The intention of the Affordable Care Act of 2010 (aka Obamacare, or ACA) was to provide affordable healthcare to millions of uninsured Americans. Regardless of what end of the political spectrum you sit on, I think we can all agree that there have been successes and missteps with the law. With each passing year, there is a growing sense of uncertainty about how much staying power and how many benefits and overall improvements these policies will truly have to our healthcare systems in the long run.
The ACA “parachute”
A main concern of many payors (commercial insurers) was centered around the fact that the people who are most likely to buy healthcare are those who are the most sick (and most likely to rack up big healthcare costs) and the inability of insurers to limit costly new patients with pre-existing conditions. This was in reaction to a provision to ACA was put into place in 2014 to prevent payors from denying coverage to people with pre-existing conditions. This clearly would add significant cost to insurers, but the ACA prevented them from increasing premiums on those patients who were likely to have more costly medical bills.
This dilemma left insurers with two options: (1) Try to attract as many young, healthy patients as possible so that the money gained from their premiums could offset the losses sustained caring for the sicker patients; or, (2) Raise premiums across the board. These options lead to instability within the market. The federal government’s solution to these concerns was the creation of “safety net” provisions into the ACA, including risk corridors and reinsurance provisions.
The risk corridor provision is a redistribution of funds in an attempt to keep the market stable for consumers. So, companies that didn’t exceed their budgeted spend by taking sicker patients had to redistribute some of their dollars to companies who exceeded their budget spend. Especially, this was a “bail-out” of companies who underestimated their yearly cost, paid for by companies that didn’t. The ACA reinsurance provision is a general pool that insurers are required to contribute to in order to offset the expense of caring for costlier patients. The payments were allocated in gradually decreasing amounts of $10 billion in 2014, and $6 billion in 2015, $4 billion in 2016, and would be used to compensate insurers for a portion of costs incurred above a target value or “attachment point.”
So what is happening in 2017 that’s causing so much unhappiness and uncertainty from insurers, employers, and patients? Both risk corridor and reinsurance were only intended to be transitional buffers as the law was being introduced and will expire at the end of 2016. This means that companies who are not making their target gains either have to raise their premiums (which will be passed on to employers and employees) or drop out of the ACA market exchange entirely (which will affect people shopping for affordable insurance independently).
How much should we all be panicking?
Reports of premium increases have begun to come out, and perhaps these could be used as a starting point for further negotiation. On the flip side, lawmakers included a provision under ACA giving $250 million to state governments to bolster their oversight of any insurance companies looking to make “unreasonable” rate hikes. Major insurers are pulling out of markets nationwide, which gives patients and healthcare providers alike reason to be hesitant in regards to the program’s outlook long-term. Some data suggests that the majority of patients could potentially qualify for premium tax credits that set a limit to their out-of-pocket cost based on total family income.
What does this mean for the patients, payors, and employers?
Payors are seeing their profits drop despite the government subsidies that were established to keep the market constant. Several large insurance companies are being forced to make big adjustments. In the past few months alone, United Health and Aetna have announced their plans to leave marketplace exchanges, quoting losses of $650 million and $430 million respectively. Other companies like Humana and Blue Cross Blue Shield will also scale back their markets in counties and states across the country. Patients in these areas are now left with fewer choices for their healthcare.
The insurers that still plan to participate in market exchanges will need to make some major changes in the coming weeks. As the past few years have shown us, the patients enrolling in these plans are sicker than expected. Their costs must be balanced by increased enrollment of younger, healthier individuals (the “young invincibles” as they are sometimes referred to). The government-imposed financial penalty for not obtaining insurance is not enough to persuade young people to join the programs and pay the premiums needed to offset the costs of the more complicated patients. Now, penalties for non-enrollment are increasing, so the thought is that more young people might be coaxed into buying in.
With all of the changes happening now, and in the not-so-distant future, it is understandable that most people are feeling some anxiety and a frustration over so many unknowns. It will likely be several months before we can assess how well we can ride this ACA bicycle without training wheels.