Federal Policy Priorities for Preserving and Improving Access to Coverage: Perspectives from State-Based Marketplaces

Abstract

• Issue: The Affordable Care Act’s (ACA’s) health insurance marketplaces provide a critical source of coverage and financial assistance. States operating their own marketplaces cover a significant number of consumers without access to employment-based health insurance or public programs. Federal actions under the Trump administration have undermined the marketplaces, but the new administration has opportunities to implement and advocate for policies that strengthen state-based marketplaces (SBMs) to ensure they continue to serve as a coverage safety net.
• Goal: Identify federal policies to support SBMs and the consumers they serve.
• Methods: Structured interviews with directors and officials from 17 SBMs and analysis of recent federal policies impacting SBMs.
• Key Findings and Conclusions: The Trump administration has hindered SBMs by establishing onerous requirements and creating consumer confusion. Affordability remains a primary barrier to marketplace coverage, and federal initiatives could help reduce premiums and cost sharing. SBMs are an important resource for people who do not have access to affordable insurance through their jobs, but federal policy changes are needed to clear an easier pathway to coverage. In addition, the federal government should reinvest in advertising and outreach for the federally facilitated marketplace.

Introduction

The COVID-19 pandemic exposed and exacerbated gaps in the health insurance landscape. During a time of economic upheaval, millions have lost access to coverage due to unemployment, reduced hours and income, and other challenges.¹ The health insurance marketplaces created by the Affordable Care Act (ACA) have served as a safety net by providing coverage options and financial assistance to the uninsured and those who have lost employment-based health insurance.²

The ACA’s marketplaces are intended to make it easier for people to shop for and enroll in comprehensive coverage.³ Twenty states and the District of Columbia operate state-based marketplaces (SBMs), with six of these states relying on the federal marketplace website, HealthCare.gov, as an online platform for eligibility determinations, plan comparison, and other enrollment procedures. Thirty states use the federally facilitated marketplace.

The Affordable Care Act’s Health Insurance Marketplaces by Type

Nearly 4 million people were enrolled in SBMs in 2020.⁴ SBMs have a proven track record of investing in enrollment efforts, often achieving greater enrollment outcomes than the federally facilitated marketplace.⁵ They have also implemented policies that improve access to coverage and care, including opening more special enrollment periods and implementing standardized benefit designs to reduce consumer confusion and increase access to services.⁶

States operating their own marketplaces have significantly more autonomy than states on the federally facilitated marketplace, but SBMs are still impacted by federal policies. And while premiums, enrollment, and insurer participation in the individual market have stabilized in recent years, the Trump administration’s actions to undermine the ACA coincided with a rise in the uninsured and will likely have lasting impacts on both the insured rate and individual market premiums.⁷

To assess how federal policy decisions have affected SBMs and the consumers they serve, and how future federal actions could improve their operations and marketplace stability, we conducted structured interviews with directors and officials from 17 SBMs, including three SBMs using HealthCare.gov. This brief explores key themes from those interviews and identifies how federal policymakers can support the SBMs’ role as a source of comprehensive, affordable coverage.⁸

Key Findings

Federal Actions Have Hindered Marketplaces, Sowing Consumer Confusion and Doubt

Many SBM directors expressed that, since 2017, the federal government’s continuous attempts to obstruct or roll back provisions of the ACA have often impeded SBMs’ efforts to increase and sustain enrollment.⁹ Some officials lamented the time and resources spent responding to federal actions undermining the ACA. They identified numerous federally imposed obstacles, including the requirement for insurers to issue a separate bill for the portion of premiums covering abortion services (implementation of which has been blocked by the courts) and inconsistencies with how income is counted for purposes of Medicaid and marketplace subsidies.¹⁰

Officials described the frequent need to reassure people that the marketplaces remain a coverage option despite federal policies and rhetoric. As one director noted, “how much better off could we all be . . . if I didn’t have to spend money countering confusion and misinformation that is driven by federal rules and policies.”

Two recent federal policies were seen as particularly troublesome: the expansion of non-ACA-compliant insurance plans and the public charge rule.

