“A death spiral.” “Collapsing under its own weight.” Since its inception, critics of the Affordable Care Act (ACA) have argued that the demise of the law’s marketplaces is imminent. Their arguments gained some currency this past summer when insurers hiked premiums for 2017 and some announced they would not offer 2017 coverage because of continued financial losses. But if the Obama Administration’s efforts to stabilize the marketplaces are allowed to continue, those predictions are premature.
Recently, analysts with Standard and Poor’s (S&P) Global Ratings announced that profitability for marketplace insurers has improved in 2016, and predict the improving trend will continue in 2017. The S&P analysts saw this year’s price bump as a “one-time pricing correction.” For more on the S&P report, see our blog here. Future premiums are likely to be much more in line with the original projections of the Congressional Budget Office.
While critics were saying the sky was falling, the Obama administration was taking numerous actions to strengthen the risk pool to ensure long-term sustainability of the marketplaces. First, the administration began to address insurers’ concerns about special enrollment periods (SEPs). They tightened rules for SEP eligibility and initiated programs to require that eligibility be verified.
Second, the administration responded to evidence that insurers selling short-term policies were siphoning off healthy enrollees from the marketplaces. To head that off, they issued a regulation requiring short-term plans to be less than three months and clearly disclose to consumers that these policies are not health insurance.
Third, the administration has engaged in outreach efforts to key groups. For Marketplace consumers turning 65 and reaching eligibility for Medicare, the Marketplace is now notifying them about this benefit and the necessary steps for the transition from Marketplace to Medicare coverage. For the much-desired young adults, who continue to make up a large percentage of the remaining uninsured, the administration initiated a series of outreach efforts, including a Health Summit directed at millennials right before this year’s open enrollment. For people who previously paid the tax penalty for being uninsured, the administration conducted outreach before and during this year’s open enrollment to let them know about Marketplace coverage.
Fourth, the administration has made changes to the risk adjustment program, which aims to encourage insurers to compete on plan design and value rather than risk avoidance. For 2017, the administration changed the payment methodology to include partial-year enrollees. For 2018, plans will be able to include data on prescription drug use for assessing individual enrollee risk. Both of these changes were sought by insurers who felt the initial risk adjustment methodology did not adequately account for the health risk of their enrollees.
Fifth, the administration recently issued rules to respond to insurer concerns that patients with end-stage renal disease (ESRD) were being inappropriately steered into marketplace plans when they are eligible for Medicare. By paying premiums for people living with ESRD, ESRD facilities were able to receive higher reimbursement for their care from private insurers – estimated to be at least $100,000 per patient per year more than under Medicare for the same services. While the rules do not prohibit third party payment of premiums, it requires ESRD facilities to disclose any premium payments they make on behalf of marketplace consumers to insurers and to inform their patients of their option for Medicare coverage, including comparisons of marketplace and Medicare coverage with ESRD care and kidney transplantation. Consequently this action is projected to lower overall claims costs in the individual market, by at least 4 percent, which may help to further the sustainability of the marketplace risk pool. ESRD facilities, however, have challenged these rules and recently won a legal motion to temporarily stop the administration from implementing these rules one day before the rules became effective. Whether or not the Court permanently enjoins the administration from implementing these rules is yet to be determined.
As of the end of December 2016, 11.5 million people were signed up for coverage for 2017, an increase of nearly 300,000 over last year. If previous years are any guide, signups are likely to surge during the last three weeks of open enrollment. With enrollment on HealthCare.gov for 2017 coverage apparently on track, there’s little evidence of a death spiral.
The possibility of a death spiral, however, is on the horizon without a detailed ACA replacement plan. While Congressional leaders and the incoming administration have repeatedly stated that they will repeal the ACA, they have not put forth a detailed consensus alternative. The uncertainty caused by any transition period between an ACA repeal and replace will likely cause insurers to exit the market or raise premiums. As a result, the predictions of a death spiral for the ACA will come true, but at great cost to the millions of consumers who depend on its coverage.