As the June deadline for payers to decide whether to continue in the Affordable Care Act (ACA) exchanges and set their rates is approaching, insurance companies are running the numbers, reviewing their member populations and analyzing how they’ve made out on the exchanges market over the past year. But it’s not just their numbers that are influencing the decision.
What’s happening in Washington is also playing a major role — specifically, whether Republicans will pay cost-sharing reduction (CSR) payments to insurers. The payments help insurers cover lower income Americans.
Earlier this year, President Donald Trump threatened to stop CSR payments unless Democrats supported the American Health Care Act (AHCA). The House narrowly passed a second version of the bill without Democratic support earlier this month.
Last week Trump reportedly told staff he was still considering withholding payments to push the hands of those reluctant to support the AHCA, so payers and patients advocates are quite leery of what would happen to the exchanges market if CSR subsidies stop.
Without those payments, insurance companies warn of higher rates and more payers dropping out of the exchanges market.
Beth Fritchen, partner at Oliver Wyman Actuarial Consulting, told Healthcare Dive that the best way to describe payers in the exchange market is “hesitant.”
“CSR is definitely something people are looking at and watching for,” Fritchen said.
Payers are also waiting to see the Senate’s healthcare reform, which will likely look quite different than the House bill.
ACA exchanges market stabilizing
You wouldn’t know it from the drumbeat from Washington, but one recent study found that the ACA exchanges market is stabilizing after years of losses.
A Kaiser Family Foundation study found that the individual market insurers’ medical loss ratio, which is the percentage of premium dollars that an insurer spends on medical claims, dropped 7 percentage points between 2015 and 2016 to 96%. That’s the best number since the ACA created exchanges, but is still higher than the 85%-90% figure needed to make the individual market profitable.
Despite those improved numbers, payers are still uncertain about the exchanges. Insurance companies usually don’t like the unknown, but that’s what they’re facing in the healthcare industry and specifically the individual market.
Brian Wright, senior financial professional at communications and advisory firm ICR, told Healthcare Dive that the unease comes because payers need a risk pool that doesn’t change dramatically from one year to the next.
The Center on Budget and Policy Priorities said the uncertainty will lead to higher rates and fewer insurers willing to continue in the exchanges. To stabilize the market, the group suggested Congress stop talking about repealing the ACA and focus on improving the current law.
Stopping short of agreeing not to repeal the ACA, there are other ways that Congress can help stabilize the market. America’s Health Insurance Plans President and CEO Marilyn Tavenner spoke before the Senate Committee on Health, Education, Labor and Pensions in February about the need to stabilize the individual health insurance market. Tavenner gave short-term and long-term solutions that she said would create “lower costs, more choices and better quality care.”
For this year, AHIP suggests continuing the CSR payments, creating premium tax credits, which help make coverage more affordable, and fully pay federal reinsurance payments for 2016. The reinsurance program helps cover high-need people, including those with chronic conditions.
Who’s in, who’s out for 2018?
As some payers have announced they are cutting back on the ACA exchanges or even pulling out completely in 2018, those who support repealing the ACA have stoked that instability to their advantage. ACA foes say payers pulling out shows that the exchanges are in a “death spiral,” but others point to the ACA foes as the ones promoting the fears, which lead to uneasiness.
So, where are we at this point in the ACA exchanges market? Aetna announced it is leaving the exchanges in its remaining states — Delaware, Nebraska, Iowa and Virginia. The payer said it could lose $200 million this year for its individual insurance after losing nearly $700 million between 2014 and 2016.
Wellmark Blue Cross Blue Shield is another payer that’s completely dropping out. The company will drop the exchanges plans for next year after reportedly losing $90 million from them over the past three years. Wellmark already dropped out of South Dakota’s exchanges last year.
A former big player in the exchanges market, UnitedHealth, scaled back from 34 states to three this year. For 2018, the company said it will remain “in only a handful of states.”
Not all payers are leaving the exchanges. CareFirst BlueCross Blue Shield plans to stay in the Maryland, Virginia and D.C. exchanges despite losing $500 million on the exchanges so far and another $100 million expected this year. Though the payer is staying, CEO Chet Burrell said the insurer plans a 58% increase for individual insurance plans next year.
BlueCross BlueShield of Tennessee announced last week that it planned on moving back into 16 counties in eastern Tennessee that would not have had any insurers in the exchanges after Humana announced it was pulling out in 2018. Humana is down to fewer than 200,000 members in the individual market in 11 states this year and plans to stop offering all ACA exchanges plans in 2018. Instead, it will redouble efforts on Medicare offerings.
Anthem is also expecting to stay in the exchanges. The company, which has 1.1 million members in ACA exchanges, is working on 2018 rates.
Kaiser Permanente is also staying onboard. Though acknowledging the market instability, Chief Executive Bernard Tyson recently said the market isn’t in a “death spiral.”
