[June 14, 2017] |
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A.M. Best Briefing: Uncertainty Persists on Funding for Affordable Care Act's Cost-Sharing Reduction Subsidy
If the U.S. government chooses to discontinue The Patient Protection and
Affordable Care Act's cost-sharing reduction (CSR (News - Alert)) subsidy to insurance
companies, insurers will need to absorb the cost, request premium rate
increases to offset the increased cost or exit the exchange marketplace,
according to an A.M. Best briefing.
The new Best's Briefing, "Lack of Commitment for Cost Sharing
Reduction Subsidy Funding Creates a Cloud of Uncertainty," notes that
health insurance companies currently are deciding whether to participate
in the exchange marketplace for 2018. The deadline for this decision and
for rate filings has been extended until June 21, 2017. Similar to prior
years, insurance companies are being forced to make business decisions
in an uncertain environment. Numerous carriers exited the market in
2015, 2016 and 2017. Designated funding of the CSR has been the subject
of a lawsuit, and a temporary suspension of the appeals case by the
Trump administration means CSR payments may continue; however, a high
degree of uncertainty regarding the near-term future of the CSR subsidy
remains.
Many insurers have experienced sustained losses in the exchange
marketplaces since 2014. The losses have been due to numerous issues,
and A.M. Best estimates that approximately 7.3 million exchange members
have been highly subsidized through the exchanges. The Congressional
Budget Office estimated in January 2017 that the CSR subsidies would
cost $7 billion in 2017 and increase to $10 billion in 2018.
If the CSR subsidy is eliminated mid-year, insurance companies could
face pressure from regulators and the media to remain in the market for
the rest of the calendar year. A.M. Best believes that if these
subsidies are eliminated without a replacement, participating plans
likely would pass along the cost of the subsidies via rate increases and
many individuals may not be able to afford their portion of the
increased premium. This would lead to a continued deterioration of the
risk pool as those who have health conditions would be the most likely
to keep coverage, if they could still afford the premium.
As a result, A.M. Best believes that if the loss of the CSR subsidy
occurs in 2017, many carriers will absorb the financial impact for the
remainder of the year. However, this will negatively affect earnings in
2017. Additionally, A.M. Best expects that insurers will re-evaluate
their participation in the exchange marketplace for 2018, should the CSR
subsidy be eliminated.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=262653.
A.M. Best is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its
subsidiaries. ALL RIGHTS RESERVED.

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