For Insurers, a Battle Between 2 Futures

Both presidential nominees have big plans for changing the health insurance world, but hurdles are many and victory on November 8 is only the beginning. Here’s what may be in store.

For health insurers looking ahead to November 8, the contrast between the two candidates couldn’t be starker. Should Donald Trump win the presidency, the New York businessman has promised to repeal the ACA on his first day in office. “Completely repeal Obamacare,” the Trump plan says. “Our elected representatives must eliminate the individual mandate. No person should be required to buy insurance unless he or she wants to.”

If Hillary Clinton wins, she will undoubtedly block any Republican efforts to undo the ACA. She wants to revive the public option that got dropped in the wheeling and dealing that led to the passage of the ACA and let Americans buy into Medicare starting at age 55.

Of course, the fate of either candidate’s plans will depend on a complex matrix of factors, including competing priorities and which party wins control of the House and the Senate this fall.

Whether insurers are rejoicing at the prospect of a Trump presidency and the end of the ACA or a Clinton presidency and modifications to the law is hard to say because of the industry’s complicated relationship with the law. Its lobbying organization, America’s Health Insurance Plans (AHIP), has been conflicted about the ACA from the beginning. Early on, its leadership threw its support behind core elements of the part of the law that pertained to insurers, including guaranteed issue, subsidies of premiums, and mandated coverage. But later on, large private insurers, such as UnitedHealthcare, actively worked against passage of the ACA.

Now the divisions are even more pronounced. UnitedHealthcare and Aetna have bolted AHIP. Marilyn Tavenner, the organization’s CEO and director of CMS during the ACA’s early implementation, expressed support for the ACA exchanges in an interview with Managed Care earlier this year. Meanwhile, UnitedHealthcare, Aetna, and Humana have said they are leaving the exchanges in many markets, and the insurers staying in them are proposing large premium hikes. Salvaging the ACA exchanges may be the first order of health care business for a Clinton administration committed to the health care reform law. Otherwise, the law’s signature achievement, reducing the number of Americans without health insurance, could unspool. Earlier this year, results from the federal government’s National Health Interview Survey showed that largely because of the ACA, the number of uninsured Americans had dipped to 9.1% and that 7.4 million fewer people lacked insurance in 2015 than in 2014.

Choice shrinks on ACA exchanges

An increasing percentage of Americans who buy their health insurance on the ACA exchanges may find an extremely limited choice of insurers. In the upcoming enrollment period for 2017 coverage, 19% of those who shop on the exchanges could have just one insurer to pick from, according to an analysis published by Kaiser Family Foundation in late August. That compares with 2% a year ago. UnitedHealthcare’s exit from the ACA exchanges is the main reason for the large increase in the single-insurer counties (225 vs. 974), according to the Kaiser researchers, although new companies may yet jump into the exchanges before enrollment starts on November 1.

Net change in number of exchange insurers, 2016–2017

Source: Kaiser Family Foundation

Fewer insured, lower premiums

Trump has alienated many Republicans, but his positions on health insurance don’t venture from Republican orthodoxy. Repealing the ACA has been a rallying cry for the party ever since the law was passed six years ago. Trump would allow sale of health insurance across state lines, a stock GOP idea that is supposed to generate a more competitive insurance market, reduce the burden of state-level insurance mandates, and increase consumer choice. Some commentators have argued that an unintended consequence would be a national insurance market and a move toward federal regulation of health insurance, something no Trump supporter would want.

Trump’s 1,100-word “Healthcare Reform to Make America Great Again” also calls for allowing individual taxpayers to take a full deduction on premium payments, putting them on an equal footing with business. That might not be such a good deal for people with modest incomes, because tax deductibility alone might still leave the cost of insurance premiums out of reach. The ACA and other Republican health care proposals use tax credits, rather than deductions, to offset the cost of insurance premiums for that reason. Moreover, deductibility without any limits may also favor people with higher incomes because they can afford expensive health care coverage with many providers, whereas people with lower incomes will be inclined to buy cheaper plans that provide barebones coverage. The deduction would be worth a lot more for people who can buy expensive insurance.

The Center for Health and Economy, a research group that bills itself as nonpartisan with both conservative and liberal experts, modeled the effects of all of the features of Trump’s plan (including a proposal to turn Medicaid into a block grant program). By its reckoning, the Trump plan would lead to 18 million fewer Americans having health insurance next year than if the ACA were to continue, although the gap would narrow to 13 million by 2026.

On the other hand, the center’s calculations also show the Trump plan as decreasing premiums by between 24% and 37% by 2026. The reason? Eliminating the ACA would presumably mean the end of regulations that limit out-of-pocket expenditures and require coverage of essential health benefits. Health insurers would have lower costs and so could reduce premiums.

