Does Aetna Exit Signal Deeper ACA Problems?

open_enrollment

San Diego Union-Tribune
The insurance giant Aetna will will stop offering Obamacare health plans in 11 of 15 states, citing $200 million in losses this year and more than $400 million since 2014. The announcement, made Monday night, was the latest blow to the Affordable Care Act, which had already suffered the departure of top-five insurers Humana and UnitedHealthcare and has seen double-digit premium increases for many of the carriers that will continue to sell through health exchanges such as Covered California next year. In general, carriers have said too many sick patients are the main reason they’re dropping out of exchanges or raising rates. With not enough young and healthy enrollees to balance out the claims ledgers, the three companies that are pulling out or down scaling said they have lost hundreds of millions of dollars.

So do these developments mark the beginning of the doomsday scenario for Obamacare? Before the law’s main insurance provision took effect in 2014, many experts predicted that guaranteeing coverage to all consumers regardless of their pre-existing medical conditions would eventually create “sick” insurance risk pools that could not cover their costs without large premium increases each year.

The experts disagree on whether the latest pullbacks and significant pricing hikes, floating in a sea of election-year politics, signal that the nation’s health insurance exchanges have reached a terrible tipping point or are simply seeking a new state of equilibrium.

Gary Claxton, director of the nonprofit research group Health Care Marketplace Project at Kaiser Family Foundation, takes a middle position. He said the currently available facts can be interpreted either way, and that means Obamacare’s upcoming open-enrollment period — its fourth annual — is critical. It will all come down to whether the number of enrollees in Obamacare plans continues to grow, he said. “We won’t know until the next open enrollment, are we still moving forward or are we stalled or moving backward?” Claxton said. ” If the market grows, then I think many insurers will find a way to be part of it… The next couple of months are a moment of truth.”

Just how bad the problem is depends on who you ask. UnitedHealthcare said in April that it expects to lose $650 million this year because the cost of its Obamacare policies has exceeded revenue generated from premiums. Then late Monday brought Aetna’s announcement of its deficits. While its book of business includes insurance plans sold outside of Obamacare exchanges as well, all plans on the individual market (not employer-based policies) have been affected by the Affordable Care Act’s edict to take all comers regardless of their health status.

This picture of unprofitability from some of the nation’s largest insurers contrasts with an announcement last week from the U.S. Centers for Medicare and Medicaid Services that said per-member claims were flat from 2014 to 2015 for exchange enrollees, compared with a 3 percent increase for the broader health insurance market.

The federal government gets its data from the Affordable Care Act’s reinsurance and risk adjustment programs, which have collected broad information on all claims in order to reimburse programs that experienced higher-than-average patient expenses. The reinsurance program will go away next year and many organizations, including Covered California, have said insurers are announcing double-digit premium increases for next year to compensate for this change. Neither the insurance companies nor CMS has released full data sets on Obamacare claims, making it difficult for analysts to reconcile these seemingly contrasting pictures about the financial state of health exchanges.

Brian Blase, a senior research fellow at the Mercatus Center, a conservative think tank located at George Mason University in Virginia, said he believes insurers’ reported losses and their decisions to largely leave the exchanges have been brewing since 2014, the first year exchange policies took full effect. A recent analysis of 174 health plans operating in 2014 showed that premiums would have had to be 24 percent higher than they were in 2014 to cover costs, but that the disparity was erased by the government’s reinsurance program, according to the Mercatus study.

When asked why the recent CMS study indicates a very different scenario, Blase was blunt. “I think they did some gymnastics on how they counted or discounted claims. It is inconsistent with everything else I’ve seen and, frankly, I think that their analysis is inaccurate,” Blase said. He said the current negative pattern will likely deepen, eventually leading to repeal or significant modification of the Affordable Care Act’s insurance regulations. “You’re going to have rising premiums and lower choice. I think the political pressure next year to make changes will be significant,” Blase said. But others such as Sara Collins, vice president for health care coverage and access at The Commonwealth Fund, a foundation that supports independent research on health care practice and policy, don’t see dire signs from the latest insurance developments. She noted that major carriers including Blue Cross, Blue Shield and Kaiser Permanente are not pulling out of exchanges. There is evidence, Collins added, that insurance risk pools tend to be healthier when they’re in larger states such as California. Long-term sustainability, especially where premiums are concerns, appears to be a function of size, which in turn lures multiple carriers who compete with each other for business. Collins said this means the estimated 1,000 U.S. counties with only one insurance carrier are likely to see more significant upward pressure on premiums in coming years, a situation that does, as Blase asserts, seem to suggest the federal government needing to step in. Ideas for intervention range from creating a “public option” similar to Medicare or special high-risk insurance pools to subsidize insurance to cover people with the most expensive medical needs.

