With ACA’s Future In Peril, California Reins In Rising Health Insurance Premiums

Premiums on California’s health insurance exchange will rise by an average of 0.8% next year, the lowest increase in the agency’s history, state officials announced Tuesday.

Covered California Executive Director Peter Lee credited two new statewide initiatives for keeping the proposed rate hikes low: Next year, California will be the first state in the country to offer state-funded tax credits to middle-class enrollees, which will be paid for in part by a new tax penalty on Californians who don’t have health insurance.

“It shows what happens when a state says, ‘Protect the Affordable Care Act and build on it to make the system work for all Californians,’” Lee said.

Covered California estimates that the state-based tax credits, in conjunction with the new state tax penalty, will result in 229,000 newly insured Californians.

The average rate hike for 2020 is far lower than this year’s average increase of nearly 9% — and the five-year average increase of 8.4%. Covered California began offering health plans in 2014 to individuals and families who purchase their own insurance as part of the state’s implementation of the Affordable Care Act.

Most Covered California enrollees receive financial assistance based on their incomes.

California’s announcement of 2020 Obamacare rates comes at a precarious moment for the federal health law: Oral arguments were set to start Tuesday in a landmark lawsuit filed by a group of Republican attorneys general who want the entire health law overturned. The 5th Circuit Court of Appeals in New Orleans heard oral arguments in the case, known as Texas v. United States. California Attorney General Xavier Becerra is leading a group of Democratic attorneys general in defending the Affordable Care Act.

The Trump administration, through the Department of Justice, has declined to defend the law. Depending on what happens at the appeals court, the health law could reach the U.S. Supreme Court before the 2020 presidential election.

The Trump administration has taken other steps to hobble Obamacare, including shortening the annual open-enrollment period for the federally run health insurance exchange, healthcare.gov, and drastically slashing funding for enrollment outreach efforts. Administration officials have said that a replacement plan for Obamacare will be unveiled soon.

In addition to California, some other states have reported low rate increases or decreases for 2020. Washington state last month announced an average 0.96% increase for next year. Maryland announced an average 2.9% rate reduction for 2020. But some exchanges may continue to see more significant increases. Earlier this year, for example, New York proposed an 8.4% rate increase.

Matthew Fiedler, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy, said California’s “relatively subdued” rate increase shows that insurers expect the state’s new health insurance requirement and tax credits to help bring healthier people into the market — and are responding with lower premiums for consumers.

However, Fiedler said, “everything California is doing depends on the Affordable Care Act remaining in place.” Few if any states would be able to spend enough to make up for the elimination of federal tax credits that help some income-eligible people purchase health insurance, he said.

Lee said the 11 health insurers participating in Covered California would return next year, and Anthem Blue Cross, a national plan, will expand its offerings in the state. Anthem’s expansion comes after it pulled out of some regions in 2018. The insurer will expand into the Central Coast, parts of the Central Valley, Los Angeles County and the Inland Empire, Lee said.

Nearly all Californians will have a choice of at least two insurers, Lee said.

California is divided into 19 pricing regions, and not all 11 plans participating in the exchange next year will be offered in each region. In some regions, the rate increase will be higher than the statewide average. In others, it will be lower.

What consumers ultimately pay depends on where they live, their income, how much coverage they want and their choice of insurer.

The health exchange is expected to release proposed rates by region on July 17; state regulators must approve them.

Consumers who choose bronze-level plans, which have the lowest monthly premiums but the highest out-of-pocket costs for medical care, will see an average 5.7% increase in rates, according to Covered California. Those who choose silver plans — which come with cost-sharing subsidies for people whose incomes qualify — will see an average premium decrease of 4.3%.

California’s new financial assistance for middle-class consumers, combined with the average rate decrease for silver plans, may encourage some people who previously bought less-expensive bronze plans to move up to silver plans. Silver plans provide more coverage with lower out-of-pocket costs for medical care, said Anthony Wright, executive director of the consumer advocacy group Health Access.

This year, nearly 31% of Covered California enrollees chose bronze plans, which are not eligible for cost-sharing subsidies.

“As the Trump administration seeks to blow up the Affordable Care Act, California is succeeding at making it better,” Wright said.

Open enrollment for 2020 is expected to start in October. State lawmakers are weighing whether to extend the enrollment period to Jan. 31. Open enrollment for 2019 coverage ended on Jan. 15.

The 2017 Republican tax bill eliminated the federal tax penalty for not having insurance, which took effect this year. But California lawmakers recently agreed to implement a state-level insurance requirement and tax penalty, joiningMassachusetts, New Jersey, Vermont and the District of Columbia.

The new individual mandate for Californians starts in 2020. The penalty for not having insurance will mirror the one under the Affordable Care Act, which was $695 per adult (and $347.50 per child under 18) or 2.5% of annual household income, whichever is greater. That can amount to thousands of dollars a year.

The revenue from the penalty, plus other state funds, will help pay for state-based tax credits for roughly 922,000 people who purchase insurance through Covered California. As part of the 2019-20 state budget signed by Gov. Gavin Newsom last month, the state will pledge $1.45 billion over the next three years for this effort.

Under the deal, California will become the first state to offer financial aid to middle-income enrollees who make between 400% and 600% of the federal poverty level — many of whom have been struggling to pay their premiums. That’s between about $50,000 and $75,000 a year for an individual and between about $103,000 and $154,500 for a family of four.

Under the Affordable Care Act, people who purchase plans through Covered California and other health insurance exchanges are eligible for federal tax credits only if they make between 138% and 400% of the federal poverty level. People who earn more than 400% of the federal poverty level get no federal aid.

The majority of the state-based financial aid would go to roughly 235,000 of these middle-income people. The average household tax credit in this category would be $172 per month, according to Covered California.

Some state financial aid will also go to 663,000 low-income enrollees who already qualify for federal tax credits. The average household tax credit for those who make between 200% and 400% of the federal poverty level — roughly between $25,000 and $50,000 for an individual and $51,500 and $103,000 for a family of four — would be $15 a month, Covered California estimated.

About 1.4 million state residents purchased health plans through the exchange this year, according to Covered California. In January, the agency announced that new enrollment fell by nearly a quarter, with 295,980 new sign-ups, compared with 388,344 last year. Plan renewals, on the other hand, increased by about 7.5%.

The decrease in new enrollment was steeper than expected for 2019 — and the agency blamed it primarily on the elimination of the federal tax penalty for not having insurance.

An analysis by the Kaiser Family Foundation earlier this year showed that older adults who earn just above the income cutoff, and live in rural areas, have an especially hard time affording their premiums. (Kaiser Health News, which produces California Healthline, is an editorially independent program of the foundation.)

In California, older residents of far northern counties — such as Shasta and Modoc — and the Central Coast counties of Monterey and San Benito are among those who spend the highest percentage of their incomes on premiums, the analysis found.

This KHN story first published on California Healthline, a service of the California Health Care Foundation.