Some of the plans House Republicans have passed to repeal and replace the ACA would reduce the number of Americans with health insurance coverage, but none has approached the 18 million affected by Trump’s plan, says Stephen Parente, a professor at the Carlson School of Management at the University of Minnesota and a Center for Health and Economy board member. “That means there will be pushback, even from House Republicans who will hesitate to make such a big change,” he comments. The GOP is likely to look for alternatives that are more palatable, he adds.

At the very least, a plan calling for eliminating insurance coverage for 18 million starts the discussion. “Once you start that conversation,” he observes, “then we will begin to see whether Paul Ryan and other members of the GOP get involved in moving the conversation forward.”

Parente notes that Trump’s proposal to broaden the deductibility of insurance premiums would cut into government revenues. “But there are so many savings from eliminating the Medicaid expansion that it kind of counter-balances that loss,” he adds. The center estimates that Trump’s plan would decrease the federal deficit by $583 billion between 2017 and 2026 compared with the ACA.

Public option pushback

Clinton has several proposals that would expand health insurance coverage. She wants to provide incentives to the 19 states that have yet to expand Medicaid. For those living in rural areas, she would increase funding for the National Health Service Corps and provide more funding for primary care in community health centers. She aims to increase health coverage regardless of immigration status and cap out-of-pocket prescription expenditures for individuals and families. But it is the public option that might generate the most political heat. Clinton would face opposition not only in Congress but also from health insurers, who were successful in keeping the public option out of the ACA.

“Adding a public option could stimulate competition, particularly in markets with few insurers,” says Christine Eibner of the Rand Corp. But how much leverage would it have to set provider reimbursement rates?

“Adding a public option could stimulate competition, particularly in markets with few insurers.” That’s the upbeat assessment of Christine Eibner, a senior economist and associate director of the Health Services Delivery Systems program at the Rand Corp. “What we don’t know is how much leverage the public option would have to set provider reimbursement rates,” she adds. “If the public plan were able to set provider reimbursement rates based on Medicare payment, the plan could be significantly cheaper than a typical private plan. That could reduce premiums and force private plans to find opportunities to save money in order to be competitive.” At the same time, Eibner says, it could be disruptive to give the public option Medicare pricing power “because it could take us closer to a single-payer system with a monopsony buyer” (the federal government).

The Congressional Budget Office (CBO) has modeled the effect of a public option with and without Medicare prices. Eibner explains: “When the public plan does not use Medicare pricing power, CBO estimates that the public premium will be higher than private premiums, due to sicker people enrolling in the public option. But when the public option is able to set provider payment rates based on Medicare pricing, CBO predicts lower premiums and greater enrollment.”

The consequences of Clinton’s Medicare buy-in are hard to predict, in Eibner’s view. “While the details are not yet known,” she says, “in theory, a Medicare buy-in could affect marketplace premiums by siphoning some older and potentially sicker enrollees from the marketplace risk pool.

“Potentially,” Eibner continues, “that could make premiums more affordable for younger people in this market. However, it’s not yet clear how attractive the Medicare buy-in would be to potential enrollees, and what incentives they would have to enroll.” What tax credits and subsidies would be available to anyone who would buy in are unknown, and it’s not known if those credits and subsidies would be more or less generous than those currently available in the exchange plans.

Clinton has also proposed what’s called a cost-sharing tax credit. It could be applied against health care spending in excess of 5% of income, up to a maximum of $2,500 for an individual, or $5,000 for a family, Eibner explains. Families and individuals could apply the tax credit against the total paid in premiums and out-of-pocket costs during the year.

“Because they can be applied against premiums, the tax credits reduce the effective cost of insurance and potentially make it more likely that people will enroll,” Eibner says. But there are tradeoffs. “On the one hand, if the credits bring younger and healthier people into the insurance market, that could reduce premiums,” she says. “On the other hand, the credits could encourage health plan enrollees to use more care. Such so-called induced demand could increase health care spending and put upward pressure on premiums.”

The tax credits will reduce what consumers spend on insurance and health care, but increase federal spending, Eibner adds. To fund the tax credit, Clinton will demand rebates from drug manufacturers and perhaps ask high-income Americans to pay more for care, she says.

If Clinton is elected, Eibner concludes, this provision will bear watching because eligibility for the cost-sharing tax credits could extend well beyond those enrolling in the marketplaces, potentially including those who have employer-based coverage and Americans below the poverty line in non-expansion states who purchase private coverage, Eibner concludes.