New data released by the state Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) show mixed results for California’s health insurance enrollment in 2018. Total enrollment stood at 32.8 million, down 269,000 (or 0.8%) from 2017, with declines in Medi-Cal managed care and the individual market nearly offset by increases in employer-sponsored small and large group coverage.

The enrollment data are also available under Document Downloads (Table 1).

Net Increase in Employer Coverage: Rise in Group Coverage Greater than Drop in ASO

Assisted by a strong economy, group enrollment increased in 2018 by about 350,000 (2.9%). Both the small group (1.5%) and large group (3.3%) markets expanded. Large group growth was partially explained by 2018 reporting improvements, which shifted roughly 250,000 enrollees from administrative services only (ASO) arrangements ¹ provided to self-insured employers to large group. Enrollment in ASO services was down by 219,818 (3.8%) to 5.5 million.

Taking both group and self-insured ASO changes into account, enrollment in employment-related categories increased by about 130,000 in 2018, trailing the nearly 284,300 California jobs added (PDF) during that time. The fact that enrollment is not keeping pace with job growth could be due to many factors, including an increasing number of jobs in the gig economy, which often lack benefits, and fewer employers offering coverage.

Medi-Cal Managed Care Enrollment Declines

Public managed care enrollment declined overall by nearly 300,000 (2.3%) to 12.9 million, driven by reductions in Medi-Cal managed care. Medi-Cal managed care enrollment dropped 3.5% to 10.4 million, while Medicare managed care grew by 3.1% to 2.5 million. Declines in Medi-Cal managed care have also been reported independently by the state Department of Health Care Services, confirming the downward trend in regulators’ data. Factors contributing to this trend may have included an improved economy, increasing minimum wage, and federal immigration policies that have discouraged enrollment in public programs.

Individual Market Enrollment Falls, Driven by 15% Decline Off Exchange

At the end of 2018 the individual market had 2.1 million enrollees (down 4.6%), posting its third consecutive year of losses (Figure 3). The 2018 individual market declines were spurred by accelerating losses outside Covered California, in the unsubsidized “off-exchange” market (9.5%, 6.8%, 15.0% respectively in 2016, 2017, and 2018). The full data set is available under Document Downloads (see Table 3).

These persistent off-exchange losses are likely influenced by multiple factors, including:

• Affordability — Off-exchange enrollees receive no premium subsidies and, unlike most Covered California enrollees, must absorb the full cost of premium increases.
• Elimination of individual mandate penalty — In December 2017 Congress eliminated the Affordable Care Act’s financial penalty for not carrying health insurance. Although this didn’t go into effect until 2019, it may have reduced incentives for both new signups and renewals in 2018. In the Covered California population, the full elimination of the mandate penalty in 2019 has already been shown to discourage new enrollments.

Why Off-Exchange Losses Matter

The off-exchange losses create problems for the entire individual market, because rates are set based on the pool of all individual enrollees. A broad-based pool, which includes the healthy as well as the sick, is needed for the long-term stability of the market. When a market or a portion of the market erodes, the healthy are most likely to give up coverage, driving up average medical costs and premiums. While Covered California’s enrollment totals are strong, their premiums could be hurt by trouble in the off-exchange portion of the market. Although most enrollees on Covered California are shielded from the full weight of premium increases by their premium subsidies, rising premiums put pressure on the benefit structure,² on the unsubsidized, and on anyone “buying up,” for example to a gold plan.

DMHC Continues to Regulate Vast Majority of Commercial Enrollment

The overall distribution of commercial enrollment (individual and group) between California’s two regulators remained unchanged in 2018. Health plans regulated by DMHC accounted for 93% of commercial enrollment in 2018; plans regulated by CDI accounted for 7%. (See Table 2 in Document Downloads for the full data set.)

Looking Ahead

Affordability is key to the long-term health of all California health insurance markets, especially the individual market. Recent state legislation, specifically the enactment of an individual mandate penalty and state-sponsored premium subsidies for enrollees earning 400% to 600% of the Federal Poverty Level, could improve participation and promote stability in the individual market. Even so, broad, long-term strategies to control costs and limit premium increases remain essential to maintaining high levels of coverage across all markets in the state.

Finally, we need to better understand if the decline in Medi-Cal managed care (and Medi-Cal overall) represents mainly transitions to other coverage or a new stream of uninsured (data on the state’s uninsured rate in 2018 is not yet available).

1. Under administrative services only (ASO) arrangements, the employer assumes the financial risk for covered care and contracts for administrative services, such as claims processing and access to provider networks, from an outside organization, often a health insurance company. Self-insured coverage is regulated by federal law.
2. Under the ACA, benefit structures are tied to the actuarial value of the coverage. For example, bronze plans pay for about 60% of medical costs on average, and consumers on average pay for the other 40%. Currently, one element of the benefit structure that recoups this 40% from bronze consumers is the $6,300 bronze deductible. When premiums rise, a larger sum of money must be generated by cost-sharing features, and an increase in the already high deductible or out-of-pocket maximum is a likely outcome.

Katherine Wilson

Katherine Wilson is an independent consultant specializing in health insurance markets and health care costs. She is the author of numerous publications and reports, including CHCF’s series of reports on California health insurers.

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