House Republican Plan Needs $100 Billion Fund to Maintain Individual Insurance Market

The House Republican health care bill would destabilize the individual insurance market, raising premiums and reducing insurer participation. To address that problem, the bill provides a $100 billion “stability fund” to help insurers and finance other state initiatives. That’s a major reason why the Congressional Budget Office (CBO) predicts the individual market would generally be stable under the House bill. But, as CBO also noted, the individual market would generally be stable under the Affordable Care Act (ACA) – and that’s without giving insurers billions in government-funded payments.

Like the ACA’s temporary reinsurance program, the stability fund would provide payments to insurers with sicker enrollees to help offset their higher costs. But the House bill would provide far more money for the stability fund than the ACA provided for its program. And the money would come from the federal government and the states rather than health insurers and entities administering group health plans, as under the ACA.

The stability fund, CBO says, would moderate the premium increases expected in the short term, encourage insurer participation, and stem the financial losses that insurers in the individual market would otherwise face under the House bill. Those potential losses reflect, in part, the bill’s replacement of the ACA mandate that individuals buy health coverage or pay a penalty with a weak late enrollment fee, which would make the pool of people with coverage smaller and less healthy. (This factor would drive up premiums by 15-20 percent in 2018 and 2019, CBO estimates.) And in 2020, the bill’s replacement of the ACA tax credits with a flat credit would dramatically reduce subsidies for consumers, especially older people and those with low incomes.

The risk pool would eventually improve, according to CBO, in part because the fund would “significantly reduce premiums…and encourage participation by insurers” once it’s fully implemented in 2020. The risk pool would also improve, CBO says, because some older people would drop coverage due to their higher premiums.

States applying for money from the stability fund within 45 days of the House bill becoming law could receive an allotment and distribute the funds themselves. But because of that tight timeframe, CBO predicts the federal government would largely operate the program at least at first, with $12 billion flowing to insurers in the individual market in 2019.

Beginning in 2020, states would have to contribute matching funds in order to receive any stability fund money. That’s likely one reason why CBO estimates that only $80 billion of the $100 billion set aside for the fund would ultimately be spent.

States could use the funds for various purposes, some of which have nothing to do with stabilizing the individual market. For example, a state could subsidize the costs of high-cost people in the small-group (rather than the individual) market, promote access to certain health care services such as dental and vision care, pay health care providers directly, or reduce residents’ deductibles and other out-of-pocket costs. If that happened, the funds would not end up reducing the premiums of people buying coverage on their own.