The ACA as a Survivor

The law has withstood legal challenges. More Americans have health insurance. But are more subsidies and new “copper” plans needed to make it work over the long haul?

Robert Calandra

When the ACA marketplaces reopens for business on November 1 it will be the first time since the law’s rollout that the law isn’t facing a credible legal challenge.

Notwithstanding the “repeal and replace” mantra of Republican presidential candidates, this summer’s favorable Supreme Court ruling, plus the millions of Americans who now have health insurance because of the ACA, has given the law at least the sheen of success that may help deflect attempts to rescind it, even by a Republican president.

Actually, Republicans probably won’t try. At least that’s what Joel Ario, a managing director at Manatt Health Solutions, says he is hearing. Their focus, he says, will shift from “repeal and replace” to “reform” around the edges by giving people more choices and flexibility to buy what they want.

“When push comes to shove, opponents of the law will not have a better solution,” says Ario, who served as Pennsylvania insurance commissioner under Gov. Ed Rendell, a Democrat. “There is a lot of talk on the Republican side about reforming the law to make it more consistent with Republican principles and to use the subsidy money in different ways.”

With legal attacks in its rearview mirror—at least for now—and solid enrollment numbers, the ACA may have bought a little breathing room. But there are still some problems that, if not adequately addressed, could accomplish what the legal challenges have failed to do—pull the plug on the ACA or, at the very least, marginalize it.

Fewer uninsured

If reducing the number of Americans without health insurance is the ACA’s chief reason to be, then the law does seem to be fulfilling its purpose. According to the CDC’s National Health Interview Survey, which dates back to 1957 and uses data gathered by the Census Bureau, 9.2% (29 million) of Americans didn’t have health insurance at the time they were interviewed sometime during the first three months of this year compared with 11.5% (36 million) in 2014. Among adults 18 to 64, the group targeted by the ACA, the proportion of those without health insurance has dropped to 13%, a 3.3% percentage point decline from 16.3% in 2014. And the number of people under 65 using state or federal marketplaces to purchase health insurance grew from 6.7 million in the first three months of 2014 to 9.7 million in 2015, according to the survey data collected by the CDC.

But dig deeper and you’ll understand why ACA supporters are a little nervous and the skeptics unimpressed. The CDC report found that adults 25 to 34, the “young invincibles,” were twice as likely as adults 45 to 64 to be uninsured. The report doesn’t break out raw numbers, but the percent decreases suggest that gains in insurance coverage have been larger among Americans with low incomes.

Joel Ario

“If you read into what people who are not buying insurance are saying, it’s that they will buy something that costs them less that gives them a little less protection,” says Joel Ario, former Pa. insurance commissioner.

“There has been some pretty sophisticated polling about the people who are not buying,” Ario says. “Some people just flat out cannot afford it, while others who could pay something do not want to pay too much.”

But some young people are making the value judgment that health insurance, especially exchange policies where they pay higher premiums for something they are unlikely to use so their elders can pay less, just isn’t a good financial deal. Of course, it’s not such a bad financial deal if invincibility fails them.

The success of the law has always hinged on healthy millennials who have aged out of coverage on their parents’ plans buying insurance on the ACA public exchanges to balance the risk pool and keep premiums affordable. While some of these younger people just don’t see the need, for most it’s just not in the budget.

They are not alone. Middle class people, especially those in their 50s and early 60s who lost their jobs during the recession, have been among the hardest hit when it comes to health insurance, says Terry Stone, global managing partner for health and science with Oliver Wyman, the consulting firm.

Because subsidy amounts wane as income approaches 400% of the federal poverty level (FPL)—$47,080 for an individual and $97,000 for a family of four—people near or at 400% of the FPL receive little or no help paying their monthly premium.

“They don’t qualify for Medicaid and they are not poverty stricken enough to necessarily qualify for big subsidies,” Stone says. “They are the ones who incur more cost personally when they go to the doctor and are not covered. How do we get them care and coverage?”

Supporters of the law are optimistic that the affordability issue can be resolved. Some ideas floating around call for raising the subsidy ceiling above the 400% of the FPL cap or creating a new, low-premium, high cost-sharing copper tier plan, with premium prices below the bronze plans, which are currently the cheapest.

