US health Insurers Will Benefit From Inflation Reduction Act – AM Best

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US health Insurers Will Benefit From Inflation Reduction Act – AM Best

AM Best analysts believe that a number of elements in the Inflation Reduction Act (IRA) of 2022 could materially affect the US health insurance market in the short and intermediate years.

This is especially true given that it has to do with the stability and future expansion of the Affordable Care Act (ACA) market, as well as the renewal of subsidies under the law (through 2026).

The Senate passed the Inflation Reduction Act on August 7 and the House of Representatives on August 12. President Joe Biden is anticipated to sign the bill this week.

The statement claims that in order to lessen the financial effects of COVID-19 and encourage more consumers to remain or enroll in ACA insurance, larger subsidies were implemented in 2020.

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A record 14.5 million people were registered in an exchange plan as of January 2022, up 21% from 2021. Higher subsidies, according to analysts, are a major factor in sustaining the ACA market nationwide.

US health Insurers Will Benefit From Inflation Reduction Act – AM Best

The industry estimated that two to three million people would drop their ACA policies if the subsidies were not extended, as they had been set to expire in 2023, creating considerable uncertainty. In addition, healthier members might drop the policy, which would result in adverse selection, because sicker individuals would stay, even though they would have to pay higher rates.

Analysts said that such development could have led to overall deterioration of the risk pool, higher loss ratios, and financial pressure. But with the extension of the expanded subsidies, health carriers are likely to keep most of the members who joined the ACA exchanges more recently.

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In addition, higher subsidies further solidify the role of the federal government as a leading payer for the health insurance industry. Also, the growth of the segment further increases the legislative and regulatory risk for the industry. Still, government business remains a reliable source of revenue and earnings for health insurers, said AM Best.

US health Insurers Will Benefit From Inflation Reduction Act – AM Best

“Health carriers have expanded their presence in the ACA markets the past few years,” said Doniella Pliss, director, AM Best. “The segment’s financial performance has improved substantially following the deep losses of earlier years, as carriers learned to design and manage ACA products, regulators allowed needed rate increases and subsidies and cost-sharing reductions made products affordable for consumers.”

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AM Best also noted that with out-of-pocket spending for Medicare Part D recipients being capped at $2,000, as of 2025, insurers s carriers would have to re-design the benefits for these plans.

AM Best said: Only a portion of the reduction in out-of-pocket costs would be covered by higher government payments—the rest would fall on insurers. Plan re-design could lead to changes in covered and preferred drugs, as well as higher monthly premiums for some products.

“Overall, the profit margins of Part D plans are already somewhat thin, so carriers may face difficulty keeping the segment profitable, especially during the initial implementation of the new rule.

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