House of Cards: How Much Longer Can the ACA Hold Up?

When Aetna announced it would stop offering policies on the exchanges in 11 of the 15 states where it operates, the industry giant became just one more in the lineup of insurers that have decided to either sell individual plans in fewer markets or cease involvement completely.

The news followed similar departure announcements from United Healthcare — the nation’s largest provider — and Humana, both of which have decided to dramatically scale back their Affordable Care Act (ACA) exchange participation in 2017.

In some cases, there were clear warning signs issued. UnitedHealth Group CEO Stephen Hemsley announced during a late 2015 annual meeting with investors that United Healthcare was considering leaving the marketplaces after experiencing sizable losses.

In other instances, the departures seemed sudden. While company officials indicated that the Aetna pullout was also a result of financial difficulties, a Huffington Post report revealed that the move may have been prompted more by the Justice Department’s decision to block the insurer’s merger with Humana than its inability to realize profits by selling Obamacare policies. In a letter sent to the Department of Justice in July, Aetna CEO Mark Bertolini made it clear that if the merger was not allowed to proceed Aetna would be in a worse financial position and would need to withdraw from most or all of its Obamacare markets.

“They are basically playing a game of chicken with the federal government,” Gerald Kominski, director of the UCLA Center for Health Policy Research, told The LA Times.

Regardless of the reasoning behind these high-profile departures, the impact could wind up hindering access to competitive options for some consumers. 

Less Competition, Higher Prices

Most marketplace enrollees will likely continue to have a choice of three or more plans in 2017 based on what is currently known of insurer participation and changes, according to a Kaiser Family Foundation (KFF) analysis. Even so, the number of enrollees who have this luxury of choice is estimated to decrease to 62% in 2017, compared to 85% in 2016. 

Geography is expected play a major role in terms of limited customer access to insurance plans. Of the roughly 7.9 million enrollees likely to have three or more choices, the vast majority (7.4 million) live in counties that are primarily urban, while just 504,000 live in largely rural counties. 

Approximately 60% of counties could have two or fewer marketplace insurers in 2017, and an estimated 19% of all enrollees could confront a single insurer option — an increase of 2 million people compared to 2016 figures. By comparison, only 2% of counties were limited to a single insurer option going into the marketplace open enrollment period in 2016. 

This lack of competition is accompanied by rising premiums. According to a separate KFF analysis of the most popular plans in major cities in 16 states plus the District of Columbia, premium increases in the ACA’s marketplaces are expected to be higher in 2017 than in recent years. Price changes vary significantly across the nation, ranging from a decrease of 14% to an increase of 27% for the lowest-cost silver plan. On average, proposed premiums for the second-lowest silver plan in these cities are expected to increase by 9%, up from 2% in 2016.

Premiums for 2017 are still preliminary and could be raised or lowered through states’ rate review processes, the analysis notes. While several reports of premium increases had indicated double digit increases for 2016, for example, a government analysis found that after accounting for shopping, marketplace premiums actually increased 8% before subsidies and for those receiving a subsidy, the average increase in the amount paid was 4%.

Maturing Marketplace

While the large premium increases were cited by some as an indicator that the marketplaces are unsustainable and not working as intended, others claim this isn’t necessarily the case. Some markets are functioning effectively and demonstrating that the approach can work, and the majority of enrollees — about 8 in 10 — are receiving premium tax credits that shield them from the effects of large premium increases as long as they continue to enroll in low-cost plans.

Considering the uncertainty insurance companies faced in the early years of ACA’s implementation, it’s not surprising that premium increases may be on the rise as the market continues to mature and more data become available.  

Premiums under the ACA were established when approximately 16% of Americans were uninsured, noted Ellen FitzPatrick, vice president of partner development at CoPatient, Inc. Therefore, there was little data available for use in determining how much care they would require and what the related cost would be, she said.

“The primary drivers for the anticipated increases across the board are to account for the large pool of ACA enrollees that require costlier care than originally anticipated,” Ms FitzPatrick said. “As well as fewer younger, healthier people enrolling for health insurance.”

Ms FitzPatrick explained that Obamacare initially set out to accomplish several goals, including improving insurance access, affordability, and the quality of health care, and that it is too soon to the law a failure. 

“As the statute is still very new, it is too soon to call as a success or failure and an accurate assessment will depend on more than a single measure of efficacy,” she said.

Although many unknowns remain at this point, FitzPatrick admitted, we can only consider the current indicators available, such as a 21.3 million reduction in the uninsured population, slowed cost growth to 5.5% in 2015, and improvements in quality measures such as hospital readmissions.

