The Affordable Care Act is facing a huge test.
Tuesday marks the start of open enrollment for the 2017 plan year of the ACA’s public exchanges. That’s the part of the law, better known as Obamacare, that is designed to give people access to health insurance if they can’t access it through their employer or the government.
After news of rising premiums, the withdrawal of several insurance companies, and the US campaign season, we’ll finally get a chance to see how healthy the public exchanges — the most talked-about part of the law — really are.
After all the negative headlines, it appears that this open-enrollment period is especially important for the future of one of President Barack Obama’s signature achievements.
How we got here
The ACA doesn’t exclusively pertain to the exchanges. There are other elements of the law that affect all Americans, such as a child’s ability to stay on his or her parent’s insurance until they’re 26 years old and the removal of lifetime limits on insurance payouts.
For better or for worse, the sustainability of the exchanges is probably the most often used benchmark for people judging its success or failure, despite the fact that only roughly 5% of Americans get their insurance through the exchanges.
The problems with the Obamacare exchanges are now well documented. Fewer healthy people have signed up for the plans, and that has caused the pool of people in the exchanges to be older, sicker, and more expensive to cover. That’s led to losses for many insurers.
Some of the biggest and most high profile of these insurers — such as Aetna and UnitedHealthcare and startup Oscar — have pulled back their offerings in these markets. And the exchanges have become political fodder for everyone from Republican Speaker of the House Paul Ryan to presidential nominee Donald Trump. Even former President Bill Clinton has talked about flaws in the marketplace, though he later clarified he supports the ACA.
The law’s supporters say these are growing pains.
“This is one of the most complex social programs in the country’s history,” Kevin Counihan, the CEO of the Marketplace at the Centres for Medicare and Medicaid Services (CMS) said in an interview with Business Insider. Counihan oversees the exchanges. “We only have three years of operation. Big programs like Social Security and Medicare also had problems in their first three years.”
Counihan said that many insurance companies are not used to these types of markets, which are more like “Medicaid-plus” than the employer-based market so a “learning curve” isn’t surprising.
Make or break year
The Department of Health and Human Services (HHS), which is responsible for administering the law, projects that 13.8 million Americans will sign up or continue to get coverage through the exchanges in 2017, up from 12.7 million last year.
The 2017 enrollment also features massive jump in the average premium cost from last year — the HHS projects it to be 25% for the baseline silver-level plan for the country. These jumps are even more severe in certain states, with Arizona leading the way with a 116% increase over the average premium in 2016.
According to Cynthia Cox, associate director for the Program for the Study of Health Reform and Private Insurance at the nonpartisan research group Kaiser Family Foundation, these price increases and market shifts have been coming for some time.
“The premium increases were something we were expecting,” Cox told Business Insider. “They’re a bit higher than we thought they would be, but insurers have been signalling for months that this year they needed to dramatically increase premiums to make up for losses on the exchanges.”
Counihan said that these increases came about in part because many insurers did not have experience with the type of coverage needed for Obamacare, so they underpriced their plans to attract patients without properly rating the costs.
Additionally, the jump now brings premiums roughly in line with the nonpartisan Congressional Budget Office’s original 2010 projection for premiums on the exchanges for 2017.
This year is also more important because this is the first time the exchanges will be without their “training wheels.” Insurers previously had three different ways provided by the government to mitigate losses from the exchanges: reinsurance, risk corridors, and risk adjustment. Now that is being shaved down to only the risk-adjustment program.
Additionally, 2017 will be the first year that the full penalty for not having insurance will go into effect, but the fee will not show up on tax bills until after the open-enrollment period.
Counihan downplayed the idea that this is a pivotal year for the exchanges, saying that it is a “retooling year.” Additionally, Counihan said the HHS and CMS has plans to make sure it meets its targets and grows the exchanges, including outreach targeted at young people who would help stabilise the risk pools.
“We have a lot of data and good outreach plans for this year to get all kinds of people to sign up,” said Counihan. “I mean, we know what we’re doing — we’re not just throwing darts and hoping it hits.”
The real figure of success, Cox said, will be if the exchanges can sustain the number they have now.
“If we start to see sign-ups decrease, that would raise a lot of questions about the long-term sustainability of the exchanges,” Cox said. “If people are deciding to leave the exchanges, that could lead to more insurer exits and be a real problem.”
That may be a low bar to clear, but given the negativity surrounding the exchanges for much of the past six months, perhaps no bad news is good news.
The future is uncertain
The real proof of the success or failure of the law likely won’t come from the sign-up numbers alone, according to Cox. Instead, the real tell will be the proposals for 2018 premiums that the health-insurance companies have to submit to individual state regulators in the spring of 2017.
“That’s really when we’ll know whether this was just a one-year change or something larger and longer-lasting,” Cox added. “If premiums rise significantly again and you start to see more providers leaving the exchanges, that will raise a lot of long-term questions.”
As Aetna CEO Mark Bertolini put it in an interview with Bloomberg, this could lead to a constant chase of healthy people opting out of the exchanges because of high costs, which in turn leads to higher premiums to cover the ever-sicker pool in the exchanges.
“So what happens is the population gets sicker and sicker and sicker and sicker, the rates get higher to try and catch it — it’s a fruitless chase, and ultimately you end up with a very bad pool of risk,” said Bertolini.
So with a very bad pool of risk, more insurers dump their exchange business until it becomes unsustainable.
Given these issues, most people agree that the law could use some tweaks. Even Obama said that the law was like a new phone that rolls out with “a few bugs” and needs to be updated to stabilise it.
There have been several proposals, mostly split on ideological lines. Mostly conservative detractors of the law have suggested repealing the ACA altogether, while on the other end of the spectrum observers have used the shortcomings to call for a nationalized health system. In the middle, there proposals include adjusting a rule that only allows insurers to charge older people three times what they charge young people, strengthening the tax on people without insurance, and more variety instead of sticking with the four-tiered system in place now.
According to Cox, pretty much any of these adjustments would help fix the issues the Obamacare exchanges are facing.
“Any or all of these changes could have the effect of stabilizing the marketplace,” Cold told us. “Also, they don’t have to be done in isolation — any number of them could be used in combination to address the challenges facing the market.”
The problem is that all these changes can be enacted only if Congress passes a law amending the ACA.
“The HHS and CMS are really limited in what they can do now to address these issues,” said Cox.
In the end, however, most of the changes come down to a political vote and given the current make-up of Washington, it is unlikely anything comes to fruition. Counihan even called it a “less than helpful political environment.”
Cox agreed that much of the law’s long-term survival has little to do with its impact on healthcare, but rather the political appetite for the law.
Regardless of possible changes, Counihan said that the law has earned a permanent place in the health care system of America (though he is admittedly biased).
Cox, on the other hand, said that the ACA and its exchanges have certainly made an impact, but whether or not they survive remains to be seen.
“It depends on politics and market stability,” said Cox. “It’s equally, if not more, important how Americans perceive the law, and right now they’re pretty split.”
Based on Kaiser’s polling, 45% of Americans have a favourable view of the ACA and 45% have an unfavorable view.
Open enrollment closes January 31.