Healthy consumers are fleeing the health insurance marketplace for cheaper options as the Trump administration opened the way for alternative coverage plans earlier this year. The result could leave the individual market risk pool smaller and sicker.
That was what health insurance brokers told researchers from Georgetown University and the Urban Institute in the latest of a series of reports funded by the Robert Wood Johnson Foundation. With the foundation’s support, the Urban Institute is undertaking a comprehensive monitoring and tracking project to examine the implementation and effects of health reform. The project began in May 2011 and will take place over several years.
The 2019 open enrollment season is set to begin Nov. 1. This will be the sixth year of enrollment under the Affordable Care Act.
The Georgetown University researchers asked health insurance brokers in six states for their observations on the condition of the marketplace and how consumers are responding to recent federal policy adjustments to the ACA. What brokers had to say can be broken down into four main perspectives.
Brokers told researchers that healthy, higher-income consumers are being pushed out of the individual market. Consumers who are not eligible for a subsidy to help purchase insurance are finding the cost of coverage to be prohibitive.
Even though consumer demand for health insurance continues to be high, brokers said significant premium increases combined with fewer plan options and limited provider networks resulted in a decline in enrollment in ACA-compliant coverage among higher-income and healthier consumers.
Consumers are leaving the individual market in favor of purchasing cheaper alternative coverage options.
Brokers said they are looking for alternative coverage arrangements to sell clients who are weary of high premiums and reduced plan choices.
Earlier this year, the Trump administration cleared the way for insurers to sell to short-term health plans as a lower-cost way for consumers to obtain coverage. In addition, federal regulators gave the green light to “association health plans” for small businesses as lower-cost insurance options that cover less. Such plans can be offered across state lines and are also designed for self-employed people.
Non-ACA-compliant plans offer brokers higher commissions and marketing supports.
These plans have lower premiums, but brokers reported the compensation they receive for selling these products is often higher than ACA-compliant plans. Meanwhile, broker compensation for selling ACA-compliant individual market plans has declined.
Marketing practices, such as direct-to-consumer advertising and broker trainings, for alternative coverage options are also aggressive, brokers told researchers.
Brokers predict higher premiums in the individual market and expanded enrollment in alternative coverage options like short-term health plans.
Brokers told researchers they expect to see expanded enrollment in short-term health plans and association health plans.
Brokers also expect to see continued marketing of products such as health care sharing ministries and direct primary care arrangements. As a result, enrollment in the individual health insurance market will become smaller and sicker.
Commissions Down, Interest In Alternatives High
“This is what we heard from brokers: Commissions have gone down for comprehensive individual health insurance,” said Kevin Lucia, Georgetown University senior research professor. “And so, financially, it has been less attractive. And it’s still time-consuming for brokers to navigate the individual market. So it’s a combination of increased time and less financial gain that has kind of led to some brokers looking outside of marketing individual health insurance.”
However, Lucia said, brokers reported they are still seeing people walking in the door seeking health insurance, and they want to help people obtain coverage.
“[Clients] want options. But in the individual market, their options were limited to comprehensive health insurance. And if you’re not subsidy-eligible, you’re likely to have seen a significant rise in premiums. So customers are typically seeing fewer plan choices and higher premiums.”
Lucia said brokers indicated a growing interest in alternative coverage options partly because they are looking for solutions.
Health insurance brokers have seen their commissions on the individual market evaporating in recent years. The Georgetown University report echoed that. For example, a Mississippi broker told researchers his individual market commissions dropped from $30 per member per month to $8; a New Hampshire broker told researchers she made 70 percent less on individual market commissions than she did 10 years ago.
“Brokers have been upset at carriers for the past few years. ‘Let’s keep cutting your commissions, put more work on you.’ It hasn’t been a great feeling for the broker community,” a Georgia broker was quoted in the report.
Can brokers make money by selling alternative coverage options? “It’s hard to tell,” Lucia said.
“What we clearly heard is that compensation for comprehensive ACA-compliant health insurance has gone down and that with short-term plans and even health care sharing ministries, brokers said they were seeing more generous compensation. We weren’t able to really sit down and look at the level of compensation among all these products. But the general message was that the financial rewards for selling these alternative coverage options seemed more attractive than for selling comprehensive health insurance.”
One surprising finding that came out of the report, Lucia said, is that more brokers indicated they were interested in enrolling clients in health care sharing ministries, which are not considered to be insurance coverage. HCSM coverage does not have to meet any of the ACA consumer protections, although enrollment in an HCSM exempts a consumer from the individual mandate penalty for 2018.
“I think it’s partly because the broker community is looking for alternatives to the market where their customers have been priced out and they’re looking for something,” Lucia said.
Cheaper But Not Better
Consumers may be getting priced out of the ACA’s individual market, but there are risks involved with moving to a less expensive health insurance alternative, Lucia warned.
