How to follow the money in ACA repeal and replace

Step back in time to March 2010, and you’ll recall that commercial insurers were onboard with the Affordable Care Act (ACA)—albeit begrudgingly. When the insurance marketplaces opened for business with their highly regulated 2014 coverage products, a significant number of health plans voluntarily participated right out of the gate.

Health insurers even went along with ACA’s rule obligating them to limit their combined administrative costs and profits—yes, profits!—to as little as 15% of their premium revenues or else issue refund checks. They refunded $397 million to customers in 2015. Here is a case where the federal government demanded that private, for-profit, and most cases, publicly traded commercial enterprises limit their profits. And the insurance giants went along with it.

But why would they agree to such heavy-handed government?

Remember ACA also includes mechanisms to balance the deal. Through the mandate that requires everyone to sign up for coverage, ACA held the promise of new customers. Insurers saw millions of enrollees buy their products, with and without subsidies. Within the package, other provisions also aim to help insurers normalize the risk of sicker populations to keep the markets competitive.

It’s true that insurers found a significant number of markets had underperformed and have exited in years since. For example, Aetna reported $450 million in losses on the exchanges and now only participates in four states.  The company is currently working with lawmakers to evaluate new policies going forward, according to the Hartford Courant.

Fundamental mathematics

Jonathan Gruber, PhD, an economist from the Massachusetts Institute of Technology and one of the architects of ACA, said during a University of Southern California Annenberg briefing last week that the law is a success.

“It’s only failure is political,” Gruber said. “It’s not substantive.”

ACA replacement plans now on the table might have philosophical and political support, but they don’t have the “fundamental mathematics” that ACA has, he said. By necessity, insurance redistributes money to where the need is greatest.

“Someone has to pay for the sick” Gruber said.

In his view, the sketches thus far outlined by Republicans for new healthcare policy will either cover fewer people or cost more money than ACA. For example, a high-risk pool, as suggested by the replacement plans, would segregate the sick and cost more in the end.

“We have to hold them accountable to the laws of insurance,” he said.

Adverse selection

Joseph Antos, a health policy expert at the nonpartisan American Enterprise Institute, noted at the briefing that ACA has done very little to stem the tide of growing healthcare costs, which is a concern for all stakeholders.

“Pre-existing conditions is not the important part,” Antos said. “It’s community rating where you can’t charge the sick more than the healthy.”

Community rating has contributed to adverse selection—a disproportionate number of sick people signing up for ACA coverage, which is causing greater costs for those health plans than projected. Antos said efforts to attract younger, healthier enrollees to achieve a balance have fallen short. The healthier consumers just aren’t buying plans because they don’t want to spend the money.

The result has been the attrition of insurers in the marketplaces, in spite of the mechanisms that were meant to balance the risk of adverse selection. Offering ACA health insurance policies was voluntary for commercial insurers, so they dropped out where the plans weren’t working for them.

Future healthcare policy will undoubtedly be driven by cost, whether it’s the Trump administration’s anticipated replacement for ACA or the iterations of adjustments down the road. Either way, it always seems to be true that those who endure rising costs are most likely to abandon the market.