"Obamacare said one rate filing...here are two!!"

Exactly one month ago, I asked a rhetorical question:

How High will Initial 2018 Rate Hike Filings Be?

...and then went on to conclude that, given the insane amount of uncertainty and confusion about what Donald Trump, Tom Price and the Congressional GOP in general has in mind for the 2018 insurance market, on top of normal stuff like inflation, an aging population and so on, that there are five likely scenarios:

Now, put yourself in the position of an insurance carrier executive and/or one of their actuaries. The level of uncertainty in the air is mind boggling. You have five choices for your initial filing:

1. You can assume that the ACA will end up chugging along for another year relatively unsullied and file accordingly (which may still be high in some areas)
2. You can raise your rate filings somewhat (call it "ACA + 20%") just in case everything goes to hell, crossing your fingers that the whole mess will work itself out.
3. You can assume the worst and raise your rate filings substantially (call it "ACA + 40%") to make sure your ass is covered no matter what.
4. You can decide that the exchanges are too messy and bail on them in some or all counties/states, while raising your rates substantially on the off-exchange market.
5. You can pull a full Eric Cartman, declare "You know what? Screw you guys, I'm going home!" as Humana already has, and bail on the entire individual market, both on and off the exchanges.

Anderson believes, and I tend to agree with him, that for the most part, the initial (again, not necessarily final) rate filings will tend towards #3 above, with smaller doses of #2, 4 and 5. I can't imagine that any carriers will be bold enough to assume #1 at this juncture (though this could obviously change between now and mid-June)...even if, ironically, #1 ends up being how things actually play out (ie, no repeal, no replace, the ACA stays mostly as is...although with Trump/Price still poking it with sticks along the way).

The Anderson I refer to is David Anderson of Balloon Juice. Of course, a lot has changed over the past month. Paul Ryan's "American Health Care Act" (AHCA) was finally released, bashed, modified, bashed some more, put up for a vote...and then yanked at the last minute. Donald Trump huffed and puffed and threatened to blow the whole individual market down. The HHS Dept. declared that they're slicing the Open Enrollment period in half this year, and a whole lot more.

And yet...in many ways, nothing has changed. The fate of the CSR payments is still unresolved. The carriers still don't know whether Tom Price will actually enforce the individual mandate. A new survey of health insurance carriers finds that most of those participating in the ACA exchanges this year do currently intend on sticking around the exchanges next year...but that could still change at the drop of a hat depending on how things play out:

A decision on those cost-sharing reduction payments could cause insurers to rethink their participation.

“If there is definitive action on cost sharing subsidies or other policy proposals, payers may revisit their 2018 positions,” the Oliver Wyman report finds.

Still, the study adds that, at least in the short-term, "issuers seem willing to continue to serve this market.”

Given the uncertainty, many insurers are waiting until closer to their decision deadline in June to set premiums for next year.

Of those that did respond, half plan on rate increases of 10 to 20 percent. A quarter plan for increases of less than 10 percent, and another quarter plan increases of more than 20 percent.

On the surface, the last sentence is pretty encouraging--a quarter are looking at single digit hikes, half between 10-20% and only a quarter higher than 20%. Not great, but not an utter catastrophe, all things considered. Of course, given the wide variations of market share and state/county participation, without knowing which carriers fall into each category, it's hard to draw too many conclusions from this either. If, say, Anthem (which is a major player across multiple states) plans on raising rates 30% while one of the handful of remaining co-ops only bumps rates up by 5%, that doesn't help much. Meanwhile, while the official deadline for carrier participation isn't until June 21st, the carriers have, on the whole, made it very clear that, as far as they're concerned, April 30th is their cut-off point for deciding how to proceed.

In any event, given all the ongoing unknowns, according to Anderson, it looks like the insurance carriers are hedging their bets by making their actuaries put in some major overtime right now:

I have been hearing consistent indications that many insurers are considering doing a double-double filing. This will give them protection against any eventuality of the Cost Sharing Reduction subsidies getting pulled or any other Exchange uncertainty.

The first pair of filings will be based on two different set of actuarial assumptions. The first set is a business as usual set of assumptions where the rate increases will be fundamentally be driven by price and utilization changes. This would produce numerous rate increases of less than 10%. It would be a boring filing appealing to only actuaries and policy geeks.

The second variant of this filing is a worse case filing. It assumes that CSR subsidies will not be paid in 2018, CSR costs need to be built into the index rate for all metal bands, and there will be minimal enforcement of the mandate, minimal effective advertising and the risk pool will be small and unhealthy. This is fine from an insurer’s point of view. They can price an ugly market and make it profitable as long as they know in advance how ugly the market will be. Rate increases of 40% or 50% or more will be common with this filing as it will be the medical trend increase plus massive policy uncertainty increases.

As Anderson notes (and as I've pointed out as well), subsidized enrollees would be just fine in this scenario--the official prices would skyrocket, but the tax credits would also increase to match for the most part, so what they actually pay would stay about the same. The unsubsidized enrollees, on the other hand, would be screwed royally.

As Anderson goes on to note, while ACA-compliant individual market plans are officially within the "same" risk pool, there's more to it than that: Some plans are offered both on & off-exchange. Some are only offered off-exchange only. Since some insurance carriers actually have multiple subsidiaries, there are cases where one "carrier" only offers off-exchange policies while another one offers them both on and off-exchange. That complicates the picture:

This is where the second split of filings could occur. Carriers that are filing pessimistic case scenario where the no-CSR price increase is incorporated into the base index rate that drives all pricing for all metal bands can create a separate filing ID for only the off-Exchange market. The corporate parent will file a pessimistic set of assumptions for the On-Exchange business. The new entity will only offer off-Exchange filings that are priced on only medical trend. This will lead to far less expensive off-Exchange plans as the new entity’s index rate is CSR free. The same corporate entity will offer off-Exchange low cost no-CSR plans and then high cost, CSR incorporated plans. This provides protection for off-Exchange buyers while giving the insurers protection against CSR.

Confused yet? The bottom line is that the carriers are actually preparing not one, not two, but potentially up to four different sets of rate filings for 2018, based on a variety of different scenarios involving the on & off-exchange market and the will-he-or-won't-he CSR peekaboo game that Trump is playing. For the record, we went through this same nonsense two years ago during the ramp up to the King vs. Burwell Supreme Court decision. I actually spoke to the Society of Actuaries annual convention just a week before that decision came down and let me tell you, if there's one thing that actuaries hate above all else, it's uncertainty.

Anyway, Anderson's conclusion seems to be that, of the 5 different scenarios I present above, the carriers will mostly settle on "#3 on exchange, #1 off exchange". That is, he expects most "on/off-exchange" policies to see their unsubsidized rates shoot up a good 40% or so, while "off-exchange only" policies only see fairly moderate increases. This sounds about right to me as well. Unfortunately, this will have the effect of further polarizing the on/off divide, while also no doubt leading to a ton of stupid headlines which completely misrepresent what's happening and why.

On the plus side, I finally managed to work in a reference to "The Freshman". It's a hidden gem; I highly recommend it.