When your party guests leave early, naturally you wonder what’s wrong. A similar sort of anxiety is swirling around the Affordable Care Act (ACA) Marketplaces.
The recent announcement that Aetna, the country’s third largest health insurer, will withdraw from Marketplaces in 11 of the 15 states that it currently serves, follows major retrenchments by United Health and Humana, two other large, publicly traded insurers. Critics of the ACA are citing these departures as evidence of the law’s fatally flawed design. Even supporters worry about how to staunch the outflow. And the news reverberated in presidential politics, on both sides. What’s really going on here? Are these big insurers bailing because Obamacare is just too risky? Will more such desertions cripple the Marketplaces?
Putting the Departures in Perspective
Not all health insurance companies are the same, nor do they necessarily serve the same customer segments. In fact, most medical insurance companies, unlike Aetna and United, are regional non-profits, such as the state (or smaller) Blue Cross Blue Shield plans, Kaiser Permanente, and HIP. These “regional” plans and Medicaid managed care organizations (MCOs) are generally better positioned to compete on the new Marketplaces than “national” insurers.
By contrast, national firms such as Aetna, United, and CIGNA are far better positioned to serve national employers and other large, self-insured groups than to compete for individual households. (Anthem offers a blend of both structures, but is behaving on Marketplaces more like a roll-up of state Blues than like other publicly traded, national insurers.)
The vast majority of purchasers on the ACA Marketplace are low-to-moderate income households, who are searching for low-priced health plans. As extremely “price-sensitive” buyers, most seem willing to trade access to a broader network in return for lower premiums. Regional health plans and Medicaid MCOs are generally more successful than national ones in negotiating the lowest payment rates with local doctors and hospitals. As a result, the Blue Cross Blue Shield and other regional plans generally—not always—enjoy a cost and premium advantage over national plans and tend to dominate their Marketplaces.
A Kaiser Family Foundation (KFF) analysis of the impact of United’s retrenchment determined that, even though United participates in 59 percent of all counties and is accessible to 71 percent of Marketplace enrollees, it “does not generally offer low premium plans in the Marketplace,” and its complete withdrawal would raise average premiums by only 1 percent.
The reason for this distinction relates to the negotiating leverage of regional health plans with relatively high penetration of the markets that most hospitals and doctors care about — their own regional market, not the national market. In general, regional health plans and Medicaid MCOs also have stronger historical ties to local providers than do publicly traded national plans. As a result, they often enjoy better discounts with local providers than do national plans. For example, at the time that United announced its retrenchment, it was the lowest or second lowest cost silver plan on the Marketplace in only one state.
In fact, United and Aetna, despite their deep penetration of the large-group insurance market, together serve only 15 percent of Marketplace enrollees, and their retrenchment will impact only about 10 percent.
They are leaving many Marketplaces, but staying in those where they think they can compete. This is clearly not the same as rejecting ACA Marketplaces wholesale because of some fundamental flaw in the law. Presumably, they are being selective about their participation as they see how price-disciplined the Marketplaces are and where they enjoy a competitive advantage.
Private Markets at Work
Indeed, the strength of private markets is precisely this — that they do discriminate among more and less competitive firms, and force out the losers. It is especially perverse of those who criticize the ACA as a government intrusion on private enterprise to decry selective market exits—as distinct from wholesale abandonment of a market—or to focus only on withdrawals. Many Marketplaces have also experienced new entrants, and may well continue to see both exits and entries. For example, New Hampshire’s Marketplace was served initially by one insurer, but now offers five.
For Marketplaces in a sample of 17 states analyzed by KFF, insurer participation in 2016 was well ahead of 2014. The startup health plan Oscar recently announced that it will withdraw in 2017 from New Jersey and Dallas, but it also announced an expansion from Los Angeles to San Francisco. (Not surprisingly, media attention focused on Oscar’s withdrawals, rather than its new entry.)
The losses sustained on many Marketplaces by profit-driven, national health plans are evidence of the intense price competition that serves consumers well, but is forcing out higher-priced options. On the other hand, were Kaiser, Blue Cross Blue Shield, and other plans which often enjoy a lower “cost-of-goods-sold” to abandon the ACA Marketplaces, that would be cause for real alarm.
Even if the retrenchment of United, Humana, and Aetna does not cripple the ACA, a substantial net loss of competitors—if we get to that point—certainly would tend to undermine pricing discipline. And it is never good for consumers to lose options. As an extreme example, it appears that Aetna’s retrenchment could leave one county in Arizona with no Marketplace options — although I would expect another health plan to fill this void.
How to Increase Issuer Participation
Because the ACA Marketplaces depend on competition among private health plans, federal and state regulators are thinking about what can be done to maintain or even enhance the participation of insurers. In general, there are three directions that these efforts could take.
Enrolling Young, Healthy Individuals
First, the ACA Marketplaces need to sell more coverage to healthy uninsured people, the so-called “young invincibles.” While Medicaid expansion under the ACA has exceeded expectations (in the 32 states that chose to expand Medicaid eligibility), Marketplaces have fallen far short of their enrollment goals, especially among younger, healthier individuals. Enrolling more of this demographic segment is doubly desirable: it would help reduce the number of uninsured, while restraining premium increases.
On average, younger adults use far fewer medical services than the rating formulas allow carriers to recognize. (The ACA allows issuers to charge one-third as much for young than for old adults, but typically younger enrollees cost one-fifth or less what older adults cost.) Unfortunately, the evidence points to a sicker than expected sign-up on the Marketplaces.
Signing up relatively more young adults would reduce the average per person costs of coverage for everyone. Put another way, by reducing average costs for all enrollees, signing up more young invincibles would allow insurers to cover higher than expected costs without necessarily raising premiums.
Of course, the most obvious way to cover more of the young, healthy uninsured is to increase federal subsidies (tax credits) toward premiums, but that costs money and would require Republican Congressional support — very unlikely. Another way is to improve the skills and increase the resources available to Marketplaces in selling insurance. Selling insurance is the principal function of public health insurance exchanges, but this is a new kind of commercial skill set for government (public Marketplaces), and there is room for considerable innovation and improvement in performance. In a country that excels in business skills, an intensive focus on how to improve selling insurance would help maintain insurers’ participation and hold back premium increases for consumers.
Reducing Medical Service Costs
Second, we could try to reduce the costs of those medical services that Marketplace health plans must cover. There are lots of proposals to do so, ranging from federal reinsurance for private plans, to price regulation of medical costs.
The public option is receiving renewed interest, as a backstop to private plans and a way to offer consumers a lower cost alternative. The public option could be very attractive, i.e., low priced, if it can access Medicare-like reimbursement rates, but that would actually crowd-out private health plans. Allowing private plans on the Marketplace to access public option reimbursement rates would be less disruptive.
Increasing Premiums
Finally, if Congress and the administration cannot find ways to increase Marketplace enrollment of the young uninsured and/or reduce the prices paid by issuers, then we must expect health plan premiums on the Marketplaces to rise, in tandem with rising costs. This is the one thing that issuers can do on their own, and we are already seeing signs of large premium hikes for 2017. Along the way, the less competitive health insurers will follow the exit route already taken by United, Humana, and Aetna.
Looking Forward
Presumably, big premium hikes and many more defections from the Marketplace are unacceptable. If it turns out that even the “fittest” competitors cannot survive profitably on the ACA Marketplaces, then Congress and the administration will have to help them lower costs by attracting more healthy, young uninsured individuals and/or reducing payments for the services they do cover. If it is too early to conclude that these fixes are required, it is certainly not too early to start debating how best to stabilize the Marketplaces, should that become necessary.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/2buwNsM
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