With the CAS at 10,000 members today, and growing at 5% a year, are there still untapped opportunities? There is potential for a major expansion of a relatively small line of business — individual health insurance. This has been neglected since Congress gave employer-based health insurance the gift of tax deductibility during World War II.

The Georgia governor has a bill on his desk that could mean a vast new opportunity for casualty actuaries, not just in Georgia, but across the U.S. If passed in Georgia, a new health insurance assigned risk plan (HARP) would offer an alternative to an Affordable Care Act (ACA) exchange insurer. It guarantees basic health insurance coverage with subsidies for pre-existing conditions — two major features that the public prefers over the previous system.

Right now, there are very few insurers in state exchanges. Many are barely hanging on because of severe underpricing from the vast federal expansion of coverage in the ACA. The recent trillion-dollar federal Inflation Reduction Act had publicized $64 billion earmarked to increase ACA subsidies for just two more years. That is about $1 billion a year for a state the size of Georgia. Federal subsidies had previously increased for two years under the $2 trillion 2021 pandemic measure American Rescue Plan.

Recall that over 27 million Americans are still uninsured, despite the goals of the ACA. That likely translates to nearly one million Georgians who still need health insurance.

The Georgia Alternative solves that problem because it allows health insurers to be profitable without requiring large rate increases. Georgia health insurers would compete like in personal auto insurance, where U.S. total pretax operating profit margins have been about 4% for decades. Personal auto insurers have been required to participate in forced underpriced assigned risk business but still collect enough overall to thrive.

Why doesn’t the U.S. have universal health care?

All other industrialized countries have a form of universal health care, but not all are socialized medicine or single-payer. The three best national systems are often cited as Germany, Switzerland and Singapore, all of which have competing profit-seeking insurers providing coverage. Singapore is interesting, as it requires every worker to invest in a health savings account (HSA), incentivizing individuals to evaluate whether a minor procedure is worth it. In the U.S., such a feature could nullify defensive medicine waste by doctors seeking to avoid a tort suit. It empowers patients to make economic decisions to save the HSA account for better use in retirement.

The Georgia governor has a bill on his desk that could mean a vast new opportunity for casualty actuaries, not just in Georgia, but across the U.S.

Why couldn’t the U.S. just opt for one of these other plans? No matter how good the idea, the Constitution doesn’t allow a federally mandated solution. Let the states decide. The Georgia option is a good start.

Georgia insureds would get guaranteed access with subsidies

Georgia’s HARP policies would avoid ACA’s very expensive underpriced giveaways and make them optional. For example, lifetime unlimited benefits were overly costly in no fault auto insurance. Under ACA, unlimited coverage has produced large numbers of multimillion-dollar claims, all funded ultimately by the U.S. Treasury. Unfortunately, these claims must be paid first by an exchange insurer who can’t collect enough premium from its customer base of adversely selected insureds.

When ACA was first implemented, Georgia’s insurance commissioner opined that group health insurers were lured into supporting ACA because if it failed, it would likely morph into single-payer socialized medicine. If so, former group insurers would wind up as servicing carriers, for a guaranteed third-party administrator fee of say 3%, with the federal government responsible for any losses. During the first six years under ACA, there were formal insurer subsidies, but those ran out. So, Congress recently added $64 billion more in subsidies for two years because overly generous ACA coverage is very expensive.

The major problem with ACA is that there is no extra charge for pre-existing condition coverage (PEC). It sounds appealing but is extremely expensive for exchange insurers, causing an upward spiral of adverse selection. Instead, Georgia’s alternative is to offer them as options, for a premium addition.

Still, Georgia’s HARP would cover many minor PECs at no extra charge over its basic premium, e.g., asthma, heartburn, high cholesterol, hypertension, migraines, sleep apnea and ulcers. The basic HARP policy would also be high deductible, like the minimum for an HSA.

