[June 14, 2017]

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170614005830/en/

[ Back To TMCnet.com's Homepage ]