Medica: Ending Out-Of-Pocket Subsidies No Big Deal
Ending subsidies for out-of-pocket health care costs, as President Donald Trump has said he is considering, would simply trigger higher subsidies from another pot of tax money and would not worsen losses for health insurance companies substantially, an insurance executive said.
And even if the out-of-pocket subsidies disappear, the executive from Medica Health told The World-Herald, the company still would offer individual health plans next year under the Affordable Care Act.
Medica, based in Minnetonka, Minnesota, is the only company planning to offer the health plans in Nebraska and Iowa in 2018.
Geoff Bartsh, who heads Medica's individual and family health plans, said that because the financial impact would not be significant, the fate of out-of-pocket subsidies would not be a factor in deciding whether to sell insurance under the ACA.
The discussion about ending the out-of-pocket subsidies, he said in an interview, is "purely a political situation."
Asked for comment, the U.S. Department of Health and Human Services, which administers the Affordable Care Act, didn't respond.
Members of the Nebraska and Iowa congressional delegations have not discussed ending the ACA's out-of-pocket subsidy in detail, but have voted in favor of proposals to repeal and replace the law itself.
The Republican-majority Congress has failed so far to repeal or change the ACA, also known as Obamacare, as party leaders have promised for several years.
When the latest attempt failed last month, Trump said on Twitter, "As I said from the beginning, let ObamaCare implode, then deal."
Administration officials and some in Congress have said ending out-of-pocket subsidies is one way to hasten the ACA's failure so that Congress would take action.
But ending that subsidy wouldn't cause the Affordable Care Act to "implode," Bartsh said. He said provisions of the Affordable Care Act would reduce - if not erase - any impact from ending out-of-pocket subsidies.
Here's why, he said:
People with low incomes can qualify for subsidies to reduce their monthly premiums. They also may qualify for separate subsidies to reduce out-of-pocket costs such as deductibles and copayments.
Both subsidies, from federal taxes, are paid directly to insurance companies to cover health care costs.
Premium subsidies are written into law, but the Trump administration could end the out-of-pocket subsidies because of a lawsuit pending in court. Doing that would cost insurance companies because they based their 2017 prices partly on receiving that money.
But for 2018, Medica and other insurers would raise premiums to replace any lost out-of-pocket subsidy payments. Insurance companies are required to set premiums, deductibles and other charges to cover their clients' estimated health care costs.
Because 80 percent or more of the people in Nebraska and Iowa who buy the ACA health plans qualify for premium subsidies, they already pay the top monthly premiums required by the law.
As a result, if premiums must rise to make up for canceled out-of-pocket subsidies, ACA premium subsidies also would increase. That means the government would pay more of the premium to insurance companies and most insured people would pay the same amounts, although they would not get help paying deductibles.
Bartsh estimated that the increased premium subsidy payments would replace a large part, but not all, of the dropped out-of-pocket subsidies. People who buy the individual plans but don't qualify for subsidies would have to pay the higher premiums.
Nor would the end of out-of-pocket subsidies cause a significant number of healthy people to drop their insurance, Bartsh said, because the higher premium subsidies would cover the premium increases.
The exodus of healthy people has been a primary cause of insurance losses that prompted most insurance companies to drop out of the ACA.
For Medica, ending out-of-pocket subsidies next year would mean $200 million less from its health plans in its six states, including $100 million in Nebraska.
To make up for that reduced payment, Medica would seek state and federal regulators' approval to raise monthly premiums by another 10 to 15 percent in Nebraska and 9 to 12 percent in Iowa, on top of increases already planned - averages of 16.9 percent in Nebraska and 43.5 percent in Iowa.
Counting both increases, a health plan costing $300 a month this year would cost as much as $403 in Nebraska and $482 in Iowa next year.
Even without out-of-pocket subsidies, Bartsh said, Medica is financially strong enough to offer the ACA plans next year in Nebraska, Iowa, Minnesota, Kansas, North Dakota and South Dakota.
Medica lost money on its Nebraska individual business last year but is doing much better in 2017, he said, so it can predict 2018 costs more accurately and set prices to pay medical claims with a small "margin" left over. Medica is a nonprofit insurance company.
If 2018 goes as planned, he said, rates should not increase sharply in 2019.
"It comes down to a business decision," he said. "Do we feel like we can continue operating as a business in these markets, setting prices that are sustainable and can be slightly profitable? We think we can."
Medica has about 700,000 customers for all of its insurance products and expects about $780 million in premium revenue this year. Next year, revenue may reach $1.5 billion, Bartsh said, and the number of people covered by Medica's ACA plans may double because other companies are dropping out.
Medica has a financial surplus of $830 million and more than five times the minimum amount of money required to cover the risk of medical claims by its customers, Bartsh said.
"We feel very confident that we can assume that much risk," he said.
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