The Price is Not Right: The Unsustainability of the ACA Insurance Marketplaces

As patients face a steady increase in their share of costs for their health care, it’s not surprising that the cost of care is the top concern of those buying health insurance. New York Times columnist Reed Abelson noted in 2016 that people purchasing insurance in the marketplaces created by the Affordable Care Act (ACA) have just one feature in mind: “It is not finding a favorite doctor, or even a trusted company. It is how much—or, more precisely, how little—they can pay in premiums each month.” ^a

People shopping in the ACA marketplaces have voted with their pocketbooks, opting for cheaper, higher-deductible plans. In 2015, more than two-thirds of the people buying individual policies on the marketplaces chose silver plans, which are the second-lowest-priced. ^b

Rapidly Rising Premiums

Given the primacy of cost, the May 23 release by the U.S. Department of Health and Human Services (HHS) of a report regarding individual market premium changes from 2013 to 2017 for the 39 states using the federal government’s platform, healthcare.gov, provides a good gauge of the affordability of the ACA marketplaces. According to the report, all 39 states experienced increases in individual market premiums since 2013. Average premiums rose during the period by 105 percent, which translates to an average annual premium increase of $2,928. This premium hike was more than 20 times the growth in the Consumer Price Index (CPI) and more than eight times the increase in the nation’s healthcare inflation over the same period. While 16 states had premium increases below the national average of 105 percent, 20 states had premium increases between 105 percent and 200 percent, and three states—Alabama, Alaska and Oklahoma—saw premiums triple, rising more than 200 percent. ^c

A comparable analysis of the 11 states running their own marketplaces has not been conducted, but for 2016-17, their average approved individual market rate increase was 19 percent, more than nine times the CPI growth rate and over five times U.S. healthcare inflation. ^d

Root Causes

Multiple interrelated factors are driving these premium increases.

Lower enrollment. Enrollment in the marketplaces has been less than previously projected and is declining. Originally, the Congressional Budget Office (CBO) projected an enrollment level of 24 million individuals in the ACA marketplaces by 2016 (mostly people receiving subsidies for coverage, but also some not receiving subsidies), but later scaled back its projection by about 40 percent to 13 million. ^e Also, in January, the CBO and Joint Committee on Taxation (JCT) projected that the number of people receiving subsidies for nongroup coverage purchased through the marketplaces would decline from a monthly average of 11 million in 2016 to nine million in 2017. ^f

Nonparticipation by the young and healthy. It is estimated that 12 million to 15 million people—disproportionately young and healthy—who were expected to enroll in the marketplaces by the end of 2016 have not done so.

Health plan departures. As a result of the relative nonparticipation by the young and healthy, the marketplaces have been left with an older, sicker risk pool, producing huge losses for many health plans, in spite of the aforementioned substantial premium increases.

Consequently, in 2017, 80 insurers left the ACA marketplaces while 11 entered, resulting in a net decrease of 69. ^g

In February, Humana announced that it would exit the marketplaces in 2018. ^h Similarly, in May, Aetna said it would leave the individual insurance market in Delaware and Nebraska, the last states where it offers plans, in 2018. ⁱ Also, as of this writing, there is speculation that Anthem is leaning toward exiting, and even Molina Healthcare, touted in 2016 as an example of an insurer that could succeed in the ACA marketplaces, is considering a departure in 2018, in the wake of a $91 million loss in the fourth quarter of 2016. ^j

The Vicious Cycle

The inordinate premium inflation of the marketplaces is symptomatic of a cycle that appears to be worsening, so much so that some have called it a “death spiral.” As health insurers exit the marketplaces, competition decreases, which naturally leads to premium hikes, as well as to a narrowing of plan choices. The higher premiums and fewer choices dissuade people from signing up or cause current enrollees to drop out, further shrinking the risk pool.

If the ACA marketplaces prove to be unsustainable, then access to affordable healthcare plans for millions of Americans—regardless of the availability of premium credits—will be at risk.

Hospitals’ Concerns

In this era of continued health reform—with the potential legislative pendulum swing of the American Health Care Act (AHCA) whose fate is still to be determined—hospitals’ foremost concern has been about bad debt associated with serving a possibly larger uninsured population and separately, the popularity of high-deductible plans with many of the insured, which raises concern about patients’ ability to pay their hospital bills. But as the recent HHS report casts in high relief, hospitals should be concerned not only about possible shortcomings of the AHCA but also about the travails and serious fundamental weaknesses of the ACA’s health insurance marketplaces.

Ken Perez is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.

Footnotes

a. Abelson, R., “Cost, Not Choice, Is Top Concern of Health Insurance Customers,” New York Times,  Aug. 12, 2016.

b. Williams, S., “Why More Than Two-Thirds of Obamacare Enrollees Opt for a Silver Plan,” The Motley Fool,  Sept. 26, 2015.

c. Department of Health and Human Services, “Individual Market Premium Changes: 2013-2017,” May 23, 2017.

d. National Conference of State Legislatures, “Health Insurance: Premiums and Increases,”, Jan. 3, 3017.

e. Congressional Budget Office, “The Budget and Economic Outlook: 2016 to 2026,” January 2016.

f. Congressional Budget Office, “The Budget and Economic Outlook: 2017 to 2027,” January 2017.

g. The Heritage Foundation, “The 2017 Health Insurance Exchanges: Major Decrease in Competition and Choice,” Jan. 30, 2017.

h. Abelson, R., “Humana Plans to Pull Out of Obamacare’s Insurance Exchanges,” New York Times, Feb. 14, 2017.

i. Beasley, D., “Aetna fully exits Obamacare exchanges with pull-out in two states,” Reuters,  May 10, 2017.

j. Johnson, C., “Wall Street analyst says Anthem is likely to exit many Obamacare exchanges,” Washington Post, , March 30, 2017; Haefner, M., “Molina Healthcare loses $91M in Q4, mulls ACA exchange exit,”, Feb. 16, 2017.