The Insurance Marketplaces: Ground Zero for the Affordable Care Act

The Patient Protection and Affordable Care Act circa 2010 had two aims per its sponsors: to increase access to affordable insurance coverage and to reduce costs. Seventy-four months post-passage, the jury’s still out on both.

Of particular note has been the bumpy path to accessible, affordable health insurance coverage for those uninsured by choice or circumstance. Five features in the law—1-expansion of state Medicaid programs, 2-new regulations about how health insurance companies cover, structure and price their plans i.e. pre-existing conditions, et al, 3-authorization for Consumer Owned and Operated Plans (CO-OPs) to create competition in markets where choices were limited, 4-tax credits for small employers to encourage coverage and 5-state-run insurance marketplaces for individuals—were the key pillars intended to achieve expanded coverage.

Where are we today? The Supreme Court ruled states could not be required to expand their Medicaid programs (June 28, 2012), so 32 have and 18 haven’t. The new regulations are being integrated by plans necessitating administrative changes and modest increases in premiums in their traditional lines of business but so far without major pushback. The CO-OPs have struggled: only 11 of the 23 are still standing and most of these are undercapitalized.  Tax credits to attract small businesses have been modestly successful. And then there’s the marketplaces--arguably the most problematic and incomplete of the five efforts.

The theory of the insurance marketplaces was solid: by standardizing and simplifying insurance plans so comparisons were possible, and by providing incentives (tax credits) so those who are uninsured, the ranks of the uninsured would shrink, bad debt in hospitals and doctors’ offices would decrease, and everyone would be happy. Above all, insurance plans would be understandable based on common elements, side by side comparisons and their relationship to what an individual would pay out of pocket for premiums and co-payments.

Fast forward, when the marketplaces opened for Year One enrollment in October 2013, the world had changed. An election had secured the residents of the White House wouldn’t be leaving. The recession showed signs of ending. Overall, health spending had slowed to less than 4% annually in tandem with health insurance premiums that increased at roughly the same rates. But the botched rollout of Healthcare.gov, the default federal marketplace for in October, 2013, sparked partisan friction for and against the ACA.  The King v Burwell decision (2015) that affirmed premium subsidies were accessible to enrollees in the 34 states that used Healthcare.gov served to reinforce the centrality of marketplaces as the linchpin for the law’s effort to expand coverage.

The results? Enrollment through the marketplaces through the end of the third open enrollment reached 12.7 million, up from 11.7 million (2015) and 8.0 million (2014). 83% of these expect to qualify for a tax credit to offset an average of $290 for their monthly premiums. And as a result of the thirty-plus special enrollment periods allowed in the law, their health costs are higher than anticipated: they’re not as young or well as had been anticipated. So attention about the marketplaces has shifted from enrollee participation to insurer participation. Insurers have countered the higher-than-expected risks associated with marketplace enrollees by raising their premiums or by withdrawing altogether.

For those opposed to the ACA, the botched rollout of Healthcare.gov fueled resentment to the ACA. The intrinsic flaws in its design—overly restrictive regulations that exposed insurers to higher risk coupled with the unknowns about the healthiness of enrollees themselves—posed unforeseen challenges. For shareholders in investor-owned plans, it’s a simple question: do the financial risks in the marketplaces justify participation versus other opportunities where capital may be deployed with less risk and higher returns. Thus, in 2017, some insurers are cutting back their participation; some are pushing ahead assuming their double digit premium increases will be approved, and all are watching closely as a new administration steps in.

For those favoring the ACA, the marketplaces represent a bold experiment in expanding access, forcing insurers to become more transparent about their business practices and helping millions of lower income households pay their premiums via tax credits.  Though the glitches were acknowledged, the foundation was laid and marketplaces are working.

Here’s my take: the marketplaces are here to stay. Healthcare.gov will be the platform in all states as the federal government becomes more proficient in running the program effectively. The marketplaces will increasingly become the platform for Medicaid managed care while expanding their penetration as the insurance channel of choice for working class households. And for all Americans, it will become a GO-TO resource for comparing insurance.

Private investor-owned insurers will follow the money: if restrictions on risk bands are loosened, reinsurance revisited, and special enrollment periods reduced, they’re in for the long haul: it’s just a business decision for most.

For other insurers, it’s more. It is a vehicle for coverage expansion to reduce inequities in access to physicians and hospitals. It’s a mechanism whereby care for vulnerable populations can be coordinated and preventive health intensified. Their goals are different: these are the plans sponsored by the hospitals and medical groups whose mission is focused on population and community health and the not for profit insurers who already serve fiduciary roles in state Medicaid programs. 

The marketplaces are a work in process, but their fate is certain to surface the fault lines in how our society views and values health insurance. They’re ground zero in health reform.

Paul

PS: Last week’s favorable ruling by U.S. District Judge Collyer in House of Representatives v Burwell poses a legal challenge to the ACA that’s likely to spark renewed debate about its future. The Judge set aside the ruling anticipating an appeal by the administration. The potential domino effect of Judge Collyer's ruling will be discussed in next week’s report. 

Fact File: Health Insurance and the Marketplaces:

Health Insurance Industry Overview: The private insurance market is expected to grow by 6% by 2022 while the Medicare and Medicaid markets will grow by 57% and 71% (Future Scan/Evarient) Between 2013 and 2014, the net cost of health insurance increased 12.4% to $194.6B while the net spending for prescription drugs increased 12.2% to $297.7B, physicians increased 4.6% to $603.7B and hospitals 4.1% to $971.8B (CMS Office of the Actuary). The margin for commercial coverage is expected to shrink from 7.1% in 2013 to 6.4% in 2018 even as the size of the overall market is shrinking (from 165M to 164M) and as employers drop coverage, or offer only limited coverage. Margins in other lines of business have lower margins and smaller markets: the exchange market (12M in 2014): 2.5% margin; the Medicare Advantage market (17M in 2016): 5.0% margin; the Medicaid Managed Care market (45M in 2017E): 3.4% (JPMorgan)

Insurance Premium Trends Overall: Since 1999, average insurance premiums for employer sponsored family coverage increased 191%, worker contributions increased 212% and wages increased 54% (CMS, Altarum). 43% of those with commercial coverage say their deductible is difficult to manage or unaffordable (Commonwealth Fund, November 2014). 49% of consumers say they skipped or delayed care in the past year: 61% of these cited financial reasons (Academy Health)

Marketplace Premiums: The average rate increase for the second cheapest silver plan for a 27 year-old for 2016 ranged widely from state to state and carrier to carrier: for instance, in 2 states (IN, LA), increases were 10-12% depending on the carrier. By contrast, in 9 states (OR, MT, SD, AL, NM, OK, RI, TN, NC), rate increases were 18.1 to 36% (HHS). Plans with the highest increases—Moda AR, HealthSpan OH, PacificSource MT, Scott & White TX and Alliant GA—operate in states where hospital utilization is moderate to high and costs are moderate to low compared to others in the state. By contrast, in states (I, IN, ME) where the exchange premiums from 2015-2016 showed lower increases (and in some cases a decrease in premiums), hospitals are consolidated in urban markets and utilization and costs are lower than national medians. Narrow networks of providers are associated with 84% of the lowest cost silver plans offered in the marketplaces (McKinsey). The average first year premium increase requests were 13% attributable to higher administrative costs, higher utilization and increased costs for services and drugs. (PWC, Commonwealth Fund).

CO-OPs: as of 2016, only 11 of 23 are still operating (HHS)