When Donald Trump won the electoral vote 1 1/2 years ago, the American people knew change was coming. Topping President Trump's list of things to do once in office was to repeal and replace the Affordable Care Act (ACA), which is more commonly known as Obamacare. Of course, things didn't go according to plan.
With Republicans in control of the legislative branch of the government, it was widely expected that they would have no trouble repealing and replacing Obamacare. However, working with a razor-thin majority in the Senate, Republican lawmakers and the president were unable to come to an agreement on healthcare reform after countless tries in 2017. Instead, Trump and the GOP-led Congress slowly have been dismantling some of the health law's core components, leaving only a shell of former President Barack Obama's hallmark healthcare legislation.
Who's ready for another double-digit premium increase?
Slowly picking apart Obamacare does have a purpose for President Trump: It likely will send the program into a "death spiral," whereby premiums rise at a rapid pace and healthy individuals drop out of the program altogether. Such a move would prompt lawmakers from both sides of the aisle to come together and create a new health plan. But in the interim, it means painfully high increases for those folks signed up with Obamacare who aren't privy to its remaining subsidies.
According to a newly released report from the Congressional Budget Office (CBO), premiums for benchmark plans -- i.e., the second-lowest-cost silver plan listed on ACA exchanges -- are expected to rise by 15% in 2019 and then average a 7% increase per year thereafter, through 2028. Mind you, this 15% increase comes after the Department of Health and Human Services announced in late October 2017 that benchmark plan premiums would be rising by an average of 37% in 2018.
Then again, the CBO's estimate could prove conservative for next year. Back in late January, insurer Covered California in the nation's most populous state released a report entitled, "The Roller Coaster Continues" that described what it believes will be bottom-line premium hikes of between 16% and 30% in 2019. Though these are estimates, and rate hikes often aren't finalized until September or October, when a large insurer in the fifth-largest economy in the world speaks, you listen.
Ultimately, the CBO estimates that the total number of uninsured will rise by 3 million next year, to 32 million, and the non-elderly uninsured rate will hit 13%. By 2028, some 35 million people are forecast to be without insurance if the remnants of Obamacare are kept in place.
Three reasons Obamacare premiums keep soaring
If we had to point a finger at the factors behind this rapid rise in healthcare premiums, three would stand out.
1. The elimination of the individual mandate in 2019
The first, which will take shape in 2019, is the elimination of the individual mandate. The individual mandate is the actionable component of Obamacare that requires individuals to purchase health insurance or pay a financial penalty, known as the Shared Responsibility Payment (SRP). If you choose to go uninsured and don't qualify for an exemption, your SRP would be the greater of 2.5% of modified adjusted gross income or $695 per adult.
However, when the Tax Cuts and Jobs Act was passed in December, it, among other things, outlined the elimination of the individual mandate beginning in 2019. The mandate is a crucial cog of Obamacare that encouraged the enrollment of healthier individuals who would otherwise tempt fate and remain uninsured. The premiums of these healthy individuals are sorely needed by insurance companies to offset the higher costs associated with sicker individuals allowed to enroll under Obamacare.
Without this mandate, it's widely believed that some healthier individuals will remain on the sidelines since there's no longer the fear of financial penalty. Meanwhile, the patient population for remaining ACA insurers will include a higher number of sicker members relative to healthy members.
2. President Trump doing away with cost-sharing reductions
Last year, Donald Trump also announced the end of cost-sharing reductions, or CSRs, which are one of the two key subsidies given to lower-income individuals and families. Cost-sharing reductions were given to people earning between 100% and 250% of the federal poverty level, and they helped considerably lower the cost of doctor visits by offsetting some of the patient's responsibility for copays, coinsurance, and deductibles.
How was Trump able to axe such a critical subsidy, you ask? The answer lies with a long-standing legal case initiated by House Republicans all the way back in 2014. The House GOP, which filed suit again Sylvia Burwell, who was then the Secretary of the Department of Health and Human Services, alleged that all funds apportioned to the ACA should be approved by Congress, but they weren't going through these traditional channels. As a result, the House GOP intimated that CSRs were illegal.
In May 2016, District of Columbia Judge Rosemary Collyer agreed with House Republicans, albeit she stayed her judgment with the expectation that the Obama administration would file an appeal, which came in shortly thereafter. This appeal had been continued on numerous occasions, even into the Trump presidency.
Trump had been using the idea of dropping the appeal as a dangling carrot to incite cooperation between Democrats and Republicans on healthcare reform, but, as noted, that didn't work. Ultimately, Trump simply dropped the appeal, which put Collyer's judgment into effect and ended cost-sharing reductions.
Though the Advanced Premium Tax Credit remains in place and continues to lower premiums for individuals and families earning under 400% of the federal poverty level, the lack of CSRs makes affording medical care a challenge for low-income individuals. At the closing of ACA enrollment for 2017, 7.05 million of the 12.2 million enrollees qualified for cost-sharing reductions.
3. An insurer exodus
The third reason healthcare premiums are soaring is the lack of plan options for consumers to choose from.
Long before President Trump took office, large-scale health insurers were expressing their displeasure with Obamacare. Many had been losing money on the ACA's exchanges, despite the belief when Obamacare was initially rolled out that they'd be overwhelmingly profitable. These losses were the result of healthy individuals not being coerced by initially low Shared Responsibility Payments to enroll, which led to sicker enrollees flooding into the system and significantly pushing up expenditures for health insurers. Despite numerous efforts to improve young adult enrollment, it wasn't enough to counteract the higher costs associated with treating sicker people who, under Obamacare, couldn't be turned away by insurers.
Heading into 2018, Avalere estimated that 41% of all U.S. counties were expected to have just one insurer offering a health plan. This comes after UnitedHealth Group (UNH 1.54%), the nation's largest insurer, pulled out of 31 of 34 states in 2017. After UnitedHealth Group lost $475 million from Obamacare in 2015 and predicted $650 million in ACA losses in 2016, it was no surprise to see the nation's largest health insurer critical of the ACA.
Last year, insurers Aetna and Humana, which were denied the right to merge by federal regulators, also announced their intended departure from the ACA exchanges in 2018. Without these larger players, those few insurers that do remain gain significant pricing power and have little incentive to lower their premiums to attract new members. In other words, the bargaining power is entirely with the insurer.
If there's a bright side here, it's that most Americans receive health insurance through their employers or still qualify for the Advanced Premium Tax Credit. But for those folks who are uninsured and wanting health insurance or earn too much to qualify for subsidies, things are only expected to get worse.