Overall, though, Collins said the current information appears to indicate that Obamacare markets are maturing rather than dying. “It’s not surprising that we’re seeing some shake-up in the marketplace this year. There are going to be winners and losers like any competitive market you can think of. Some will compete and gain market share, others won’t,” she said. Additional information on the changes the Affordable Care Act has wrought in California will be forthcoming. The Kaiser Family Foundation is scheduled to release the fourth and final installment of its California health survey on Friday. The survey has tracked the effects of the law across the state since summer 2013. (c)2016 The San Diego Union-Tribune. Visit The San Diego Union-Tribune atwww.sandiegouniontribune.com.

Dental Coverage Legislation

Senators Pat Roberts (R-KS) and Michael Bennet (D-CO) introduced bipartisan legislation to clarify that people outside the public exchanges can have the same choices for dental coverage as people inside the public exchanges. The Aligning Children’s Dental Coverage Act (S. 3244) is a companion to HR 3463, sponsored by Representatives Morgan Griffith (R-VA) and Diana DeGette (D-CO).

Inside the exchanges, parents can pick stand-alone dental benefits for their children as an option. About 99% of Americans select dental coverage separately from their medical coverage. But, outside the public exchanges, the Affordable Care Act isn’t clear on whether families can purchase stand-alone dental plans as part of the required pediatric dental care benefit. As a result, individuals, employers, and carriers are confused about what coverage options are available.

Jason Daughn, vice president of government relations for Delta Dental Plans Assn. said, “The Senate and House legislation offers a simple, but crucial solution to ensure that families across the nation continue to have the access they need and the choices they deserve in obtaining dental benefits. This is a common sense solution to an issue that could pose big problems to families and children across the nation.”

Covered California Rates Jump 13% in 2017

Covered California Rising costs

Covered California’s premiums jumped 13.2% for 2017, up from about a 4% increase in each of the past two years. However, most consumers will see a much smaller increase or pay less next year if they switch to another plan. California executive director Peter Lee said, “Shopping will be more important this year…Almost 80% of our consumers will be able to pay less than they are paying now, or see their rates go up by no more than 5% if they shop and buy the lowest-cost plan at their same benefit level.”

While premiums will rise, the subsidies will rise as well. About 90% of Covered California enrollees get help to pay for their premiums. The average subsidy covers roughly 77% of the consumer’s monthly premium. “Even though the average rate increase is larger this year than the Past two years, the three-year average increase is 7% – substantially better than rate trends before the Affordable Care Act was enacted,” Lee said.

Covered CaliforniaPremium increases 2014-2015 2015-2016 2016-2017 3-year average
Average weighted increase 4.2% 4% 13.2% 7%
Lowest price Bronze plan 4.4% 3.3% 3.9% 3.9%
Lowest priced Silver plan 4.8% 1.5% 8.1% 4.8%
Second lowest priced Silver plan 2.6% 1.8% 8.1% 4.1%
If a consumer switches to the lowest priced plan in the same tier -4.5% -1.2%

 

Lee said the average rate increase reflects the following factors:

  • A one-year adjustment due to the end of the reinsurance funding mechanism in the Affordable Care Act. The provision was designed to moderate rate increases during the first three years when exchanges were being established. The American Academy of Actuaries estimates that this will add 4% to 7% to premiums for 2017.
  • Special enrollment by some consumers who sign up only after they become sick or need care, which has had a significant effect on rates for two insurance plans.
  • The rising cost of health care, especially for specialty drugs.
  • Pent-up demand for health care among those who were uninsured before the Affordable Care Act.

