Whatever your view of the health care debate, the news out of Iowa isn’t good. In April, two large insurers, Wellmark and Aetna, said they would not offer health insurance policies on Iowa’s federal health insurance marketplace in 2018. Medica, the only remaining insurer, recently said it too might pull the plug next year.
"94 out of 99 counties in Iowa in 2018 will not have an insurer in the exchange," House speaker Paul Ryan said on the Hugh Hewitt Show May 19. "That’s what’s going on. Forget about talking about pre-existing conditions, which our bill clearly protects, if you can’t get any insurance, you can’t get anything. And that is the state of affairs with Obamacare."
Ryan is getting ahead of himself. We might not know until mid June how Iowa’s individual health insurance market shakes out.
It’s also misleading for Ryan to hold up Iowa as a poster child for what’s wrong with Obamacare. While individual markets around the country are being tested by policy decisions made by both the administrations of President Barack Obama and President Donald Trump, Iowa is one of the least representative states for making broad claims about Obamacare’s individual market.
Iowa is a small state that happens to have a "$12 million man."
Actually, we don’t know if this patient is male or female, but we do know that Wellmark has a customer with a rare genetic disorder who requires care that costs $1 million dollars a month. That was the estimate from Wellmark in 2016.
That year, Wellmark hiked premiums by about 40 percent. A company executive told the Des Moines Register that a quarter of the increase was due solely to paying for that one person.
Why would one person make such a big difference?
Because Iowa’s insurance exchange is very small -- only about 72,000 individual plans. That’s a very narrow a base to spread out the outlays for one patient.
"Everyone is trying to avoid the $12 million man," said Duke University research associate David Anderson. "Because whoever catches him basically can’t make money."
Wellmark covers this patient now. When the company leaves the exchange, whatever companies remain run a chance of picking up this person’s coverage. Remember, no one can be denied for a pre-existing condition. If there’s just one insurer, the probability goes to 100 percent.
We asked individual market expert Barb Klever at the American Academy of Actuaries if one person could scare off insurers in Iowa.
"Oh yes," she said. "It is a very big risk, especially for a small insurance company."
Not only is Iowa’s individual market small, but many of these people are not shopping on Affordable Care Act’s exchange. The result? The people on the exchange have greater health needs and as a group, are more expensive.
According to numbers from Iowa’s Insurance Division, there’s a total of about 148,000 plans across the state’s entire individual market. Of that, about 78,000, or 51 percent, are plans that pre-date the Affordable Care Act. Those sold before the law passed in 2010 are almost totally unchanged and are called grandfathered plans. Others sold between 2010 and 2014 are called grandmothered, or transitional, plans.
The people on these plans got them when insurance companies could cherry pick the people they wanted to cover. This is why, as a group, they tend to be healthier than average. They also tend to be more affluent, which is also associated with better health. Obama allowed these types of plans to remain.
Klever said other states have witnessed the problem this creates.
"You have healthier people in one part of the market, and unhealthier people in the ACA-compliant market," Klever said. "Anytime you fragment the market, it can lead to destabilization of the guaranteed-issue market (the exchange)."
Insurance works when everybody, from the sickest to the healthiest, is in the same risk pool. The grandfathered and grandmothered plans upset the balance, which drives up premiums on the exchange.
Iowa is an outlier. By one estimate, among states that allow grandparent plans, they account for about 12 percent of the market. At 51 percent, Iowa is off the charts.
One final point specific to grandmothered plans: States can choose to allow them. About half of this problem would not exist if Iowa had opted to phase them out.
These quirks help explain Iowa’s predicament, but they don’t explain it fully. In many other states, insurers have decided not to participate on exchanges. Carriers have lost millions of dollars by selling through the government marketplaces. The premiums they charged were too low for the costs they had to cover.
Today, companies face two additional uncertainties.
The Trump administration has signalled it might not enforce the individual mandate. The mandate pushes healthier people onto the exchanges and spreads the risks and costs of caring for those who become ill. Without knowing how hard the administration will push the mandate, insurance companies have less confidence that the risk pool will have the right mix of people.
Companies are also unsure whether the government will continue to subsidize the portion of medical bills that fall on people even after the insurance company pays its part. For lower income plan holders, Washington defrays that cost. So far, the government has not committed to paying for all of 2018.
"It’s important because it’s a considerable amount of money and there’s no certainty that the government will fund it," Klever said.
Klever said this makes it difficult for insurers to know how much to charge in premiums, or if they should participate in the exchanges at all.
Those are issues across the country, and in Iowa, too.
Des Moines Register, Wellmark plans 38% to 43% increases for some customers, May 12, 2016
Balloon Juice, Catching the falling knife in Iowa, April 21, 2017
ACAsignups.net, Charles Gaba’s blog: Milliman provides one of my Holy Grails: Hard OFF-EXCHANGE enrollment data!, April 7, 2017
American Academy of Actuaries, Actuaries On Stabilizing The 2018 Individual Health Insurance Market: The Time For Policymakers To Act Is Now, April 24, 2017
Kaiser Family Foundation, Estimates: Average ACA Marketplace Premiums for Silver Plans Would Need to Increase by 19% to Compensate for Lack of Funding for Cost-Sharing Subsidies, April 6, 2017
Reuters, Aetna exits Iowa individual insurance market for 2018, April 6, 2017
Des Moines Register, Medica, the last insurer selling individual health policies in most of Iowa, likely to exit, May 3, 2017
Wellmark, Wellmark announces 2018 individual ACA market decision in Iowa, April 3, 2017
The Messenger, Ommen: Congress needs to act, May 20, 2017
Aetna, Aetna to Narrow Individual Public Exchange Participation, Aug. 15, 2016
Interview, David Anderson, research associate, Duke University Margolis Center, May 22, 2017
Email interview, Chance McElhaney, communications director, Iowa Insurance Division, May 23, 2017
Interview, Barb Klever, vice chairperson, Individual and Small Group Markets Committee, American Academy of Actuaries, May 23, 2017
Interview, Cynthia Cox, associate director, Health Reform and Private Insurance, Kaiser Family Foundation, May 22, 2017
Interview, Tony Leys, health care reporter, Des Moines Register, May 22, 2017