By Sabrina Corlette and Jack Hoadley
The Affordable Care Act’s (ACA) health insurance marketplaces have been buffeted by bad news lately. A number of insurers are raising premium rates; others are withdrawing. But these marketplaces are not the first – nor likely the last – to go through a period of instability and uncertainty. Similar issues have also dogged other insurance markets, including the Medicare programs that rely on private plans to deliver benefits – Medicare Advantage and Medicare Part D. In the late ‘90s for example, federal officials faced insurers’ decisions to terminate nearly half of existing Medicare Advantage contracts.
When confronted with signs of market instability, policymakers and administrators of the Medicare programs have responded in a variety of ways. These include policies and strategies to encourage participation by insurance companies, keep premiums stable, and enhance enrollment. In a new issue brief for the Robert Wood Johnson Foundation, we consider whether any of these policies or strategies could also be used to help stabilize the ACA marketplaces, and if so, what the pros and cons of doing so might be. You can find the full brief here, and we share a few highlights below.
Market Competition and Plan Availability
When confronted with threatened or actual health plan pull outs, Medicare policymakers and officials have reacted in a range of ways, including, for example:
- Financial incentives. In the Medicare Advantage program, insurers were enticed back primarily through increases in payment rates. While such direct payment incentives are less feasible for insurers in the ACA marketplaces, policymakers could make premium tax credits and cost-sharing assistance more generous for consumers. Making insurance more affordable would entice more people to become and stay enrolled in coverage, which would, in turn, encourage more insurers to participate.
- A fallback plan. In designing the Medicare Part D program, policymakers created a fallback plan, which would be activated in any region where there was not at least two drug plans in total. As it turned out, many plans entered Part D and the fallback was never triggered. In the ACA context, while a public option plan was debated and rejected by lawmakers, one alternative would be to authorize the public option solely as a fallback if an insurer’s exit from a region leaves consumers with only one or two remaining insurance options.
The Medicare Part D program includes the same premium stabilization programs as the ACA: risk adjustment, reinsurance, and risk corridors. However, in Part D, all three programs are permanent, while in the ACA both reinsurance and risk corridors expire at the end of this year. There is strong evidence that the expiration of the reinsurance program in particular is a significant factor in proposed premium hikes for 2017. To help stabilize premiums, policymakers could make the reinsurance program permanent. One state already has, and it’s making a difference. Alaska’s decision to create its own reinsurance program has led the state’s major individual market insurer – Premera Blue Cross Blue Shield – to dramatically reduce its proposed rate increase. The Obama Administration is encouraging states to consider similar action.
Maximizing and Sustaining Enrollment
The success of any insurance market depends on enrolling the largest possible share of eligible individuals, keeping people enrolled, and managing a significant amount of natural enrollment volatility. To achieve these ends, Medicare policymakers and officials have, for example, deployed the following strategies:
- Outreach and consumer assistance. Medicare invested in a huge nationwide publicity campaign to encourage enrollment in Part D, and also support state health insurance assistance programs to provide people with one-on-one help. To grow and maintain enrollment in the ACA marketplaces, an ongoing commitment to outreach and consumer assistance is essential.
- Auto-enrollment. While enrollment in Medicare Part D is not automatic, certain individuals who receive a low-income subsidy are randomly assigned to a plan if they don’t select one on their own. This policy has assured participating plans a guaranteed number of subsidized enrollees. Under the ACA, the administration has proposed that if an enrollee faces a significant premium hike, he or she could be auto-enrolled into a lower cost plan during the annual renewal process. This policy, while not finalized, could be revisited as a way to entice a new insurer to enter a market by guaranteeing them a certain number of default enrollees.
The history of health insurance markets teaches us that, without certain safeguards and incentives, there are likely to be periods of instability and uncertainty, particularly in the early years of a program. While the Medicare Advantage, Part D and ACA markets are very different in terms of the populations served and the financing mechanisms, all deliver a critical benefit – health coverage – through private market mechanisms. And in Medicare and the ACA, a combination of financing, risk stabilization and enrollment outreach strategies are critical to long-term stability. None of the policies or strategies discussed in our paper provides a “silver bullet” solution for the ACA marketplaces, but with modifications or in combination with other strategies some could help private insurers compete more effectively and provide enrollees with adequate access to affordable plan choices. Read the full brief here.