If 2017 was a year of regulatory unknowns, 2018 was when health insurers and other industry stakeholders started getting answers. The Trump administration offered insurers and states extra tools to sidestep the Affordable Care Act in lieu of a full repeal of the healthcare law. And in an environment of rising costs and new competition, insurers sought courtships that further blurred the lines between payers and providers.
Still, a Dec. 14 ruling by a federal judge in Texas declaring the ACA unconstitutional thrust the health insurance industry back into an environment of uncertainty that threatens the future stability of the individual market. Health insurers and their lobbying groups rushed to reassure plan members that their coverage remains the same for 2019.
The Trump administration issued rule after rule in 2018 loosening the reins on the types of coverage that insurers could sell to employers and consumers, while also handing more power to states to govern their insurance markets as they see fit.
States responded to newfound flexibilities in varying ways, with some Democratic-leaning states working fast to limit the impact of what they considered the administration's assault on the Affordable Care Act. Others sought to topple the ACA's rules within their borders. What's unfolding is a divergence in the access to and affordability of health coverage across the 50 states—gaps the ACA sought to fill.
“What we've seen is a move back more toward state efforts and flexibility, whether it's in terms of trying to address some of these regulatory actions by the administration but also trying to address the affordability challenges (of the individual market), recognizing that there was gridlock in Washington and an inability to get something done legislatively,” said Matt Eyles, CEO of industry lobbying group America's Health Insurance Plans.
In the name of consumer choice, the administration expanded access to health insurance with fewer benefits and protections than ACA plans but with an attractive lower price tag. One rule extended the duration of short-term health plans from a maximum of three months to 12 months with the potential to be renewed for up to three years. Another allowed more employers and individuals to join together to buy health insurance in association health plans able to skirt the ACA.
Critics decried the moves, fearing that wider access to plans that don't comply with the ACA—coupled with the zeroed-out individual mandate going into effect in 2019—would lure healthy people away from the individual market, causing premiums to spike for those left behind. While some individuals are beginning to enroll in short-term plans in 2018, the full effects of the rules will start to be felt next year. Already, insurers like UnitedHealthcare are offering association health plans around the country.
“It can be very disruptive to the market, because if we don't have the proper risk pools, then the market forces tend to just fall apart,” said Michael Cropp, CEO of Buffalo, N.Y.-based insurer Independent Health.
Much will depend on how states respond to the federal rules. Some have already shown their cards, moving to limit or prohibit short-term plans or essentially nullifying the association health plan rule. Still, Republican-leaning states like Iowa and Nebraska have embraced the opportunity to offer residents access to cheaper coverage.
In other ways, states have become laboratories for experiments to increase insurance affordability or rein in spending. Some took steps to prop up their individual markets in the face of federal administration moves that could weaken them, opting to implement their own state-based mandates for coverage. Many secured 1332 innovation waivers to build reinsurance programs to lower premiums and encourage enrollment in the exchanges.
States soon could take advantage of new CMS guidance making it easier for them to obtain waivers to sidestep certain aspects of the ACA and lifting restrictions on the types of changes states can make. Those changes could include diverting federal subsidies to help consumers buy short-term plans, further threatening the individual market, critics have warned.
New flexibilities extend beyond the individual market to Medicare Advantage and could accelerate enrollment in privatized Medicare plans—a lucrative market for insurers. The federal government finalized a rule allowing Advantage insurers to offer supplemental benefits in 2019 that go beyond medical care and address the social determinants of health. Those could include home-delivered meals, in-home care and transportation. It further proposed expanding Advantage members' access to telehealth services in 2020.
While the federal government historically insisted on an even playing field between traditional Medicare and Medicare Advantage, “now they're OK with these programs looking more and more different from each other if (they) think there are benefits to it and beneficiaries still have a choice,” said Erin Trish, associate director of health policy at the University of Southern California's Schaeffer Center. “That's a different vibe than in the past.”
The ability of Medicare Advantage plans to provide nonmedical benefits that address patients' lives outside of the doctor's office are in line with the broader insurance industry's shift toward addressing social determinants as part of the business model rather than a side project or philanthropy. The Blue Cross and Blue Shield Association, for instance, launched an institute in 2018 to test whether it can improve access to transportation, food, pharmacies and fitness centers in a sustainable way.
“We have to go beyond the walls of the doctor's office, beyond the traditional role of health insurers, even beyond the healthcare system itself and into the local community,” explained Scott Serota, CEO of the Blues association.
Meanwhile, seeking to lower healthcare costs and fight off potential threats from outsiders like Amazon, health insurers made headway on multiple transformative insurance industry mergers pairing insurance companies with nontraditional partners, including pharmacies and pharmacy benefit managers. The “vertical” mergers were some of the biggest transactions in healthcare history.
“It's almost like a no-turning-back consolidation that's occurring,” said Vivek Garipalli, CEO of Medicare Advantage insurance startup Clover Health. “Those organizations have made a decision that essentially has been copied by others that size is key.”
Following Aetna's failed proposed deal with Humana, Aetna and pharmacy behemoth CVS Health clinched their $70 billion merger in November after getting the go-ahead from the Justice Department and more than two dozen state insurance departments, though a federal judge has warned the two against integrating before he gives his final approval. The two companies aim to save healthcare costs by encouraging patients to seek care from souped-up retail clinics, though many experts remain skeptical of the combo's benefits.
And after breaking up with Anthem, Cigna linked with Express Scripts in a $67 billion merger touted as a way to save costs and improve care by integrating medical and pharmacy services. That merger closed on Dec. 20. Meanwhile, Anthem decided to go it alone and build its own PBM to launch in 2020.
“It really does seem to me that as we look to find ways to become more efficient and effective in healthcare, reducing the fragmentation through consolidation and vertical integration does seem to be a trend that's not likely to end any time soon,” said Kenneth Burdick, CEO of WellCare Health Plans, which will absorb Aetna's Medicare prescription drug business being divested to satisfy Justice Department antitrust enforcers.
Some experts believe that pairing health insurers with pharmacies and PBMs could help bring down rising pharmaceutical costs—another big theme of 2018. The Trump administration has proposed allowing Medicare Advantage plans to use step therapy to better control drug costs, and allowing Medicare Part D and Advantage plans to limit coverage to some types of drugs, which could make it easier for plans to negotiate prices with drugmakers.
“HHS and specifically the CMS really seem to have pharma and the pharmacy benefit managers sort of in their cross-hairs,” Burdick said. “I expect that pressure on pharmacy cost will continue.”