Lee said, “Covered California is working to address some of these issues on multiple fronts. The exchange is aggressively marketing to attract healthy consumers year-round, and is working to ensure special enrollment is available only to those who meet qualifying circumstances. It is also sampling the special enrollment population to better understand how to make any further improvements needed.”

Covered California is reducing the number of services that are subject to a consumer’s deductible. Starting in 2017, consumers in Silver 70 plans will save as much as $55 on an urgent care visit and $10 on a primary care visit. Consumers in Silver, Gold, and Platinum plans will pay a flat copay for emergency room visits without having to satisfy a deductible, which could save them thousands of dollars.

These improvements build on features already in place that ensure most outpatient services in Silver, Gold and Platinum plans are not subject to a deductible, including primary care visits, specialist visits, lab tests, X-rays and imaging. Some Enhanced Silver plans have little or no deductible and very low copays, such as $3 for an office visit. Consumers in Covered California’s most affordable Bronze plans can see their doctor or a specialist three times before the visits are subject to the deductible.

The contract with health insurers for 2017 ensures that consumers select or are provisionally assigned a primary care physician. Below are the companies selected for the 2017 exchange:

  • Anthem Blue Cross of California
  • Molina Healthcare
  • Blue Shield of California
  • Oscar Health Plan of California
  • Chinese Community Health Plan
  • Sharp Health Plan
  • Health Net
  • Valley Health Plan
  • Kaiser Permanente
  • Western Health Advantage
  • A. Care Health Plan

The following carriers are increasing their coverage areas in 2017:

  • Oscar will be entering the market in San Francisco, Santa Clara, and San Mateo counties.
  • Molina will expand into Orange County.
  • Kaiser will be available in Santa Cruz County.

With the expansion of carriers, 93% of consumers will be able to choose from three or more carriers, and all will have at least two to select from. In addition, more than 93% of hospitals in California will be available through at least one Covered California health insurance company in 2017, and 74% will be available in three or more plans. Rate details by pricing regions can be found in Covered California’s Health Insurance Companies and Plan Rates for 2017, posted online at: http://coveredca.com/news/pdfs/CoveredCA-2017-rate-booklet.pdf.

Health Insurers Increase Debt in Wake of the ACA

Since 2011, U.S. health insurers have nearly doubled their borrowing levels due to the Affordable Care Act (ACA), according to a report by A.M. Best. With traditional health insurance products, insurers receive full premium payment every month before paying any claims. But that’s not the case with exchange products. In the first few years of the exchanges, insurers relied heavily on risk-adjustment, reinsurance, and risk corridors. The timing of paying direct premium subsidies fluctuated significantly. So health insurers had to pay the claims because their liquidity was under pressure. They turned to borrowing to alleviate this pressure. A.M. Best has not seen any significant rating pressures due to borrowing. However, heavy reliance on borrowed funds could put pressure on ratings if it reduces financial flexibility or slows the growth of capital and surplus. However, financial institutions see the use of borrowed funds as favorable since many top borrowing insurers are very big, highly capitalized, and highly rated, according to the report. 

Obamacare Significantly Reduces Cost of Mental Health Care for Young Adults

The Affordable Care Act (ACA) has significantly reduced out-of-pocket behavioral health care costs for adults 19 to 25, according to a study published in the Psychiatric Services Journal. Young Latinos, African Americans, and other racial and ethnic minorities saw the greatest reduction in out-of-pocket behavioral health expenses. This demographic often has higher unemployment and lower salaries, so they are less likely to seek behavioral health services. The ACA’s dependent coverage provision has reduced the number of uninsured young adults by at least three million. The ACA allows young adults to remain on their family’s health plans until they turn 26. Because of this, the expansion of health care access is also expected to increase the number of users of mental health and substance abuse treatment services. Behavioral health conditions often emerge during the 19 to 25 year age range. Also, this age group has a higher rate of serious mental illness than other adults.

Group Proposes Replacement to Obamacare

With health care costs and insurance premiums rising, the National Center for Policy Analysis developed a plan to create accessible, affordable and high quality health care for many more Americans. NCPA senior fellow and author Devon Herrick said, “Our health care system is simply not sustainable under Obamacare. Reform is inevitable. The longer that takes, the more hard it will be on everyone, including consumers.”

