announce a final decision this fall.

 

Cost-Sharing Reductions

The biggest single reason for the sharp increase in rates is the lack of federal funding for “cost-sharing reductions” beginning in 2018. This is the program that helps lower-income ACA customers pay their out-of-pocket costs, such as deductibles and copayments.

Congress must authorize and provide funding for cost-sharing reductions, which amounts to about $7 billion annually. In a federal lawsuit filed last year, the House said the payments weren’t authorized.

Since then the issue has been a sticking point on the future of the ACA market. The latest news came earlier this week as the Trump Administration delayed a decision on whether to fight the House lawsuit. As a result, insurance companies can’t count on being paid for reducing cost-sharing for eligible ACA customers.

 

What Are Cost-Sharing Reductions?

The Affordable Care Act includes insurance plans that help cover deductibles, copayments, coinsurance and other out-of-pocket costs. Some 58 percent of Americans with ACA coverage in 2017 purchased plans with cost-sharing reductions. Only Silver plans purchased on the exchange have cost-sharing reductions available. According to the Kaiser Family Foundation, cost-sharing reductions lower annual out-of-pocket expenses by up to $5,600 for ACA customers. Cost-sharing reductions are separate from the advance payment tax credits that help low- and moderate-income Americans purchasing coverage on the exchange pay their premiums. But those who qualify for cost-sharing reductions also receive this premium assistance.

ACA plans with cost-sharing reductions are a lifeline for people who qualify for them. The lower costs can often mean the difference between seeking medical care or not. (Individuals with income between $11,800 and $29,700 are eligible. For a family of four, it’s household income between $24,000 and $60,750.) That means that a family of four making $40,000 would save $2,800 a year on deductibles, on average, for a Silver plan.

If the federal funding disappears, who makes up for that? Policyholders. That’s because premiums have to go up to cover those costs. Otherwise, insurers would not be able to sustain that business over the long haul.

For perspective, the federal government made roughly $200 million in cost-sharing reduction payments on behalf of our customers in 2016. With Blue Cross NC covering even more North Carolinians in 2017, we would receive more this year.

 

ACA Health Insurer Tax

A much smaller but still significant portion of our proposed rate increase is to account for a health insurer tax established under the ACA. Health insurers have had to make payments on this tax since 2014.

Thanks to a one-time tax “holiday” approved by Congress two years ago, this tax wasn’t paid in 2016. This meant that 2017 ACA customers benefitted from a slightly lower premium increase. The tax holiday has now ended, and premiums will be slightly higher next year as a result.

 

Impact on North Carolinians

Another rate increase above 20 percent is a tough message to deliver to customers who depend on the Individual market for health care coverage. The good news is that federal subsidies will again help lower premiums for customers in 2018. In fact, most of our ACA customers may see little to no premium increase in 2018. Many may even see a decrease depending on their financial situation.

Still, cost-sharing reductions have a big impact on North Carolinians. That became clear to our actuaries as we looked at proposed rates for 2018. If the federal funding continued, we would have filed an average increase of just 8.8 percent for 2018.

That’s a difference of almost 14 percentage points – similar to what’s happening across the nation. A recent analysis by the Kaiser Family Foundation said that the average Silver plan premium would be 19 percent higher without cost-sharing reduction payments to insurers.

If you look past the questions about cost-sharing reductions, you can see that the ACA market in North Carolina has become more stable. Blue Cross NC has a better handle on expected medical costs among ACA participants in our state, which include our company’s 502,000 customers for 2017. An increase of 8.8 percent for next year would have been our lowest proposed rate increase since beginning ACA coverage in 2014. Further, the rate increase filed could have been another 3 points lower had the health insurer tax been waived again.

In other words, with the right actions coming out of Washington to stabilize the market, the rate increase from Blue Cross NC would have been between 5 percent and 6 percent. That looks a lot different from the 22.9 percent we filed.

However, that’s not much comfort to those who depend on the ACA to cover themselves and their families. Regardless of future decisions in Washington on cost-sharing reduction plans and the health insurer tax, our commitment at Blue Cross NC is to offer choices that help North Carolinians get access to the best medical care.

 

Brian Tajlili

About Brian Tajlili

Brian Tajlili is the Director of Actuarial and Pricing Services for Blue Cross Blue Shield of North Carolina, leading rate development for the Individual Under 65 and Small Group markets. Brian has been involved with various projects involving the Affordable Care Act since it was passed and is passionate about how his work as an actuary impacts North Carolinians. Brian is a Fellow of the Society of Actuaries and Member of the American Academy of Actuaries, and outside of work is actively involved in the Raleigh-Durham area’s running community.

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