Most Iowans access healthcare in one of three ways:
- Employer-Sponsored Coverage: It is estimated that nearly 1.7 million Iowans participate in employer-based health insurance plans. This includes employees of large and small private companies, federal, state and local government employees and active military.
- Public Programs: Over 1.3 million Iowans receive healthcare benefits through Medicare, Medicaid and other public programs.
- Individually-Purchased Coverage: In 2020, an estimated 102,070 Iowans purchased health insurance on their own. About 53,372 Iowans remain in the individual ACA-compliant market. An estimated 48,698 continued coverage in a grandfathered or transitional policy.
While the ACA-compliant insurance market is available to Iowans, due to structural flaws within the ACA’s subsidy structure, most Iowans have been priced out of that market if they are not currently receiving federal subsidies to help pay premiums.
The structural flaws within the ACA can be identified as follows:
1. The lack of a predictable reinsurance mechanism that addresses the disproportionate share of Iowans with high cost, persistent condition claims in the individual market;
2. An income-only-based subsidy design that results in a married 28 year-old with an income of $68,598 having the same price experience as a married 62 year-old with the same income. Both age groups pay $562 per month for the same silver plan. 28-year-old adults do not perceive they have the same risk as a 62-year-old or that they should pay the same for healthcare coverage. This flaw removes any actual risk determination from the price structure in the ACA and has resulted in an older, sicker risk pool in which young Iowans have fled the market causing even higher rates for those who remain; and
3. An age banding limitation of 3:1 that disadvantages many young adults driving them away so that the middle-aged Iowans in the ACA risk pool now pay more than triple the rate they paid when they shared the market with more young people under Iowa’s pre-ACA 5:1 rate banding limitation;
Lack of a Reinsurance Mechanism
Carriers did not fully understand the health status of the population when the ACA markets first opened, and found that these individuals were, on average, less healthy than those who receive coverage through their employer sponsored plans and had a high level of healthcare utilization.
This trend continued and in 2016, 5% of the population in the individual health insurance market accounted for 70% of the claims experience. As premiums continued to rise to compensate for these catastrophic claims, healthy individuals departed the market. At this juncture, the ACA provides no fall back mechanism for the insurance carrier to shield the rest of its risk pool from these catastrophic claims.
The ACA’s income-based subsidy structure is flawed. The ACA’s subsidy structure does not account for either age or net worth. Both are vital to making the ACA market function properly.
Many younger individuals are choosing not to participate in the ACA-compliant market because their premium rates are not correlated to their risk; rather, their premium rates are capped based on their income at a percentage amount determined and applied across all individuals. The risk associated with insuring the average 62 year-old is higher than that for insuring a 28 year-old, and the subsidy structure has destroyed this correlation.
The ACA’s 3:1 age-based risk band restrictions, especially as coupled with an income based subsidy structure, has been unappealing to many healthy, lower to moderate income young adults. The premium amount that subsidized consumers are responsible for contributing is capped under the ACA at a percentage of the consumer’s income and remains capped at this federally established level regardless of their age or how high the premiums increase. The most that a subsidized individual will pay in premium costs for a silver plan is 9.83% of their income in 2021. This amount is virtually the same whether an individual is age 28 or age 62. The most any single individual who receives subsidies will pay is $407-$415 per month for the second lowest silver plan. As premiums have doubled, subsidized individuals continue to have their premiums capped at the rate established by the federal government, which to date, has remained below 10 percent of an individual’s income. Federal taxpayers pick up the balance between the income capped premium payment and the premium costs.
Further, those consumers who do not receive federal subsidies (incomes above 400% federal poverty level) are asked to pay the entire amount of these substantial premium rates and have acutely felt these unaffordable premiums.
The subsidy structure has also lead to the development of a dramatic rate cliff for individuals and families near the subsidy eligibility line. There is a drastic difference in rates for individuals and families based on a few hundred dollars of annual income. As an example, the premiums for a couple living in Iowa City who are both 55 years and earn just under 400% FPL (approximately $68,598) are capped at 9.83% of their income or $6,743 annually. On the other hand, the premiums for a couple living in Iowa City who are both 55 years and earn just over 400% FPL (approximately $68,602) are $20,063 annually. There is a $13,320 increase in premiums for a $4 difference in income! Many individuals whose incomes fall near the rate cliff of 400% of federal poverty level have likely shunned buying ACA-compliant coverage. Something as simple as a small end-of-year bonus that moves the couple over the rate cliff by a few dollars could in effect cause them to have to repay tens of thousands of dollars of federal subsidies back to the federal government. The Division has anecdotal evidence of individuals and families who reduce their hours or even quit jobs to become subsidy eligible. The Division has also heard of couples attempting to become subsidy eligible by divorcing so their incomes can be counted individually rather than as a family unit.
Additionally, net worth is not taken into account within the ACA’s flawed subsidy structure. For example, an early retiree with millions of dollars in assets, but with little or no income can qualify for the same federal subsidies that a person with no assets because both make more than 138% but less than 400% of federal poverty level.
Age Banding at 3:1
The full effect of the age banding has become more evident as the other structural defects of the ACA were realized. Iowa’s individual ACA market is now heavily subsidized and has a significantly higher proportion of consumers who are over the age of 45 or who have high healthcare costs. Premiums are calculated based on the claims experience of those who remain in the market. These charts show the impact of the 3:1 banding.
In 2021, average premiums for a 28-year-old are $415 per month; and average premiums for a 62 year-old are nearly triple that amount.
Despite the leveling of ACA premiums, rates for a 28-year-old remain more expensive than they were for the 62-year-old prior to the ACA.