Dr. Herrick outlines the following alternatives to the ACA:

  • Increased flexibility in health plan design.
  • Tax fairness regardless of where Americans get their health coverage.
  • Increased access to primary care by removing barriers to innovative medical practices and services.
    Reform of hospital regulations to better serve patients.
  • Reduced costs through price transparency to boost competition and innovation in medical services and prescription drugs.
  • Strengthened Medicare, Medicaid, and Veterans Health that better serve the needs of patients.
  • Changes in the financing of medical care so that people have control over their health care dollars and the means to pay for medical care over their lifetimes.

The Cost Implications of Private Exchanges

Private exchanges could encourage employees to select less-generous plans, according to a report by Rand. This could expose employees to higher out-of-pocket costs, but premium contributions would drop substantially, so net spending would decrease. On the other hand, employee spending may increase if employers decrease their health insurance contributions when moving to private exchanges. Most employers can avoid the ACA’s Cadillac tax by reducing the generosity of their plans, regardless of whether they move to a private exchange. There is not  enough evidence yet to determine whether private exchanges will become prominent and how they will affect employers and their employees.

Workers who choose less-generous plans could risk higher out-of-pocket costs. But their net spending would drop because premiums would drop substantially. Average employee spending could increase if employers lower their health insurance contributions when moving to private exchanges. Private exchanges are unlikely to significantly affect the ACA’s Small Business Health Options Program (SHOP) Marketplaces.

Exchange Consumers Are Becoming Savvy Shoppers

People who get health insurance through the public health insurance exchanges are increasingly confident about their ability to afford coverage. Also, they are just as satisfied with their coverage as are people with employer coverage, according to a Deloitte Consulting survey. Seventy percent of exchange consumers were able to manage their out-of-pocket expenses in the past year and only 25% had higher out-of-pocket costs than expected. However, lower-income people had a hard time paying for out-of-pocket costs.

Greg Scott of Deloitte said, “Health care consumers’ expectations for information and transparency are increasing, as is their interest in intuitive tools to access relevant information. Meeting these expectations should lead to increasingly more confident and satisfied customers.” Paul Lambdin of Deloitte said, “Out-of-pocket costs… are making exchange consumers pay close attention to the details of their coverage and changes in benefits and premiums.”

Knowing what costs to expect could also be increasing confidence. More exchange consumers understand the costs of their coverage than do people with employer insurance. Sixty-one percent of exchange consumers look at the total costs – not just premiums – when evaluating coverage options.

Also, more exchange customers are willing to accept network tradeoffs for lower payments than in 2015. These tradeoffs include a smaller network of hospitals (27% in 2016 as compared to 18% in 2015), a network that does not include their primary-care provider (26% in 2016 as compared to 16% in 2015), and a smaller network of doctors (26% as compared to 18% in 2015).

Sixty-six percent of exchange consumers used online tools to compare out-of-pocket costs compared to 58% of consumers with employer coverage. Scott said, “Exchange consumers continue to shop around for coverage and evaluate costs before making decisions and appear to be responding to messages about going online to look for health insurance information.”

Data Insights from the 2016 ACA Marketplace

 

ACA


Robert Wood Johnson offers the following observations about the Affordable Care Act Marketplace:

  • Carriers made adjustments in 2016 to reduce their exposure to high costs: In 2016, carriers attempted to minimize their exposure to high costs by reducing the number of plan offerings with out-of-network benefits, among other strategies. This change occurred at all metal levels and in all regions. The number of Silver plans that are HMOs or exclusive provider organizations (EPOs) increased from 61% in 2015 to 69% in 2016. The number of Gold plans declined compared to other metal levels. While the number of Silver plans increased 2.9%, the Gold plans declined by 8.7%. The number of Gold plans declined in most regions.
  • Regional price variation in narrowed: There was a geographic convergence in premium prices in 2016, as premiums rose far more in regions that had lower prices the prior year. Nationally, the distribution of average premium prices tightened in all rating areas. This pattern was less straightforward for deductibles, as many combinations of cost-sharing options are on the market.
  • Price variation increased within markets: Despite the reduced variation across markets, differences in premium prices increased within markets. The average premium price range increased from 2015 to 2016 in a rating area. This is true for all metal levels and all regions. The distribution has become more skewed, as maximum prices increased more than minimum prices. In 2016, a Blue or a national carrier offered the highest priced plan in a rating area about 75% of the time.
  • There are still large regional differences in plan design: Plans in the Northeast and West have a much broader range in premium prices and less variation in deductibles. Plans in the Midwest and South have a smaller range in premium prices and a far greater range in deductibles. There were some changes in these patterns from 2015 to 2016, but there are still important regional differences in plan design.
  • More regulated markets have higher premiums and lower deductibles:  Federally facilitated marketplaces with the most plan regulation—CA, CT, DC, MA, NY, RI, VT—had the highest premiums and lowest deductibles.