Larry Levitt

“I think the long-term challenge is whether coverage will be affordable for people,” says Larry Levitt, a health policy expert at the Kaiser Family Foundation.

Others would focus on changing the care and business models as a way to reduce the cost of medicine in America. “I think the long-term challenge is whether coverage will be affordable for people,” says Larry Levitt, a health policy expert at the Kaiser Family Foundation.

But with the number of people enrolled expected to only climb higher, most people expect the ACA in some shape, form, or fashion to be around for a long time to come. “I think that we’re in the messy early stages,” Stone says. “I don’t think people should despair over whether every aspect of the ACA is perfect. It’s just the starting stages. If we focus on the ultimate goal there are ways to get there.”

Before the ACA marketplace opened on Oct. 1, 2013, insurance companies didn’t have a lot of information about who their clients would be. So they guessed.

Insurers had years to prepare for the ACA. The biggest companies hired consultants to set up and run mock exchanges to identify the people likely to enroll, what plans they would buy, and at what price points they would buy them. The raw data was handed over to armies of actuaries who sliced, diced, and shaped the information into ACA Qualified Health Plans.

And they still got it wrong.

Apparently Voltaire was right: Common sense is not common. Who wouldn’t expect the first wave of enrollees in a health insurance program designed to expand access and provide coverage to those who previously had neither, just might be the sickest people with the lowest incomes and highest subsidies?

Deborah Dorman-Rodriguez

“The risk pool ended up being different than what the carriers anticipated and they had no prior experience covering that population,” says Deborah Dorman-Rodriguez of Freeborn & Peters law firm.

“The risk pool ended up being different than what the carriers anticipated and they had no prior experience with covering that particular population,” says Deborah Dorman-Rodriguez, a partner in the law firm of Freeborn & Peters in Chicago and the leader of its health care practice. “They thought it would be a different mix, and in insurance it’s all about balancing the risks.”

Years of pent up medical needs

Since the launch of the exchanges, the biggest drop among the uninsured has been with poorer Americans whose incomes are at or below 200% of FPL ($23,540 for an individual and $48,500 for a family of four). Not surprisingly, those people, with years of pent up medical needs, used their plans.

The ACA opened up the floodgates, Stone says: “You would expect poorer people who are sicker people are going to be the ones with the greatest motivation to get care and access first. That’s logical.”

When open enrollment opened up November 2014 for 2015 coverage, insurers had to make up for their miscalculation and premium prices jumped—for some plans, as much 38%. Plans were also rejiggered to bring costs into line. Deductibles, copays, and coinsurance went up and drug formularies were made more restrictive.

When rates for 2016 are released later this month, it will be the first time they will be based on actual claims data. In the end, the carriers’ misplaced optimism may have compounded the affordability issue. But contrary to what some may think, insurance companies are not stuffing their pockets with cash, at least not most of them. “There is this whole fallacy that somehow plans are minting money in the basement,” says Stone at Oliver Wyman, which has clients that sell plans on the ACA exchanges. “These guys (insurers) make anywhere from minus 1% to 5% most of the time” from health insurance plans on the exchange.

Mark Pauly, a professor of health care management at the University of Pennsylvania’s Wharton School, believes that premium growth will mirror growth in health care spending, which most recently was in the 6% to 8% range.

“I do not have a prediction of premium growth myself since I do not have a prediction for health spending growth long term, other than it will exceed GDP growth,” says Pauly.

To put health insurance’s projected yearly increase into perspective, it will be two to three times more than the average 3% salary raise most American workers will receive this year, according to Mercer, the human resource consulting firm.

No one really expects the number of people covered by exchange policies at the end of 2016 to reach the Congressional Budget Office’s 20 million projection. But fans of the ACA still expect the number to continue climbing. Expanding enrollment is the quickest and easiest way to address affordability. But no one knows for sure what the profile of the new enrollees will be: their age, economic, and subsidy status. What is known is that, so far, enrollment has been dominated by people at 200% of the FPL and below.

Almost none of the people buying insurance on the public ACA exchanges have incomes above the subsidy limit of 400% of the FPL, notes Pauly. As incomes rise and subsides fall, “there is a very steep drop off in the population of people who should be buying insurance on exchanges.”

