By Sabrina Corlette and Jack Hoadley
We’re experiencing another round of bad headlines for the Affordable Care Act (ACA) marketplaces. A government report found that, on average, premiums will rise 25 percent and consumers will have fewer insurance company choices in 2017. Eighty-three insurers will stop offering plans through the marketplaces next year while only 16 insurers will enter; 21 percent of enrollees will only have one insurer to choose from.
The ACA marketplaces aren’t the only health insurance markets to have faced turmoil. As we document in a recent report for the Robert Wood Johnson Foundation, the Medicare Advantage (MA) markets were roiled with health plan exits in the late 1990s and early 2000s. Between 1998 and 2002, close to 50 percent of MA plans cancelled their contracts, causing between 300,000 and 1,000,000 Medicare beneficiaries annually to lose their private plans. Most were in rural areas. At the time, the exiting insurance companies explained that they just weren’t making enough money in the MA market for it to be a viable line of business for them.
How government officials – primarily from the George W. Bush Administration and a Republican Congress – responded to that crisis could hold lessons for policymakers’ response to developments in the ACA’s marketplaces. Key policy solutions included:
1) Throwing money at the problem. The Medicare Advantage program was created by policymakers who wanted a “market-based” alternative to traditional Medicare. They were heavily invested in its success. Thus, when that market showed signs of instability, Congress increased payments to MA plans so they were approximately 10 percent higher than local fee-for-service costs.* This increase in payments led many insurers to re-enter markets they had departed and brought new companies into the program.
2) Authorizing a fallback “public option” plan. When plans left MA, beneficiaries could, relatively seamlessly, move back into traditional Medicare (effectively a public option). But when a Republican White House and Congress enacted the Medicare prescription drug benefit (Part D), they wanted to ensure that no beneficiary would lose access to coverage if a private insurer exited the market. So the Part D program includes a public fallback plan, to be set up in areas that lack private plan choices.
3) Making risk mitigation programs permanent. When Congress established Medicare Part D it included three permanent risk mitigation programs: risk adjustment, reinsurance, and risk corridors. Policymakers knew they were creating a new market for insurance plans that covered only a drug benefit and sought to encourage insurers to participate and stay in the program for the long haul. These programs have, on balance, kept the market – and prices – stable. In fact, risk corridors have resulted in more payments back to the government than to the drug plans.
4) Conducting aggressive enrollment outreach. In launching the Medicare Part D program, the Bush Administration initiated a nationwide publicity campaign that included mass media advertising, public events, and a Medicare bus tour. Many Democratic officials, even those who voted against creating the program, helped to encourage their constituents to sign up. The federal government also supports State Health Insurance Assistance Programs (SHIPs) to counsel Medicare beneficiaries on their MA and Part D options.
Applying Lessons from Medicare to the ACA
These same strategies could be adapted to help stabilize the ACA marketplaces. For example: While there’s no analogous way for Congress to “overpay” health plansas they do in MA, Congress could increase subsidies to defray the cost of marketplace plans for consumers. This would increase enrollment and retention, including among those who are relatively healthy. And this, in turn, would encourage more insurers to participate in the marketplaces. The challenge for Congress, in addition to the polarized politics, is cost. One proposal to establish a more generous schedule of premium tax credits and cost-sharing reductions is projected to cost an additional $221 billion over 10 years.
What about the public option plan? To be sure, a Democratic-led Congress considered – and rejected – it during the ACA debate in 2009-10. However, the wave of insurer exits from the marketplaces has reignited interest in the idea, at least in areas that lack competition. What will Congress do if there are more plan exits, and some counties lack any insurer? There is no provision for that possibility currently in the ACA. While the public option is strongly opposed by industry interests, it is hard to imagine members of Congress sitting by while their constituents lose access to coverage and tax credits, no matter what their ideology.
Federal policymakers could also extend reinsurance. Health insurance actuaries point to this year’s sunset of the ACA’s reinsurance program as a key driver premium rate hikes in 2017. States could also establish their own reinsurance programs, as Alaska has done. In that state, simply setting up the program brought proposed premiums down from a projected 40 percent increase to just over 7 percent for 2017. However, reinsurance funds must come from somewhere. Currently the funds for the ACA program come from an assessment on all health plans, including group and self-funded plans, an approach that spreads risk to a larger risk pool. Employers are likely to object to continuation of this program.
Perhaps most importantly, policymakers need to invest in targeted public outreach and enrollment helpfor consumers. Unlike Medicare, the individual market is a transitional one. Insurance coverage sources change, often for good reason, such as gaining employment or having an income change that affects Medicaid eligibility. That kind of churn requires a long-term, sustained enrollment effort, not just a one-time campaign. This outreach would have the added benefit of explaining the value of having coverage to those who are relatively healthy.
Regardless of the outcome of the coming election, a new administration and Congress will need to develop pragmatic policies to address continued market instability. In doing so, they should consider what has worked (or not worked) in other markets, such as Medicare Advantage and Part D.
*Congress later brought those payments down in the ACA, but the MA market has remained a relatively stable market for insurers.
Editor’s Note: This post was originally published on the Health Affairs Blog. Copyright ©2016 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.