More product changes are likely in 2017. There is room for further reduction in broad network plans. Most entrants in 2016 primarily offer narrow network products. This will probably continue to vary regionally. We may also see further reduction in Gold plans, although carriers must sell Gold and Silver. There are indications that some carriers may reduce their Bronze offerings. The number of Bronze plans increased very little in 2016. There may be reductions in some markets in 2017. The actuarial value of Bronze and Silver plans seems to have grown closer in 2016, and average prices are quite close in many regions. While carriers have resisted government calls for standardization and simplification of plan offerings, the industry seems to be standardizing itself through potential reductions in product offerings.

Premium prices will converge further. While premium increases are expected, some regions are relatively under priced. A further reduction in regional differences will probably take place. Prices may converge at the levels seen in more regulated state-based marketplaces, which may be more appropriately priced.

The weaker markets are smaller, largely rural, have less carrier participation in 2016, fewer plans, and lower premiums. These markets may experience higher premium increases and continued low carrier participation, which will inhibit enrollment gains.

UnitedHealth Group announced that it will exit 26 markets and participate in three. The company has not announced a decision about five others. In states where UnitedHealth Group is exiting, the insurer was priced relatively lower than others, and there tended to be a higher-priced Blue plan in the marketplace. Exit states weak markets with fewer plans, less growth in the number of plans, a smaller range in premium prices, and below average premiums—despite average or above average premium increases from 2015 to 2016.

UnitedHealth Group may have concluded that, due to the small size and low level of activity in certain markets, there would not be enough additional enrollment to offset negative claims experiences, and that it would be hard to raise premiums enough to stop losing money with enrollees. If other carriers follow suit, weak markets may become weaker as they lose carriers and/or experience above average price increases. Humana seems to have positions in weak markets and is priced relatively low in many of them. Humana’s decisions about exiting markets suggests that it may be seeking to reduce its presence in weak markets.

ACA Participation Boosts Pressure on Blue Plans

Blue Cross Blue Shield (BCBS) plans saw a 75% drop in net income from 2013 to 2015, according to a report by A.M. Best. BCBS plans faced a higher risk population in the ACA exchanges. The drop in earnings can also be blamed on higher costs of generic prescription drugs and expensive new specialty drugs. BCBS plans saw a 35% drop in underwriting earnings in 2015 and a 35% drop in investment income from 2013 to 2015. Also, the ACA health insurer fee resulted in a 1.3% decline in consolidated earnings in 2015. The fee has a greater effect on net income since is not tax-deductible.

High enrollment morbidity in the ACA exchanges has a large negative financial effect on the whole industry, including BCBS companies. Carriers are trying to attract younger and healthier enrollees through active outreach, technology, and customer engagement. BCBS companies are looking to control the cost of care through narrow networks, disease management programs, better care coordination, and increased provider collaborations. These initiatives are particularly important in saving money by providing appropriate quality care for higher-risk individuals. A.M. Best expects the earnings pressure to continue at BCBS companies. The lower earnings and growth in premiums from increased membership may drive down of risk-adjusted capitalization.

Net-premiums grew 14% over the past three years for BCBS companies. The increase has been greater at publicly traded companies, which tend to be more active in Medicaid managed care and Medicare Advantage. Both of these programs have had stronger enrollment growth form the aging U.S. population and Medicaid expansion through the ACA.

Last Updated 10/14/2020

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