The Unintended Consequences to States, Carriers and Consumers of the “Delay Option”

The chorus of chatter about delaying the ACA Individual Mandate continues to grow louder and now according to an article by CBS Marketwatch, some of this sentiment is coming from inside the Administration.

The chorus of chatter about delaying the ACA Individual Mandate continues to grow louder and now according to an article by CBS Marketwatch, some of this sentiment is coming from inside the Administration.

While it is easy to highlight the failure of the Healthcare.Gov site and the inability of HHS to build and launch a functioning online insurance marketplace (F.K.A. an exchange), a lengthy delay would have far reaching, industry-wide implications that would end up hurting states, insurers and consumers.

• It’s been well reported by the consumer press that healthcare.gov is not working as envisioned, and now  cautionary statements from CGI, the prime contractor on the healthcare.gov marketplace (as well as several payers) that the site is not ready for prime time. When TripleTree published research on health insurance exchanges (HIX) in early 2011, our position was that public exchanges required much more advanced functionality than anyone had previously built and we were skeptical that functioning exchange platforms (federal or state) could be designed, developed and implemented by the 2013 deadline.

Is delaying the individual mandate the right thing to do?  Though delaying the mandate seems like the logical and simplest thing to do, it has major implications that should not be overlooked.

• A delay in the individual mandate would devastate the 16 states that built their own exchanges. Based on ACA statute, these states must have their exchanges self-sustaining by 2015.  Billions of dollars in federal funds have been used to develop those platforms but that money spigot shuts off in 2014.  These states need revenue – individuals purchasing insurance – in 2014 and beyond so that they use premium withholdings to meet their operational budgets on the state exchanges. A delay in the mandate would bankrupt the exchanges in most of not all of the states, meaning a billion dollars or more spent in a federal bailout.
• An even a larger problem that would arise with a delay, would be the risk pools that would unexpectedly hit the insurance carriers.  With ACA in effect but no mandate in place, consumers with high medical costs will purchase policies with no offset by the healthy (lower cost) exchange consumers so critical to the economics of a functioning marketplace.  Health insurers have created products and set pricing for the exchange marketplace with certain assumptions as to the risk pools. Products are currently being sold and changing the rules that underlie those assumptions would have major detrimental effects to the insurance industry and all downstream businesses.
• The insurance carriers would likely end up taking billions in loss due to these skewed risk pools, or the government would need to provide billions in assistance to shore up the pools and risk adjust those who actually purchase coverage.

This industry has been plagued with three years of uncertainty regarding implementation of reform. Regardless of one’s political or philosophical support for the ACA, in our view a one year delay in the individual mandate may fix problems with healthcare.gov, but will have major spillover effects into other parts of the health insurance market and create even more uncertainty, which no one wants.

We’re working on new research related to private health insurance exchanges, an important area of innovation in the post-reform world of healthcare that will likely impact employers and employees more profoundly than the public exchanges.

Let us know what you think.

(ACA’s delay option / shutterstock)