With Aetna joining UnitedHealthcare and Humana in an exodus away from public insurance exchanges, some believe the Affordable Care Act marketplaces are in danger of complete collapse. Large insurers are posting huge losses on their ACA plans, but payers with experience in narrow networks are enjoying success. While the demise of the ACA is unlikely, it may end up looking a lot different than intended.
When the ACA was enacted in 2010, its architects envisioned robust public marketplaces where multiple private payers offered competitively priced insurance plans. They assumed enough healthy, young individuals and high-income earners would purchase plans to offset the costs of providing coverage to individuals requiring costly healthcare services and low-income earners purchasing subsidized, low-cost plans.
However, this hasn’t been the case. In 2010, the Congressional Budget Office predicted 21 million would purchase insurance through the ACA exchanges in 2016. By March of this year, the CBO’s enrollment estimates for 2016 had dropped to 12 million. Around 85% of consumers who enrolled through an ACA exchange receive subsidies.
It simply isn’t an attractive market for most private payers, said Edmund Haislmaier, senior research fellow for the Heritage Foundation Center for Health Policy Studies, in an interview with Healthcare Dive. “You’re looking at a fairly modest-sized market, skewed toward lower income populations who are older and in poorer health.”
Private payers may have been excited by the prospect of selling plans on ACA exchanges at one point, but that excitement has begun to waver the longer they wait for young, healthy people to purchase them.
“Though some of them continue to participate in these markets, many have changed their tone even in recent months from cautious optimism to concern,” Cynthia Cox, associate director of the Kaiser Family Foundation Program for the Study of Health Reform and Private Insurance, told Healthcare Dive in an email.
Their concern only grows as losses mount. United Healthcare, Aetna, Humana, and Anthem, the nation’s largest private payers, are each on track to lose hundreds of millions on their ACA exchange plans in 2016. Now, three of the four, as well as many smaller private payers, intend to scale back their participation and there is little to no competition on ACA exchanges in some areas.
With only one or two private payers offering ACA plans in some regions and with just a small portion of the population willing to purchase them, the ACA exchanges are looking more like Medicaid managed care programs than the robust marketplaces the law’s architects intended, Haislmaier said. “Recognize this for what it is: A limited program for a limited population.”
Vision versus reality on ACA exchanges
If ACA exchanges are beginning to resemble Medicaid managed care programs, it makes sense the private payers enjoying the most success are the ones with experience administering Medicaid plans. “Some companies, such as Centene, which offered Medicaid plans before entering the exchanges, are doing well financially,” Cox said. “Insurers that have experience serving low-income people who are price-sensitive have generally had more success in these markets.”
Approximately 30% of private payers profited off of their ACA exchange plans in 2014, according to a McKinsey Center for U.S. Health System Reform report updated in May. The private payers achieving success on ACA exchanges are primarily those that offer narrow network plans typically seen in Medicaid managed care programs. Profit margins on ultra-narrow network plans averaged -2% while profit margins on broad network plans averaged -8%.
While budget plans offering skimpy coverage weren’t part of the picture when the ACA was being sold to the general public in the early days of Obama’s presidency, they may end up driving its success. “I would expect that if enrollment continues to grow and insurers reenter the market, they will come back with more narrow network products,” Cox said. “By restricting the provider network, they can price their plans competitively and attract enrollees while still containing their costs.”
If large private payers like Aetna and UnitedHealthcare want to commit to ACA exchanges, they will likely need to adopt a narrow network model to break even or profit off of their participation. Could they do it? “Yes,” Haislmaier said. “Is it worth it, is another question. The entire individual market is a tiny fraction of their business.”
The grand vision for the ACA may never be realized. The reality, for now at least, is that low-income uninsured individuals will only pay for the coverage provided by narrow network plans and healthy high-income earners seem unlikely to buy in. However, nationwide availability of Medicaid managed care-like health plans can still help the uninsured. After all, a large component of the ACA already relied on Medicaid expansion to improve coverage rates. “It’s not surprising that it’s working out to be exactly that,” Haislmaier said.