Fixing the insurance exchanges

Like basketball players who are sick of losing a game, many health insurers who ventured into the new marketplaces are sending a clear message: We're taking our ball and going home.

And if the government wants them to play again, they want more of the rules changed.

The large publicly traded insurers wrapped up second-quarter results last week. Adverse selection continued to weigh down the finances of health plans on the Affordable Care Act marketplace. More companies are dropping enrollment to satisfy investors.

But many health policy experts say the Obama administration will alter the still-nascent exchanges to make them more financially palatable for insurers. The marketplaces also will shift to even more high-deductible, narrow-network plans that are common in managed Medicaid.

“I do remain bullish on the marketplaces,” said Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation who follows health insurance. “You need to have the right products and right regulation, and you'll get the right customers. But we're not there yet.”

UnitedHealth Group, which is abandoning most of the exchanges, reported an additional $200 million of ACA plan losses in the second quarter. Anthem enrolled higher-than-expected numbers of chronically ill members, and it is making its ACA expansion contingent on federal approval of its Cigna Corp. acquisition. Humana is ditching most of its on-exchange policies and all of its off-exchange ones.

Aetna soured on its ACA business after claims data showed higher use of pricey specialty drugs. The company expects to lose $300 million on the marketplace this year and won't expand its exchange footprint in 2017.

“We believe it is only prudent to reassess our level of participation on the public exchanges,” Aetna CEO Mark Bertolini said during the company's recent investor call. If regulatory changes are not made, “this could get a lot worse,” he warned.

Medicaid insurers Centene Corp. and Molina Healthcare, however, have profited on their ACA plans. Their high-deductible, limited-network plans appeal to healthy people who want the cheapest coverage.

Many other insurers built exchange plans that mirrored employer coverage: higher premiums with a broader selection of hospitals and doctors. That appealed to sicker people who expected to use more medical care and wanted provider choice and fewer out-of-pocket costs, said Craig Garthwaite, a health economist at Northwestern University.

But insurers can adjust, Hempstead said. “It's not like these other carriers don't know how to be a Medicaid (insurer).”

So what will change? Larger premium increases for those big insurers staying in and fewer options. “What I think is working, where it is working, is where we have very tight narrow networks,” Aetna President Karen Lynch said during the earnings call. Several not-for-profit Blue Cross and Blue Shield plans—most recently the Minnesota Blues—have cut popular PPO products in favor of HMO plans.

Other changes likely will come on the regulatory side, and the Obama administration already has implemented some. For instance, at the insurance industry's behest, the CMS made it harder for people to sign up for coverage outside of the annual open enrollment. The CMS also said it will modify the law's risk-adjustment program and limit the use of short-term health plans.

Joel Ario, a former CMS official who now works at Manatt Health, said some states may extend the law's temporary reinsurance program. The roughly 1 million people with grandmothered, or transitional, policies who will flood the exchanges in 2018 also will help balance the risk pool, said John Holahan, a health policy fellow at the Urban Institute.

Insurers likely will continue to push for other measures, such as an increase to the age-rating band, said Elizabeth Carpenter, a senior vice president at Avalere Health. Under the ACA, companies can charge older people only three times as much as younger people. Insurers want that ratio changed to at least 5 to 1, which ACA supporters have opposed.

Ultimately, the exchanges need more people to enroll, Ario said. In 2015, the Congressional Budget Office anticipated there would be 21 million members by 2016, but employers have not dumped their workers onto the exchanges as expected.

That represents one of the ways the ACA works against itself. The exchanges need healthier people who don't use a lot of care to sign up, but many are receiving minimum coverage because of the employer mandate.

“It's going to be hard for employers to get rid of health insurance,” Garthwaite said. “People are not going to tolerate that.”