Brooks Blog

Thursday • March 22, 2018

Shot Clock Ticks on the ACA Health Exchanges

 

Following ACA health exchange policy has been like watching a basketball game just as the shot clock buzzes: just when you think it’s a slam dunk and the outcome is certain, somehow the score ties and another period gets added to the clock, and the uncertainty starts all over again.

Even as the exchange channel seems on the verge of collapse in the public psyche, the Alexander-Collins bill on the Senate floor claims to be able to stabilize it, with caveats. It includes funding that could promote stability of this historically rocky channel but also fundamentally changes plan funding rules and benefit designs in ways that Democrats are unlikely to get behind.

Where Are Exchanges At Now

Many insurers offering coverage in the exchange channel turned a profit for the first time in 2017, indicating welcome stability. The premium hikes of 2017 seemed to reflect an accurate risk assessment to the high risk channel and thus bring this channel into the black, with some health plans spending under 80% of premiums on medical costs. (Eighty-five percent is “a rough benchmark for profitability” according to Politico.)

While that is good news for the channel, premiums continue to soar. Premiums increased on average by 25% in 2017, and while the average across the marketplace plans was less in 2018, Silver Plans faced another 31% increase this year and there is no sign of this trend slowing. Consumers were not hit with these increases because cost-sharing reductions (CSRs) matched and were sometimes even higher than the price hike in 2017. However, the Trump Administration ended those reductions starting in 2019. With the absence of an individual or employer-sponsored mandate starting in 2019, the rates are expected to grow in line with the expected higher risk pool.

The Individual Mandate

Since the Trump Administration ended the penalties associated with the ACA’s individual mandate as part of tax reform, the expectation is that enrollments will decrease further in 2019. To combat that trend and the higher risk pool it would entail, some states are working to reinstate the individual mandate at the local level. California and others are following the ACA’s penalty scheme, while others like Maryland are innovating to use the penalty funds as a deposit on future coverage.

What the Alexander-Collins Bill Would Do

The primary aim of the bill is to stabilize the premiums in the exchange marketplace by appropriating funds for both reinsurance and cost-sharing reduction (CSR) payments, while also expanding the metal tiers to include a catastrophic “copper plan”.

Reinsurance protects premiums by reimbursing payers if medical costs are higher than premium charges in a given year, giving payers more confidence that they will not lose money by participating in the marketplace. Meanwhile cost-sharing reductions reduce out of pocket costs for Silver Plan beneficiaries such as copays, coinsurance and deductibles.

Where Will the Exchanges Be a Year From Now?

Despite all the upsets in this post-regulation period including uncertainty for insurers and cuts to the marketing budget for enrollment, the 2018 enrollment dropped just 3.7 percent from 2017 with just under 12 million enrollees.

In short, the shot clock may be running out on the Alexander-Collins bill but, despite all the play-by-play coverage from media and claims of high stakes from politicians, the game appears far from over for this channel.

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