Expansion of Non-ACA-Compliant Coverage Poses Problems for the Marketplaces

The Trump administration finalized rules expanding the availability of coverage that does not have to comply with the ACA’s individual market consumer protections. This coverage includes short-term, limited duration insurance as well as association health plans. The administration also proposed rules encouraging membership in health care sharing ministries — noninsurance arrangements that are largely unregulated by states or the federal government.¹¹

Marketplace officials described how non-ACA-compliant plans negatively affect marketplace risk pools by siphoning away healthy people, who are attracted by the lower sticker prices and can pass health screenings that weed out people with preexisting conditions. Several directors noted that their states have limited the negative impact of certain products, particularly short-term, limited-duration insurance.¹² Still, these officials remain concerned that non-ACA-compliant products are often deceptively marketed as cheaper alternatives to ACA-compliant plans, requiring SBMs to continually communicate the dangers of seeking off-marketplace coverage that can leave enrollees with significant medical bills if they seek care.

SBM officials called for federal action to reduce the presence of noncompliant products by reversing the Trump administration’s efforts to promote these arrangements. One director suggested a federal policy to crack down on companies using deceptive marketing tactics that misrepresent these products as comprehensive coverage.¹³ State insurance regulators have called for similar federal action.¹⁴

The Public Charge Rule Discourages Enrollment in Immigrant Communities

SBM directors also asserted that the Trump administration’s changes to public charge determinations have suppressed enrollment. Under a 2019 regulation — subject to ongoing litigation, as well as review by the Biden administration — the Trump administration added Medicaid to the list of publicly provided benefits considered in evaluating whether immigrants would be considered a “public charge” when seeking approval for permanent residency. This designation can prevent people with certain immigration statuses from becoming U.S. citizens. Under the new policy, the use of Medicaid, with some exceptions, can be considered in a public charge determination.¹⁵

While marketplace enrollees are not directly implicated by the new rules, most SBM officials reported that the regulation has had a chilling effect on marketplace enrollment. Directors described confusion over who the rule applies to, and how households that have members with different immigration statuses may forgo coverage entirely to protect a family member. Several officials noted that they have dedicated resources to combatting misinformation but face an uphill battle. As one director put it, “No matter how much money you invest in this, people are still afraid, so they’d rather take the risk of dying than the risk of not getting their citizenship.”

State-Based Marketplaces Eye New Federal Policies to Improve Affordability

SBM directors identified affordability as one of the biggest obstacles to obtaining health insurance, emphasizing high premiums and cost sharing as a key area for federal action.¹⁶ Officials noted that reducing cost burdens would help support SBMs in their mission to provide coverage as well as improve market stability by spurring robust enrollment and a broader, healthier risk pool. Directors highlighted two approaches: enhanced federal subsidies and federal reinsurance.

Enhanced Federal Subsidies Would Reduce Cost Barriers

While federal marketplace subsidies (along with some state programs) lower monthly costs and out-of-pocket expenses, SBM officials expressed that many people still struggle to afford the health insurance and care that they need.¹⁷

SBM directors overwhelmingly supported more generous federal premium subsidies. Most directors recommended expanding subsidies to people with incomes above the current cap of 400 percent of the federal poverty level. Some backed raising the maximum household income level to 500, 600, or 800 percent of poverty, or removing the cap entirely and basing premium contributions on a percentage of income.

Officials cited the need to fix the “subsidy cliff,” which is the abrupt subsidy drop-off for people with household incomes above the current 400 percent of poverty threshold. Some recommended changing eligibility rules to create a “hill” by gradually decreasing subsidy amounts at higher income levels. Other officials wanted to enhance subsidies for those who are currently eligible for premium tax credits but still find coverage unaffordable; the vast majority of the uninsured have incomes below 400 percent of poverty.¹⁸

Some officials suggested augmenting premium subsidies by calculating the amount based on a gold-level marketplace premium, rather than the current practice of pegging the amount to a silver-level premium; in addition to enhancing premium assistance, this change would make gold plans, which generally have lower cost sharing, more affordable. Directors encouraged other federal policies to combat high cost sharing – a major barrier to care for the insured – such as expanding the population eligible for cost sharing reductions above 250 percent of poverty.

