When it comes to the public insurance exchanges, the Affordable Care Act's indisputable centerpiece, there is no shortage of issues. The approximately 12 million enrolled is far lower than the 21 million to 27 million originally projected. Enrollment in the under age 35 category—the group insurers covet most to stabilize risk pools—is only 28%. Medical costs are 22% higher. Major insurers are defecting. A majority of counties have three or fewer insurers. And 2017 rate filings are higher than 2016 filings.
But these aren't the causes of suboptimal performance. They're the effects of several deeper, interconnected problems.
The first problem lies with the allocation and assumption of risk between insurers and government, i.e., “the risk model.” Consider heart patient Mrs. Smith with a $6,850 annual out-of-pocket maximum (assuming she's ineligible for cost-sharing subsidies) and $21,500 in annual medical costs. For costs beyond the annual maximum, insurers concurrently assume full risk for every enrollee like Mrs. Smith, which in her case totals $14,650 ($21,500 minus $6,850). Yet, in the exact opposite manner, government retrospectively assumes partial risk at the aggregate level, and does so through three complicated programs, two which expire in 2016.
The second problem is negative consumer perception created by certain design elements insurers build in to their products in an attempt to limit their risk but which many consumers find undesirable. They include high deductibles—which shift most routine and discretionary care costs to consumers, forcing many to forgo treatment—as well as narrow networks, which restrict provider choice. Then consider Chloe who makes about $24,000 a year and enrolls in a silver-tier exchange plan. Even with premium and cost-sharing subsidies, she still has to pony up about $1,500 in premiums plus $5,200 in out-of-pocket costs, assuming a deductible in the $3,000 range that must be met before most benefits kick in.
It's no wonder that many believe exchange plans are nothing more than empty shells of porous coverage with little economic value and that participation rates are flat.
One remedy is to systemically change the underlying risk model where government and insurers concurrently share risk for every enrollee. Under this approach, insurers would cover most routine and elective/discretionary care costs up to a pre-defined annual dollar limit (and continue cost-containment efforts through pharmacy cost management, accountable care organizations, etc.) while government would cover more expensive costs.
Similar to pre-Obamacare limited medical plans, re-designed exchange plans would provide a maximum annual coverage amount of say $40,000 a person. That should be more than enough for 90%+ of the non-elderly population given that annual healthcare spending averages about $12,700 for women and $10,100 for men.
For higher-cost patients such as those waging a prolonged battle with cancer, government-sponsored coverage would wrap around the core limited medical plan and fully pay for excess costs per a Medicare-like fee schedule. Further, insurers would continue providing care management to influence positive health outcomes with government reimbursing a modest care-management fee.
There are numerous benefits to a new model where each party assumes a share of the risk on a concurrent, per-individual basis.
Insurers will be better able to create a new generation of products that include more-affordable deductibles and coinsurance plus reasonable copays for office and urgent-care visits. This will increase the insurers' chances of enrolling both a higher number and a better mix of enrollees, providing better risk-pool stability. Further, insurers, knowing in advance exactly how much risk they are assuming, won't have to price-in the cost of unpredictable catastrophic care. This will both lower premiums and lessen the reliance on government premium subsidies, which make plans artificially affordable.
Consumers will have a new generation of more attractive plans to choose from, driving higher participation rates. Plus, unlike old-school mini-med plans that left consumers exposed beyond the annual limit, they'll have full protection for all costs exceeding the annual maximum. Providers will reduce bad-debt expense because patients can better afford out-of-pocket costs. Government and insurers work together on every higher-cost patient to achieve desirable health outcomes because their incentives are better aligned.
While actuarial analysis and validation are needed, net national costs logically should decrease. Even at 20 million enrolled in a “next gen” plan where 2% (400,000 enrollees) incur costs greater than the annual dollar limit, government's share of the total spend should be less than federal subsidies, scheduled to grow to a whopping $137 billion in 2024.
Though admittedly imperfect, this essay proposes a new public-private partnership model that increases exchange enrollment by fundamentally overhauling the current risk model, helping our nation move a step closer to achieving one of healthcare reform's key original goals—fewer uninsured.
Joseph Murgo is a former president of Aetna's Strategic Resource Co. and a career healthcare industry executive. He is a frequent national speaker and writer on healthcare reform. Jonathan Topodas, a former Aetna vice president and counsel, also contributed to this op-ed. The opinions expressed in this essay are their personal views and do not reflect views of past employers.
