The startling withdrawal of Aetna from many Affordable Care Act exchanges has accelerated the search for ways to preserve competition in those markets.
Options being considered include establishing government-run plans and requiring insurers to offer exchange products as a condition for participating in Medicare Advantage or Medicaid managed care—or as a concession for proceeding with proposed mergers.
In addition, policymakers are eyeing ways to increase enrollment of younger and healthier enrollees, hike premium subsidies to make coverage more affordable, and better protect insurers against the risk of high-cost enrollees.
With the November elections approaching, ACA supporters feel a growing sense of urgency to make the exchange markets more financially viable for insurers and affordable for consumers. That's because many Americans are becoming alarmed about premium hikes insurers are requesting in the individual market and about health plans exiting the exchanges.
“In the Senate and House races, Republicans will say the ACA isn't going well, premiums are going up, companies are leaving, and we really need a substitute,” said Robert Blendon, an expert in healthcare politics at Harvard University. “It gets people very nervous.”
ACA supporters say Aetna's announcement Monday that it will withdraw from 11 of the 15 states where it currently offers exchange plans will give a boost to proposals by President Barack Obama and Democratic presidential candidate Hillary Clinton to establish public option plans. Obama recently proposed creating public plans in areas where competition is limited, while Clinton has laid out a broader proposal to launch government-run plans to compete against private insurers and to encourage states to seek waivers to create such plans.
“This should give momentum to the public option,” said Sabrina Corlette, a health policy expert at Georgetown University who co-authored a new report on strategies to stabilize the exchange markets. “If carriers don't want to play, why should they object to having a fallback public plan?”
The Center for American Progress, whose president is a close adviser to Clinton, is exploring the legality and operational details of establishing a linkage between participation in exchange markets and other public healthcare programs. One challenge is making sure insurers offer a genuinely competitive exchange plan rather than just going through the motions in order to be able to continue offering Medicare and Medicaid products, said Topher Spiro, CAP's vice president for health policy.
Nevada's state-run insurance exchange already ties exchange participation to its contracts with Medicaid managed care plans. Anthem and UnitedHealthcare offer both exchange plans and Medicaid plans in that state, and the arrangement is “working pretty well,” said Bruce Gilbert, executive director of the state-run Silver State Health Insurance Exchange in Nevada.
Along the same lines, Florida insurance regulators, as part of a recent agreement with Aetna approving its merger with Humana, recently required the insurer to expand its offerings on the state exchange to five additional counties by 2018 and extend its reach even further by 2020. That was before the U.S. Justice Department filed suit last month to challenge the $37 billion Aetna merger, as well as Anthem's proposed $53 billion merger with Cigna.
The federal government has required insurers that have more than 20% of the small-group market in a state to participate in the ACA's Small Business Health Options Program exchange. Insurers don't like the requirement but they've gone along with it, experts say. In addition, some states, such as Maryland, require insurers that want to sell individual-market plans off the exchange to offer products on the exchange as well.
Some experts say the Obama administration or a Clinton administration could have room to bargain over exchange participation with Aetna and Anthem, either before court resolution of their merger battles with the Justice Department or afterward if they win approval. “It has come up as a possible remedy in the antitrust cases—the mergers would be approved contingent on marketplace participation,” said Tim Jost, an emeritus law professor at Washington and Lee University. “I guess it could be part of a settlement.”
But insurers are certain to fight hard against the public option approach. Neither do they like the concept of establishing any linkage between offering exchange plans and participating in Medicare and Medicaid. “We would oppose conditional participation,” said Jeff Myers, president and CEO of the Medicaid Health Plans of America, a trade group. “I understand the political logic. But the markets are so fundamentally different that it would make no sense for states to require Medicaid plans to move into the exchange market.”
Some argue that it makes public policy sense to require insurers to participate in the exchange markets given that they are reaping significant revenue and profits in the Medicare Advantage and Medicaid managed care businesses. Commercial insurers including Aetna, Anthem, UnitedHealthcare and Humana are expanding in the Medicare and Medicaid markets even as they are pulling out of the exchange business.
In April, Aetna CEO Mark Bertolini announced a record $6.5 billion in government program premiums for the first quarter of 2016, up 13% over the same quarter in 2015. At that time, he told shareholders that the ACA was a good investment. The following month, Aetna announced plans to expand to exchanges in five more states.
But on Monday, Bertolini said his company, which has about 838,000 exchange enrollees, lost more than $300 million on its exchange business so far in 2016. Its withdrawal from some states will sharply reduce competition. For instance, Aetna's departure could leave Pinal County near Phoenix with no insurers offering plans on the exchange next year.
Similarly, UnitedHealth reported in July that its Medicaid revenue increased 14.7% to $8.3 billion year over year. But in April, it reported that its total ACA losses for 2015 and 2016 will exceed $1 billion, and that it would pull out of most of its exchange markets in 2017.
Aetna's and UnitedHealth's experiences are not universal. A May report by the McKinsey Center for U.S. Health System Reform found that many insurers are turning a profit on their exchange business. 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 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.”
Some observers saw Aetna's exchange turnaround Monday as a ploy to put pressure on the government to approve its merger with Humana. Sen. Elizabeth Warren (D-Mass.) accused Aetna of using exchange participation as “bargaining chips to force the government to bend to one giant company's will.”
“The timing is pretty coincidental with the merger battle,” Spiro said. “This highlights the danger of allowing these mergers to go through. By just threatening to withdraw from the ACA exchanges, they can force the government to change any number of policies.”
A big question is how much the Obama administration or a Clinton administration could do to fix the exchange market problems administratively, without getting legislation through a Congress where Republicans opposed to the ACA have a powerful say. Corlette said willing states could seek Section 1332 waivers under the ACA to establish public plans to boost competition on their exchange.
Or, as others suggest, states could establish a Basic Health Program authorized by the ACA, as New York and Minnesota have done, to reduce premiums and out-of-pocket costs, facilitate continuity of coverage and providers, and boost the percentage of the uninsured who obtain coverage.
Beyond that, the Obama administration signaled last week that it will propose a rule to help insurers shoulder the cost of very sick enrollees by having all insurers pay a small fee to cover those high-cost cases.
But increasing premium subsidies to make coverage more affordable for younger, healthier, and somewhat more affluent consumers would require congressional action, which looks doubtful unless Democrats win control of both the House and Senate in the November elections. In contrast, when private plans were fleeing Medicare managed care in the late 1990s and early 2000s based on complaints about losing money, congressional Republicans joined Democrats to boost payment rates.
“Post-election, I hope there will be an appetite to look at this in a more pragmatic and consumer-oriented way,” Corlette said.
Spiro worries more about public perception than about the fundamental viability of the exchange markets. He thinks the problems faced by insurers like Aetna stem from their earlier rate miscalculations and the looming phase-out of the ACA's three-year program to protect them from the costs of signing up disproportionately sick enrollees. He pointed to good news in last week's report from the CMS that insurers' costs per member in the exchanges were flat from 2014 to 2015 and that the states with the highest enrollment growth saw significant reductions in per-member costs.
“People go straight for the apocalyptic scenario because that makes news,” he said. “But all the evidence I've seen suggests the situation is stable and we need to stay the course.”