Federal Reinsurance Reduces Premiums, Mitigates Stress on State Budgets

The ACA established a temporary federal reinsurance program that successfully held down premiums in the law’s initial years.¹⁹ The program expired after 2016, and efforts to renew it have stalled in Congress.²⁰ In the absence of federal reinsurance, 14 states — most of them SBMs — now run reinsurance programs that have reduced marketplace premiums.²¹

A majority of SBM directors supported reestablishing a federal reinsurance program, citing its potential to improve market stability and keep unsubsidized premiums down. While state programs have effectively reduced individual market premiums by subsidizing insurers for high-cost claims, state resources are spread thin, particularly during the COVID-19 pandemic.²² Directors generally favored a reinsurance program fully funded by the federal government, although some hoped for state flexibility over program management.

There was less agreement on the degree to which federal policymakers should prioritize reinsurance among affordability initiatives. One official cautioned that reinsurance “doesn’t do a ton for the subsidized population,” arguing that expanding premium subsidies would be more beneficial.

Improving Pathways to Coverage for People Without Affordable Employer Insurance

The ACA marketplaces are a critical resource for people who do not have access to affordable insurance through their jobs, but SBM directors pointed out that federal policy changes are needed to clear an easier pathway to coverage. The directors highlighted two options: eliminating the family glitch and improving a new coverage financing option that could expand the availability of marketplace plans for employees without traditional group health insurance.

Eliminate the Family Glitch

The majority of SBM directors supported eliminating the family glitch, which results in an estimated 6 million people denied eligibility for subsidized marketplace coverage.²³ Officials described the family glitch as a gaping hole in the subsidy system, calling it a “big issue” and noting that “a lot of people fall out” and families are forced to forego coverage due to the “firewall.”

Encourage Health Reimbursement Arrangements with Improved Safeguards

SBM directors also noted that health reimbursement arrangements (HRAs), a coverage financing option expanded by Trump administration, could potentially provide opportunities for workers without affordable employer plans to access marketplace coverage.

According to several directors, HRAs that can be used to purchase marketplace plans benefit small and medium-sized businesses that cannot afford to offer traditional group health plans. However, some officials noted that individual coverage HRAs, introduced by the Trump administration, risk enabling discrimination and adverse selection. Because employers can offer individual coverage HRAs to specific classes of employees, employers could potentially use employment categories as a proxy for health status and offer individual coverage HRAs to the classes composed of older, sicker workers. At the same time, firms with less-healthy employees may be incentivized to drop traditional coverage altogether in favor of offering individual coverage HRAs.²⁴ Some SBM officials argued that HRAs should not be used as a mechanism to send employees with higher health care costs to the individual market. They urged the administration to include additional protections that prevent discrimination.²⁵

SBM officials also asserted that employees should be able to use individual coverage HRAs in combination with premium tax credits, as current restrictions on these HRAs prevent access to subsidized marketplace coverage. Several directors also criticized the lack of clarity on HRAs, requesting additional federal guidance and consumer-facing tools to make them a more realistic option.

State-Based Marketplaces Lament Reduced Resources for Federal Marketplace, Request Renewed Investment in Marketing and Outreach

The Trump administration drastically cut funding for advertising and consumer assistance for the federally facilitated marketplace. While SBMs are insulated from the full impact of these changes due to their authority over marketing and outreach, directors described the harmful effect on the consumers who rely on the federal marketplace. Some officials indicated that reduced federal spending on advertising has impacted SBMs, which could previously “draft off the sheer power and breadth” of the Obama administration’s marketing initiatives. Directors also called for the federal marketplace to increase investment in marketing and consumer assistance as a best practice, and some requested federal funding to assist SBMs with state marketing efforts.

Discussion

Federal policy changes are on the horizon. The Biden administration may reassess and reverse some of the Trump administration’s actions to undermine the ACA, which have diverted SBM resources and created consumer confusion as well as operational challenges. Directors stressed the need to not only rescind policies that have hindered marketplaces but also to take proactive steps to improve and expand on the hard-won gains of the last decade.

Affordability topped most directors’ lists of federal policy priorities. States have taken action to improve affordability, but federal policies — and particularly federal funding — are critical to cultivating access to coverage and care. Limitations on state budgets and authority underscore the importance of federal efforts to address affordability.

The new administration will face unprecedented challenges, not the least of which will be undoing the harmful actions that eroded the ACA’s progress. As federal policymakers chart a course to more accessible, affordable health insurance, the ACA’s marketplaces will be a key player. The insight of SBM directors provides a roadmap to the most pressing needs for preserving and improving the marketplaces.