There are some ideas about how to fix that problem and the low participation of young people. One route is financial help, which could mean increasing subsidy amounts and raising the ceiling so more Americans would be eligible for the tax credits. But the ACA’s detractors, a group that includes most of the Republican party, would see this as simply throwing money at the problem. Chances of it happening hover near zero.

Congress might, however, be more amenable to a new copper tier plan that would cover 50% of medical expenses but have a low premium. These new copper plans would function much like catastrophic insurance but with an important difference because they would still be required to cover the ACA’s 10 essential health benefits, which include maternity care and some preventive services.

The problem is how many takers would there be with the high cost sharing and deductibles in the range of $8,000 to $9,000. Levitt, for one, is skeptical that there would be much of a demand—or political appeal—if the goal is to fix the ACA. “The premium for a copper plan would be lower but people would be getting less coverage,” he says. “The cost sharing in bronze plans is already quite high. I’m not sure (Congress) would perceive that as the solution.”

A financially viable risk pool is crucial

Ario, however, thinks it just might be what a segment of the non-poor uninsured are looking for. “Some people need help with routine expenses, but some healthier people are looking primarily for financial protection and would prefer lower premiums and higher cost sharing,” Ario says. “The challenge is how to serve different preferences while still getting enough premium from everyone to have a financially viable risk pool.”

Expanding the number of people insured by the marketplace would also encourage more competition among carriers. Industry giants have already enlarged their exchange footprints. UnitedHealthcare is currently in 24 markets while Aetna, Humana (before it was targeted for acquistion by Aetna), and Anthem have a presence on more than a third of state and federal exchanges. Cigna (now an Anthem acquisition target) was doing business in 10 states (see our cover story The New Era of Mega-Plans). “These are big companies,” says Pauly. “They are over the teething pain of figuring out this new market.”

More competition usually means lower prices for consumers, and a July 2015 report from HHS on health insurance markets bears this out. The report says that rates are 8.4% lower on exchanges where three or more companies are competing. The mergers of the major insurers could spell more trouble for the ACA and competitive, well-functioning insurance markets. Less competition is rarely better for consumers, notes Levitt. But with health insurance, it gets complicated, he adds, because big insurers may be able to strike better deals with providers, which are also consolidating into bigger and bigger groups.

Both Dorman-Rodriguez and Stone think the consolidation is more about synergies and efficiencies rather than getting a chokehold on the individual health insurance market. The goal, they say, is to reduce administrative costs, which, in the long run could lower premium prices.

“We’re really talking about technology and the things that go along with running something as complex as this type of coverage,” Dorman-Rodriguez says. “I think the efficiencies that analysts have written about will actually improve the marketplace.”

Ario, who once kiboshed a deal between Highmark and Independence Blue Cross when he was Pennsylvania’s insurance commissioner, is skeptical but intrigued by the merger talks. He says state regulators and the Department of Justice should take a long hard look at how the mergers will affect competition regionally and nationally.

On the other hand, “It’s a good thing that a carrier has both an exchange product and a Medicaid product,” he says. “Having cross-market capability is very important and Medicare should be added into that mix because there are transitions with Medicare as well.”

If the first two years of the ACA were about access and encouraging competition (the announced mergers notwithstanding), then the next few years will be about the great white whale of American health care—controlling costs.

Optimists see good news in more collaboration between providers and payers. Pessimists see narrow networks that saddle many Americans with huge out-of-network medical bills. Count Stone at Oliver Wyman among the optimists. Narrow networks and ACOs will help make providers and payers do their part reeling in costs. But sooner or later consumers will have to step up and share the responsibility. Yes, the proverbial skin in the game. “If we want to get more affordable care we have to get the cost of care per person less expensive,” Stone says. “The way to do that is to drive more focus and attention on wringing out excess and waste. The next step is to get consumers to change.”

That next step will be part of the ACA’s continuing evolution. After all, the law is about to begin its third enrollment. Like Social Security and Medicare before it, the ACA may take years and several course corrections to find its level.

Robert Calandra is a freelancer writer in Philadelphia with more than 20 years experience writing about health care.

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