More costly PECs like diabetes would be covered, but at an actuarial premium, say $6,000. For wealthier insureds, there would be no subsidy. Others would qualify for subsidy based on a means test. The PEC subsidy pool, available to both HARP and voluntary insureds, would be funded like Medicaid, where a state is matched 3 to 1 by the federal government.

Actuaries can price each PEC, using small database techniques like predictive modeling (a casualty actuarial specialty). Initial PEC pricing can use U.S. group health data where many PECs were covered after a waiting period, from European experience.

The constitutional theory of federalism allows the states to experiment, and the best models will ultimately win out.

Specialty insurers may also emerge for certain PECs, with more sophisticated pricing and even discounts from innovative research.

Employer-based health insurance had an unfair competitive advantage over individual policies

In a 2001 article, Nobel laureate economist Milton Friedman outlined why a thriving individual policy health insurance market never developed like it did in personal auto and homeowners insurance. In World War II, Congress allowed businesses to tax deduct health insurance premiums as a way around wage controls. That has never been repealed but has an insidious way of increasing costs as ultimately customers are insulated from the decision process because “Somebody else is paying for it.” Employers are incentivized to add some inefficient health coverage, as it has a “tax discount.” A hypothetical tax-deductible group auto insurance policy would inefficiently cover oil changes, as the cost would be “tax deductible.”

Expanded individual health policy market could be huge

Would a new individual health insurance market attract as many insurers as personal auto (i.e., 50 licensed carriers writing in each state)? It depends on how quickly group health declines.

Total annual U.S. health insurer premiums are about $900 billion, versus $270 billion for auto and homeowners insurance. And, if individual PEC premiums can be reasonably estimated by actuaries, individual health policies will not have the catastrophe and tort system problems that homeowners and auto insurers have.

As employers, agents, individual consumers and insurers see the success of the new system, ultimately a much larger individual policy health insurance market should develop in the U.S.

• Employers may find that losing their tax advantage erodes the benefit of offering group health coverage. Many corporations may choose to focus more on their core products and services. They may lose some employees who are only there for the insurance coverage, but that may be a good thing.
• Agents for personal lines coverage today would welcome the additional commission revenue from their auto and homeowners insurer clients jumping into the individual policy health market. Those carriers’ actuaries already know how to price no fault auto medical, and their predictive modeling expertise on small databases can quickly price different PECs for the specialty market.
• For the consumer, individual policy portability is a vast improvement, allowing coverage continuity when someone is a contract worker, employed part-time or temporarily unemployed. An added benefit to individuals is that Congress can fix the tax inequality between employer and individual policies. It can increase the 1040 standard deduction for those with individual health policies and allow those filing itemized returns a tax deduction for a basic level policy.
• Insurers are protected from bearing all the losses from free PEC coverage. States can mandate the purchase of a basic high-deductible catastrophe policy like they do for auto liability insurance. The 2012 U.S. Supreme Court (SCOTUS) decision was seven to two against the ACA mandating individuals purchase health insurance, but it allowed a small tax on those not buying.

Fortunately, the market size build-up will be gradual to allow pricing expertise to expand. A faster growth could occur if SCOTUS rules on whether ACA coverage is constitutional. Does Article I Section 8 (enumerated powers of the federal government) allow Congress to mandate individual policy coverage features and pricing? With the availability of a system like the one proposed in Georgia, it is easy to envision SCOTUS ditching the federal coverage mandate overreach.

SCOTUS could give states time and the incentive to produce programs that are constitutional and replace the ACA model. Massachusetts may keep RomneyCare, but others could emulate the Georgia approach or innovate with other options. The constitutional theory of federalism allows the states to experiment, and the best models will ultimately win out. Whatever the option, the experiment with ACA has demonstrated that the public will not be happy with a return to the old flawed system before ACA. They will demand nothing short of guaranteed health insurance and a minimum of strong subsidies for individual PECs.

Michael A. Walters, FCAS, served as CAS president from 1986 to 1987.