Opinion: New Jersey and the ACA, Perfect Together

Despite GOP actions to destabilize Affordable Care Act, the individual insurance market is doing well in Garden State. And new legislation in NJ is helping with affordability

Joel C. Cantor and Katherine Hempstead
On Friday, New Jersey’s Department of Banking and Insurance released preliminary data about premiums filed by insurers for state-regulated health insurance markets for 2019. The news is good.

New Jersey’s individual — also called nongroup — health insurance market is doing very well, despite actions by the Trump administration and Congress to destabilize the Affordable Care Act, including these:

  • Defunding Cost Sharing Reductions which help offset out-of-pocket expenses for modest income consumers,
  • ending public education and outreach,
  • exempting short-term but renewable plans from many consumer safeguards, including pre-existing condition protections, and
  • repealing the individual mandate, the requirement that most people have health insurance or pay a penalty.
  • Individual mandate is crucial

    The individual mandate is especially important. It was enacted as part of the ACA to assure that people don’t wait until they have high medical expenses to buy coverage. This requirement helps to create a broad risk pool that includes healthy as well as unhealthy people. Without the mandate, and the diversity it brings to the risk pool, premiums will rise.

    In May, Gov. Phil Murphy signed legislation that imposes a New Jersey individual mandate, in essence keeping the requirement that state residents buy coverage or pay a penalty equivalent to the ACA requirement that Congress just repealed. (More below about how New Jersey plans to use penalty revenues collected under this new law.)

    The premiums that New Jersey’s insurers filed, made public by state regulators last week, drive home the point that the mandate will keep premiums down. The average 2019 premium increase filed by the insurers is 5.8 percent for both Obamacare marketplace plans and those bought directly from insurers (without subsidies). According to the insurers, this projected increase is less than half of what it would be without the state enrollment mandate.

    While a 5.8 percent increase is higher than overall price inflation, it tracks closely with anticipated increases in other private markets and state employee plans. Further, the average premium statistic masks opportunities for consumers to avoid increased costs by changing plans. Some of the premium increases for individual market plans are high, but others are around just 1 percent. It is vital for insurance buyers to shop during open enrollment this fall, and consumers who do and are willing to change plans will see very small increases.

    Big decrease in individual premiums possible

    The Legislature and Gov. Murphy also enacted a second law in May that could lead to a substantial decrease in New Jersey’s individual health insurance premiums. That law authorized the state insurance agency to file for an “innovation waiver,” which, if approved by federal authorities, will bring in dollars from Washington to help finance care for the highest-cost patients in our individual market. To obtain the federal funds, New Jersey will have to contribute to the cost of the program, which is called reinsurance. Much of the revenue for the state share would be paid for by penalties from people who fail to meet the individual-mandate requirement. The penalties for going uninsured are, in effect, a free-rider tax that will help stabilize or even reduce premiums for those who buy coverage.

    Building on its history of regulatory actions to strengthen health insurance markets, New Jersey was the first state since the federal repeal of the ACA individual mandate to enact its own penalty. Massachusetts established a mandate years before the ACA under then-Gov. Mitt Romney, and Vermont, Hawaii, the District of Columbia, and a number of other states are also moving ahead to establish mandates. New Jersey’s innovation waiver has a good chance of approval; a number of states have successfully implemented reinsurance programs, and waivers in Wisconsin and Maine were approved just this week. Policy actions by New Jersey and a handful of other leading states are likely to inspire other states to take similar steps to protect their markets.