Strengthening the System 

If insurers currently losing money are able to effectively adjust premiums and become profitable in the process, the market could begin to recover. In the meantime, federal regulators are feeling the pressure to reduce risk for insurers, lower costs for consumers, and find ways to bring a sense of stability back to the system. 

In its proposed annual Notice of Benefit and Payment Parameters for 2018, the Centers for Medicare & Medicaid Services (CMS) outlined steps to improve how consumers and health plans interact with the marketplace. 

The proposal introduced changes intended to make risk adjustment more effective at pooling risk. The plan would work by better reflecting the risk associated with enrollees who are not enrolled for a full 12 months, using prescription drug utilization data to improve the predictive ability of risk adjustment models, and establishing transfers that will help to better spread the risk of high-cost enrollees.

More recently, President Obama met face-to-face with leaders of over a dozen remaining insurance companies to engage in discussions about the future of the federal insurance marketplace and gather input on how to further improve it. Notably, Aetna and UnitedHealth Group did not join in on the conversation, according to a Politico report.

Other steps taken to help shore up the marketplaces and prevent their collapse include increased efforts to reach out to younger potential customers and reaching out directly to those who paid a fine last year for not having coverage. 

Die, Survive, or Thrive?

Despite the difficulties and shortcomings that have come to light since the ACA was enacted, proponents point to the success of the law’s expansion of health care coverage for millions of Americans. 

The Census Bureau announced that last year’s uninsured rate dropped to 9.1%, down more than 4 percentage points since 2013, and initial data from the National Health Interview Survey suggests the uninsured rate has continued dropping this year, to a historic low of 8.6%.

For those opposed, that progress hasn’t overshadowed the law’s widespread problems, ranging from the technical glitches experienced during rollout to the financial failures of the nonprofit health insurance co-ops. And many Republicans, including the Donald Trump, have continued the calls for a repeal of the law.

“I don’t think it’s in danger of collapsing or not existing,” Katherine Hempstead, PhD, senior advisor at the Robert Wood Johnson Foundation, said.

The real question, she explained, is “Will it grow to become more important, vibrant, and competitive in order to serve more people, and if so, what would really have to happen in order to increase enrollment, keep prices low, and keep people in the market?” 

The main challenges are clear: enrollment is lower than expected, and those who have signed up are sicker than originally estimated. Insurers need younger, healthier individuals to purchase insurance in order to offset the costs of covering sicker people, but healthy consumers who do not qualify for high subsidies are reluctant to enroll unless the cost becomes more affordable.

“It’s sort of a bad irony,” Dr Hempstead said. The plans offered on the marketplace are overpriced from the perspective of potential enrollees, and yet they are priced too low for many carriers to see the financial upside. “A lot of people suggest we should change the way the subsidies are administered or flat out increase the subsidies,” she said. “This would help increase the take-up, but there would also be a cost involved, so there are trade-offs.” 

New Ideas for Next Administration

Additional measures to stabilize the market have focused on changing the risk adjustment formula, Dr Hempstead said, but the risk corridors program is set to expire this year, as is reinsurance. Some are suggesting that reinsurance should not be phased out and many believe that the continuation of reinsurance would have a beneficial effect as well. All three programs are permanent components of Medicare Part D and could be utilized to provide insurers with added stability. 

Plenty of other ideas for improvement have been put forth as well, Dr Hempstead noted. Some say the individual and small group markets should be combined in some places, for example, and others have suggested creating coverage options that are less comprehensive. 

“No one really knows how all these things are going to affect the market, so one of the things I’ve really noticed CMS doing lately is sort of encouraging states to think about things they might want to try and to think about applying for a 1332 waiver to let them do different things that might stabilize their markets,” she said.

This type of increased experimentation at the state level could go a long way toward helping stakeholders learn what types of adjustments may improve the operation and functionality of the market at large.

With enrollment season beginning at the start of November, just one week before the presidential election, there is plenty of lingering uncertainty about the ACA and its future. 

In an effort to provide the new administration with some possibilities, the Robert Wood Johnson Foundation is sponsoring a challenge that tasks teams of actuaries to come up with suggestions for improving the risk pool, making the exchange products more affordable, and encouraging greater take-up. A panel of judges made up of actuaries will examine the proposals submitted, select the top five, and simulate them with a model to demonstrate what would likely occur if the ideas are pursued and implemented. 

“I think it remains to be seen how much of an investment ,mentally and financially, we’re going to be willing to make in this marketplace after the election,” Dr Hempstead concluded.