An assessment six years into America’s grand health insurance experiment
Since its enactment on March 23, 2010, the Affordable Care Act (ACA) has been frequently modified. There have been over 70 changes so far, including administrative and legislative measures as well as the changes ordered by the Supreme Court, such as making Medicaid expansion voluntary. The ACA has been subject to ceaseless repeal efforts as well as daily headlines screaming praise or hatred.
While it is too soon to say what the ultimate effect of the law will be, some hard facts and interesting trends are emerging. As is often the case, many of the rosy promises and dire predictions have failed to materialize.
First, the ACA has been effective in reaching its primary goal to reduce the number of uninsured, which has fallen by about 20 million — from 18.2 percent of the US population in 2010 to 10.5 percent in 2015. This was accomplished through a mandate for individuals to obtain coverage, a mandate for employers to offer coverage, Medicaid expansion in many states, and the extension of coverage for young adults until age 26 under their parents’ plans.
Nonetheless, many price-sensitive individuals continue to choose to remain uninsured and pay a penalty rather than pay what they believe is too high a premium. This includes individuals for whom the government is picking up most of the tab through subsidies. Also, it is important to remember that many states, especially in the South, have not expanded Medicaid despite the federal government’s commitment to cover the costs in the early years.
The law introduced several specific changes in insurance practice, including mandatory review of rate increases over 10 percent, elimination of lifetime and annual limits and restrictions based on pre-existing conditions, and a minimum medical loss ratio, which is the proportion of collected premiums paid out in claims. In addition to these practice changes, new taxes and fees were levied on insurers to help pay for some of the costs of the subsidies in the new exchanges. The insurance industry resisted many of these changes, and there was a loud chorus of Cassandras predicting that insurers would fail, which didn’t happen.
In general, insurers had surprisingly little difficulty adapting to the new world, as corporate profits and share prices have been fine in most cases. Here again, many changes were made as the program evolved, including the decision to permit individuals to remain in some “mini-med,” low value plans to continue with that coverage, despite the initial plan to eliminate such low actuarial value offerings.
The establishment of the new public exchanges, administered by either the states or the federal government on behalf of states, has been a topic of extreme interest and innumerable analyses and media reports. Things got off to an awful start as the on-line enrollment system crashed at the outset, but the government recovered and a reasonable numbers of individuals enrolled.
One major initial concern was that employers would send vast numbers of their employees to the exchanges, thus ruining the commercial, employer-sponsored market did not come to pass. Employers are generally not discontinuing their coverage and sending large numbers of individuals to the exchanges.
Another major concern was that inadequate numbers of plans would be offered and people would not have choice. To mitigate this potential risk, the government established a couple dozen co-ops in certain markets to assure that choice was available. So far, this prediction has also not panned out. Substantial numbers of plans have been offered and almost all markets have substantial choice.
Many new insurance plans have been established in response to the emergence of this new exchange marketplace. It is notable that a substantial number of these insurance plans are sponsored by providers, hospitals, regional health systems, or large physician groups. This trend toward provider sponsorship represents an interesting shift of risk from traditional insurers to providers and time will tell how it plays out.
Much attention has been paid to the fact that some insurers have failed, including several high-profile debacles amongst the co-ops. Several factors are at play here: To begin with, health insurance is a risky business, and it has always been true that many new companies that did not have the financial strength to ride out a storm failed before the ACA was enacted.
Secondly, in addition to being under-capitalized, many new companies are often too aggressive in their efforts to grab market share, and their underpricing comes back to haunt them. In the case of the public exchanges, many new plans felt they were protected against because of the federal government’s reinsurance and risk corridors programs. These programs promised to protect the companies to some extent from the ill effects of potential adverse risk selection or the enrollment of too many sick people and not enough healthy ones.
This seemed a reasonable bet at first, but one of the changes Congress made was to require that the risk corridor program be net neutral, meaning that the amount to be distributed to the plans that lost money due to bad experience was limited to the amount that was paid in to the government by the plans that had favorable financial experience. Since many more plans lost money than made money, the amount available for distribution to the losers was far less than initially expected.
Why did so many plans lose money? Part of the problem was underpricing, but part was also that the overall utilization of the enrollees was greater than expected and the government came up with far less loss-reduction funding than was initially expected.
As for the degree of health care utilization experienced to date, initially it appeared that the populations that enrolled in the exchanges included a reasonable mix of healthy and sick folks and that the markets would work, even without the support of the federal plans to prop up the markets by backstopping some of the risk. Over the past year, however, more plans have lost money and large insurers, who offer plans in many markets, have announced that they would reduce or eliminate their participation.
United Health Group was the first large player to do so, and now Aetna has made a similar announcement. Opponents of the ACA have pounced on this news as evidence that the exchanges are flawed and about to enter a death spiral as premiums rise to cover losses and healthy patients flee, leaving a smaller core of higher cost members.
In my view, these predictions of the demise of the exchanges are premature. The facts show that the year-over-year average increases in premiums, and while they’re higher for 2017 than they were in 2016, they are still not as high as the pre-ACA individual market premium increases.
The final information for 2017 will not be available for a while, but at this early date it appears an exchange offering will be available essentially everywhere. Most people will have several options to choose from, though the withdrawals and failures indicate that as many as 17 percent of the population may be in exchanges with only one plan offering.
The limitation of choice relates to providers as well as plans since many of the plans that are staying in the exchanges are adopting snarrow networks with limited choices of hospitals and physicians than the previous broader networks. The government is betting that the market will stabilize. I think they may be right, but they should also be ready to provide more support for the payers, if needed. We’ll know much more this time next year.
John W. Rowe is the former Chairman and CEO of Aetna, Inc., the former President of the Mount Sinai Hospital and the Mount Sinai School of Medicine in New York City. He is currently the Julius B. Richmond Professor of Health Policy and Aging at the Columbia University Mailman School of Public Health
