ACA Marketplaces: Stressed but Fixable
Negative headlines in the past few weeks seem to suggest deep trouble for the Affordable Care Act’s (ACA) marketplaces. Several insurance plans have requested double-digit premium increases for 2017—and Aetna is the third major insurer to announce it is pulling out of several state marketplaces next year. But how concerned should we be about these developments and are there policy options to consider?
This year, premium requests by carriers have been higher on average than last year. Part of the reason for the increase is the phase-out of the law’s reinsurance program, which reimbursed carriers for high claims costs. The program has lowered premiums by as much as 14 percent, and without it carriers are raising their premiums to compensate. But even if final premiums in many plans are higher, most people who will enroll in marketplace plans this year will not pay much more than they did in 2015. This is because more than 80 percent of marketplace enrollees receive tax credits to help pay their premiums, which means most of the increase will be absorbed by the credits. Marketplace customers are also highly price-sensitive and will likely shop for the best deal. Last year, people who received tax credits through the federal marketplace experienced an average premium increase of only 4 percent.
This price competition is brand new to the individual insurance market, and is likely contributing to the large insurers’ exits. The ACA’s market reforms, and the design of premium tax credits fundamentally changed the competitive dynamic. While insurers used to compete by avoiding risk, they now must lure consumers with competitive pricing and high-value products. As in all competitive markets, there will be winners and losers. An analysis by the Urban Institute suggests that some of the large insurers staging high-profile departures were not the most price-competitive in some markets: Blue Cross Blue Shield Plans, Medicaid managed care plans, health provider–sponsored plans like Kaiser Permanente, and smaller regional plans have been more so.
Aetna complains that it has too many unhealthy people in its risk pools, and is suffering big losses. This is puzzling. In 2016, Aetna increased the number of plans it offered in several states it is now abandoning.1 In addition, the law’s permanent risk-adjustment program enables insurance companies with sicker enrollees to share their costs with insurers who have healthier members. While not perfect, the risk-adjustment program has largely functioned as intended, according to several analyses. The risk pools also appear to be improving: A U.S. Department of Health and Human Services (HHS) report released this month found that people in the individual market nationally were likely healthier as a group in 2015 than they were in 2014.
Still, solutions will be needed to maintain competition and choice for consumers, and make sure those who are eligible for coverage can get it. As the HHS analysis shows, robust enrollment is critical for keeping costs down. A new Commonwealth Fund survey finds that 24 million working-age adults are still uninsured, with about half potentially eligible for subsidized marketplace coverage. HHS has announced new efforts to reach those who are eligible. Over the next few years, as many as 5 million people with plans that that don’t fully comply with the ACA reforms—because they existed before the law passed or because they were transitional plans—may move into the individual market, which also will boost enrollment.2
To keep premiums down, federal policymakers could extend the ACA’s successful reinsurance program, which is financed by insurer fees and is therefore budget neutral. There is precedent for this: Medicare’s prescription drug program includes a permanent reinsurance program. In the absence of federal action, states could follow the lead of Alaska, which is setting up its own reinsurance program. Finally, both state and federal policymakers could consider a public insurance option to add competition to markets with few competitors.
The marketplaces are key to the nation’s progress toward universal coverage and their stability demands commitment from private industry and political will on the part of policymakers.
1 NORC and Commonwealth Fund analysis of 2014–2016 marketplace plans.
2 Authors’ analysis of http://www.commonwealthfund.org/publications/issue-briefs/2016/june/insurance-exchanges-promote-value and https://aspe.hhs.gov/basic-report/how-many-individuals-might-have-marketplace-coverage-at-the-end-of-2016.