Will more drop out? Oliver Wyman conducted a survey in early April and asked insurers about the 2018 ACA exchanges markets. Of all the payers surveyed, a “vast majority” said they are committed to the exchanges, though they are still cautious. Only one survey respondent said it plans to leave the exchanges.
The survey also found that 70% of respondents expect to stay in the exchanges without any major strategy shift in 2018. The remaining 30% said they are looking for ways to stabilize their ACA lines of business, including modifying plan offerings, such as eliminating gold-level plans, and changing to plans with tighter benefit design, such as HMOs or narrower network plans, according to the survey results.
Nearly half of respondents said early April was too early to determine rate increases. However, for those that were ready to set rates, half of respondents said they plan to increase rates by 10% to 20%. One-quarter said they planned to increase rates by less than 10% and the other one-quarter said they expect to raise rates more than 20%. The average rate increase was 22% in 2017.
Fritchen says that disparity isn’t surprising given the exchange market's fluidity. That said, Fritchen says payers are cautiously moving forward and some states have even said they will allow insurers to set rates and then change them if there is a new development, such as no CSR payments.
“Their number one goal is solvency,” she says.
The survey results found that payers plan to wait as long as possible before setting 2018 rates in hopes of getting more guidance from the government.
One important thing to remember about the survey is that it was conducted in early April. The longer payers don’t get reassurances that CSR payments are on their way, the more instability for the market and the greater likelihood that some payers may decide to drop out.
How much will rates increase? Cori Uccello, senior health fellow at American Academy of Actuaries, told Healthcare Dive “premium rate changes for 2018 will vary by state, and will reflect cost trends and changes in expected enrollment and composition of the risk pool.”
Uccello says factors that will affect decisions include the CSR payments, “whether the individual mandate is enforced, and the effects of new regulations that shorten the open enrollment period and tighten special enrollment rules.”
Payers will also soon know what risk-transfer payments they’re getting from the federal government. These numbers traditionally come at the end of June. The payments pay insurers for coverage, which keeps premiums and out-of-pocket costs lower than if there were no payments. You can expect rates to jump if the federal government decreases those payments.
Payers to watch
There are insurance companies whose decisions will greatly influence the ACA exchanges debate. Here are three payer decisions to watch, whose decisions could cause people with no option in the exchanges:
Anthem — The only payer in 59 counties in Kentucky.
Centene — The only option for all exchanges in Mississippi.
Cigna — The only insurer in 14 counties in Tennessee.
If any of these three pull out of those markets, there could be counties with no insurer option in the exchanges market, which could cause panic and send states scrambling. An insurer pulling out of those counties could lead to more uninsured or people going onto Medicaid, which will affect payments to hospitals and doctors.
What do unease and fluctuations mean for healthcare industry as a whole?
CSR payments don’t directly affect hospitals and doctors. These payments help payers cover lower income Americans. However, cuts to the CSR payments would lead to rate increases for individuals.
It could even cause payers to leave the exchanges. If rates skyrocket or if payers pull out, more Americans could be uninsured or go onto Medicaid, which has lower reimbursement rates than private payers. At that point, hospitals and doctors would feel the pain of uncompensated care and lower payments.
How does location affect payer decisions about whether to stay in exchanges?
Before the ACA, there was wide variety in regard to state regulations. Some states required certain types of coverage, while others had fewer mandates. The ACA leveled out a lot of those regulations and created a single risk pool.
However, states do vary in terms of population, cost, competition and provider networks. Payers with experience already in particular states know the market, the competition and how to price rates adequately. Highly competitive exchanges markets actually bring in more payers.
A recent Robert Wood Johnson Foundation study found that more competitors lead to lower premiums. Regions with only one or two insurers “tended to be sparsely populated and heavily concentrated in southern states.”
States with fewer rate fluctuations bring in more payers, said Fritchen.
Payers look at pricing, network strength and their relationships with provider networks when deciding whether to stay in a market or expand into another one.
“For the most part, they’re going to look at their block of experience to date and can they sustain any losses or can they fix it,” said Fritchen.
The future of the individual market
No one knows what plan the Senate will bring forward. There is only a two-vote swing in favor of the Republicans so the Senate will need to create a plan that doesn’t lose more than two Republican votes unless they get Democrats to support their plan.
Centralist Republicans will push for a similar ACA system or maybe even tweaks to the current system. They will also want to avoid Medicaid cuts. Conservatives, on the other hand, will want Medicaid cuts and will look to completely repeal the ACA.
Threading that needle will likely mean an even more difficult process than the onein the House, which narrowly passed the AHCA earlier this month.
What they decide and whether the government will continue to fund CSR payments will be major factors as to whether payers continue in the ACA exchanges or flee the market.