“A part of why these alternative coverage options such as short-term plans or health health care sharing ministries are cheaper is that they are not comprehensive coverage,” he said. “For example, on the short-term side, yes, they’re significantly cheaper, but they don’t usually cover pharmaceutical or mental health, for example. They’re doing post-claims underwriting, so if you file a big claim, you can be denied for a pre-existing condition because that’s permitted under these plans.”
health care sharing ministries “have significant benefit limitations” Lucia said. “They often have annual and lifetime limits. They don’t cover some of the same preventive services or pharmacy or mental health. So you do get the lower premium but it does come at a cost to your client that they can’t be assured it will cover their needs if they are diagnosed with cancer or if they are diagnosed with diabetes.
“Or maybe if you sell a short-term family policy and then their kid has a mental health episode. It’s not going to cover that. So it’s almost like you’re getting a short-term gain in coverage, but there are some serious financial risks involved with selling these plans to clients.”
Some brokers told the study researchers they require clients to sign disclosure statements attesting that they are aware of these plans’ limitations before enrolling. A broker from Texas is “very cautious about [selling] those types of coverage” that are not insurance or that have limitations, noting “people don’t understand insurance.” Other brokers told researchers that they want to maintain long-term relationships with their clients, particularly for future Medicare sales, and do not want to be blamed if a customer later finds their coverage insufficient.
A few brokers told researchers they only sell short-term plans in limited situations because “nothing replaces comprehensive coverage.” A Texas broker said, “I can barely stomach selling short-term plans, but sometimes it’s the only option.”
Brokers seem to have two views of these products when it comes to catastrophic health events. A different Texas broker sells short-term plans as “an opportunity to provide at least catastrophic coverage,” but an Iowa broker said, “all it takes is that a catastrophic thing happens” to show these plans’ shortcomings. In the end, one broker in Utah referred to her pitch to clients on short-term plans as “here’s something, it’s better than nothing.”
The Small-Group Market
What happens in the small-group health insurance market affects brokers on two fronts: Brokers have clients who are classified as small groups and many brokers themselves have businesses that are small groups.
One of the Georgetown University report’s primary findings, Lucia said, is “you have the fully insured group market, but you have more and more alternatives to buying the ACA-compliant small-group policies. And one of these arrangements has really gotten traction. That’s the interest in issuers marketing products that allow really small employers to self-fund.”
Another development in the small-group market has been the Trump administration’s push to make it easier to form an association that will be able to market coverage to small employers.
“Both of these arrangements, because of how they are regulated, will allow small employers to buy coverage that does not have to come into compliance with the protections that are required in the fully insured group market, which is adjusted community rating, the rating protections, the single risk pool and the requirement that they cover essential health benefits,” Lucia said.
“So on one hand, you have these ACA-compliant policies, which are closely regulated with a lot of protections in place. Small employers know if they buy these policies, they’re not going to be priced higher than other groups because of their health status. They can be guaranteed that the coverage will include essential health benefits coverage, which includes pharmaceutical and maternity coverage.”
But these alternative coverage options are not the same, Lucia said. They don’t have the same rating protections, and they don’t have the same benefit protections. That leads to an unlevel playing field between these different arrangements, he said.
Health care services are expenses, and services feed into premiums, Lucia said.
“If you want premiums to come down in short order, the way to do that is to rate in a discriminatory way or cut back on benefits,” he said. “So I think we will see coverage options — such as the level-funded market or association plans — that are cheaper, but at what risk?”
Another potential problem exists when small-group employers buy skimpier products with alternative plans, Lucia said. If the group becomes older or sicker and premiums for the alternative coverage go up, employers may find that it’s too expensive to return to the fullyinsured market because that market has fewer healthy people in it as well.
“So when you don’t have a level playing field between coverage options — the fully insured market in this case — the small-
group market is at risk. And it is at risk because of these other alternative coverage options,” he said.
What’s Ahead For Open Enrollment Season?
Lucia predicted that with the individual mandate penalty going away in January 2019, consumers will see more marketing of alternative coverage options. “I think consumers are going to be inundated with marketing of these types of arrangements. They’re going to be in a position where it’s going to be difficult to navigate between these options and really understand what each coverage option covers. So I think consumers will be in a challenging place,” he said.
Some good news for advisors this enrollment season is that consumers may need them more than ever. That’s because the Trump administration cut funding for the navigator program.
“It really comes down to producers being in a position to explain to consumers the balancing act between affordability and adequacy of coverage,” Lucia said. “I think this is what they’re trained to do, but consumers will be turning to them more, in part because there is less funding for navigators to do this.”
Lucia predicted brokers will see a growing market for alternative coverage options.
“It sounds like [brokers] are compensated better in those arrangements,” he said. “But we did have some brokers who told us they are very concerned about marketing coverage that is not necessarily going to work when people become sick. So on one hand, there will be brokers who will have more options to market to consumers and with potentially greater financial rewards. But it may not be a product they feel comfortable marketing.”