Biden’s proposed health insurance rules threaten to spin up Obamacare death spirals

Yesterday, American Experiment filed comments with the Department of Health and Human Services (HHS) urging them to not finalize several proposed regulations that would boost already unaffordable health insurance premiums even higher.   

Every year, HHS issues a rule that updates certain parameters for health insurance markets. This rule always includes several additional regulatory changes outside the scope of these parameters. As such, it functions as the annual catchall rule to advance the administration’s policy agenda on health insurance. Unfortunately, the Biden administration’s proposed 2023 Payment Notice is advancing an agenda that picks up on the same failed approach President Obama pursued, an approach that severely destabilized health insurance markets across the country.

The Affordable Care Act (ACA), often referred to as Obamacare, already imposed a deeply flawed set of requirements on health insurers, but the Obama administration’s implementation of these requirements only made it worse. As a result, President Trump inherited a health insurance market in crisis, forcing his administration to quickly address skyrocketing premium rates that had jumped 93 percent over the first four years of the ACA and the precipitous 31 percent annual drop in issuers offering coverage on the federal exchange that occurred leading into 2017.

The Obama administration had ignored key insurance principles that led to higher premiums. To be affordable, insurance markets need a balanced risk pool with enough healthy enrollees to balance out the higher cost, sicker enrollees. But the Obama administration put in place loose rules that allowed people to wait until they were sick to enroll. This ushered in what’s technically termed adverse selection — people selecting insurance based on their health status.

The Trump administration locked down these enrollment rules as best they could, and it worked. Premiums stabilized and health insurers began to come back to the market, making markets across the country far more competitive.

Now, the Biden administration is proposing to turn back several of these commonsense strategies. Regulations proposed in the 2023 Payment Notice include two changes that would be particularly harmful to the risk pool.

• First, it would stop pre-enrollment verification for all but one special enrollment period (SEP). These are special opportunities to enroll that allow people who experience certain life events, like a loss of coverage or a marriage, to enroll at any time of the year. Stopping this verification process will let people abuse SEPs and time enrollment for whenever they happen to need care.
• Second, it would require health insurers to re-enroll consumers who have not paid their bills. The ACA requires health insurers to guarantee coverage to everyone; Obama and now Biden interpret that to mean insurers must provide coverage even if you haven’t paid your bill. This allows people to wait to pay their bills until they actually need care.

Other proposals will layer on more regulatory burdens that will lead to even higher premiums. Less affordable premiums will, in turn, push healthier people to drop out of the market and harm the risk pool further. All of this could spin up the dreaded death spiral where enough cycles of premium hikes that lead healthier people to drop out makes the risk pool too expensive to survive.

While the ACA’s premium subsidies guard against the complete collapse of the market, a death spiral can still kill the market for people who don’t qualify for subsidies. That’s where many state markets were heading when President Trump took office in 2017. A Centers for Medicare & Medicaid Services report found that unsubsidized enrollment on the individual health insurance market dropped by 20 percent in 2017, with six states losing over 40 percent of their unsubsidized enrollment in that one year.

Based on the proposed 2023 Payment Notice and other rules recently finalized, the Biden administration appears willing to let these death spirals spin up again.