Hillary Clinton proposes policy changes to strengthen the Affordable Care Act's individual insurance markets. But if the ACA markets are so flawed, as policymakers and insurers claim, why have some insurers succeeded in those markets while others have floundered?
A new Politico article blames ACA exchange plan woes on policy errors by the Obama administration, Republican moves to sabotage the law's financial protections for insurers, and pricing mistakes by insurers resulting from their lack of experience in these new markets. It highlights Blue Cross and Blue Shield of North Carolina, which reported losses on its Obamacare business of $405 million in 2014 and 2015 and whose CEO blamed the losses on an unhealthy, high-cost exchange population.
“The pool is far less healthy than we forecast,” Brad Wilson, the insurer's CEO, told Politico.
Part of that diagnosis is undoubtedly accurate. But a May report by the McKinsey Center for U.S. Health System Reform found wide variation in financial performance among insurers, and that many are turning a profit on their exchange business. So just turning to policymakers for solutions isn't enough, particularly when the federal government is deadlocked.
In 13 states, more than half of insurers earned a profit in the individual market in 2014, the first year the exchanges operated. In six states, more than 75% of insurers had positive margins. That contrasted with 18 states in which less than 5% of insurers turned a profit. Preliminary reports for 2015 indicated that close to one-fourth of insurers saw profits in the individual market.
The Politico article said “there are no simple explanations for the huge difference in financial performance” between Obamacare insurers.
But the piece lets Wilson's company and other carriers entirely off the hook for the big losses they have incurred. And it ignores the tentative conclusions of the McKinsey report, upon which it drew heavily, about the reasons for success and failure.
The Politico piece also overlooks the significant role played by the lack of Medicaid expansion in 19 states, which many experts say has contributed to a sicker population signing up for exchange plans. Of the 18 states where less than 5% of insurers turned a profit in the exchanges, 12 had not expanded Medicaid to low-income adults as of 2014.
The McKinsey authors found that how plans operated in the exchange markets, particularly their benefit designs and breadth of their provider networks, significantly affected financial performance. HMO-type plans experienced lower losses than PPOs, and plans with narrow hospital networks had better margins and lower claims than broad-network plans did. Also, plans with narrow networks had lower median premium increases than broad-network plans did in both 2015 and 2016.
“There are… specific actions carriers can take to improve near-term performance on the public exchanges and position their businesses for longer-term sustainability,” the authors wrote. To succeed in the ACA individual markets, “many carriers may have to develop a fundamentally different business model – the commercial segment model is not viable for the public exchanges.”
In North Carolina, Blue Cross and Blue Shield, which has 300,000 exchange enrollees and is the only insurer offering plans in every county, hiked individual-market premiums 32.5% last year and has asked for an average 18.8% increase for 2017. The insurer warned that it may exit the exchange market in 2017. It will decide by August, after it receives a state decision on its rate increase request.
Wilson, the insurer's CEO, has asked the federal government for policy changes to make the exchange market more financially viable for insurers, including more tightly enforcing the requirement for people to buy coverage and delivering the promised risk-protection payments to insurers that enrolled sicker populations.
But Blue Cross and Blue Shield of North Carolina lost more than 40,000 customers during the 2016 open enrollment period while it was experiencing severe information technology problems, which the state insurance commissioner is currently investigating. That IT glitch may have cost the company lots of healthier members, said Ciara Zachary, a health policy analyst at the North Carolina Justice Center.
In addition, the North Carolina Blues plan, like other insurers in the state, has been slow to shift to managed care, narrower networks, and more coordinated care for members with chronic health conditions, she said. “This is a new world that the Blues plan is still learning about,” she said, calling the North Carolina market somewhat backward compared to other parts of the country.
Insurance Commissioner Wayne Goodwin, a pro-ACA Democrat who's running for reelection, blamed part of the Blues plan's financial problems in the exchange on state Republican leaders' refusal to expand Medicaid. An expansion, he said, would shift sicker people into Medicaid and leave private exchange plans with a healthier, lower-cost population.
Zachary agreed, noting that the lack of Medicaid expansion has forced many low-income people who badly need healthcare to pay premiums they can't necessarily afford to buy private coverage through the exchange. “Some of the higher-need and higher-cost patients, who haven't had insurance for a long time, would benefit more from Medicaid expansion,” she said.
Joel Ario, a former Obama administration official who helped establish the exchanges, said both regulatory changes and improved operations by insurers are needed. On the regulatory side, the federal government and the states have to offer insurers adequate reinsurance mechanisms to protect them against unforeseeable costs associated with sicker members. On the plan side, more insurers need to tighten their networks, lower their costs, and make primary care more accessible and affordable by taking those basic services out from under the deductible.
“You have to do both,” said Ario, managing director of Manatt Health, a health policy consulting firm. “The government should honor promises around the risk corridors. But it's also important to look at why some plans are succeeding and what other plans can learn from them.”
There's plenty of hand-wringing about the exchanges. But before we try to solve these problems by spending lots more federal taxpayer money and potentially shifting more costs and imposing more restrictions on consumers of modest means, let's take a closer look at what insurers and state leaders can do to make the exchange markets work better.
