The Affordable Care Act and Health Insurance Markets: Simulating the Effects of Regulation

By Christine Eibner; Amado Cordova et al. | Go to book overview

V. Sensitivity Analysis

As part of the broader analysis of the impact of the Affordable Care Act on states, we looked at the sensitivity of the model results to implementation decisions that are available to states. First, we analyzed the implications of states’ decision to either split or merge the risk pools for the individual exchange and the SHOP exchange. Second, we investigated the effects of a state’s choice of whether or not to expand Medicaid eligibility to nearly everyone below 138 percent of the FPL in response to the Supreme Court’s ruling on the Affordable Care Act. For the analysis of split versus combined risk pools, we considered effects for New York, a state not included in the main results presented above. We made this choice because, unlike many states, New York is reportedly considering the option to merge the small group and nongroup markets.13 All of the sensitivity analyses are for the year 2016. In addition, in contrast to the analyses presented above, these results compare alternative versions of Affordable Care Act implementation.


Risk Pool Construction

The introduction of insurance exchanges for both the nongroup and small group markets is a central part of the Affordable Care Act. The premiums for each market are based on the spending within its risk pool. Risk adjustment payments and other mechanisms in the act ensure that premiums within a risk pool vary by generosity of the plan and by age but not by the underlying health of the population in a plan. This prevents insurers from benefiting by “cherry­picking” the healthiest people, as can be the case under pre–Affordable Care Act law. States will have the option of splitting or merging the risk pools for the nongroup and small group markets. If a state splits the pools, the premiums in the small group market can be different from those in the nongroup market.

We tested the implications of the decision to split or merge the risk pools on the state of New York (Table 5.1), a state that has reportedly considered the option of merging the nongroup and small group markets. Unlike most other states, New York currently has full community rating in both the nongroup and small group markets, which means that premiums cannot vary by age, sex, or other health characteristics. The Affordable Care Act institutes modified community rating, which allows for premium variation based on age and tobacco use. However, for these tests, we assume that New York keeps its current policy of full community rating. Although fully community rated, when risk pools are split, premiums in the small group market are based only on the claims experience of small group enrollees. When risk pools are combined, the small group and nongroup markets represent a single, fully community­rated risk pool.

13 In late 2012, New York asked for stakeholder feedback on whether to combine the markets (see, for example, New York State Health Benefit Exchange, 2012). As of early 2013, stakeholder groups were continuing to advocate positions on this policy decision (Health Care for All New York, 2013).

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The Affordable Care Act and Health Insurance Markets: Simulating the Effects of Regulation
Table of contents

Table of contents

  • Title Page i
  • Preface iii
  • Contents iv
  • Summary vi
  • Acknowledgments xi
  • I - Introduction 1
  • II - The Affordable Care Act and the Nongroup and Small Group Markets 3
  • III - Compare Background 6
  • IV - Results 20
  • V - Sensitivity Analysis 28
  • VI - Conclusion 34
  • References 37
  • Figures 41
  • Appendix A- Sensitivity to Mlr Assumptions 62
  • Appendix B- Key Assumptions 63
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