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The Progress and Challenges of the Affordable Care Act

Various clauses of the Affordable Care Act brought obstacles for insurers to overcome.

Source: Thinkstock

Before the Patient Protection and Affordable Care Act (ACA) became law on March 23, 2010, the healthcare industry faced a number of obstacles particularly in terms of providing medical care and health insurance to many low-income families and patients with serious illnesses.

The Affordable Care Act has been able to bring healthcare coverage to millions more Americans than ever before, reducing the uninsured rate to 8.6 percent.  But the landmark legislation has brought some problems to payers.

Profits have largely decreased for insurance companies due to the fact that they must now manage healthcare costs for people with pre-existing medical conditions and cover the entire costs of preventive services.

While the Affordable Care Act has started to help alleviate healthcare disparities among US citizens, the state and federal insurance exchanges have not made payers very happy.

Younger adults and healthier patients have been more likely to take on the tax penalty of the individual mandate than to purchase coverage on the health insurance exchanges, due to high prices, which has left payers with a pool of older and sicker populations. Some national payers have started to step back from operating through the public marketplace in response to these challenges.

In 2012, a Supreme Court ruling further complicated the landscape by allowing states to choose whether or not to expand their Medicaid coverage to insure more low-income individuals.

Currently, nineteen states have still not expanded their Medicaid programs, which is causing disparities in healthcare access and leaving millions of patients with few coverage options.

A number of experts have proposed differing solutions to address the challenges of the Affordable Care Act in order to help payers and providers make the best of this complex legislation.

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Ensuring coverage for pre-existing conditions

In the era before the Affordable Care Act, health insurance companies were able to refuse coverage to patients with pre-existing conditions, leaving consumers with previous diagnoses unable to find a health plan willing to cover the higher costs of their care. However, the Affordable Care Act eliminated clauses that allowed payers to refuse coverage to these patients, giving them a better chance at affordable coverage.

This may be a positive development for patients, but it presents a problem for payers.  Under the ACA, payers are not allowed to charge higher premiums for patients with existing medical conditions and complex needs, leading some companies to incur losses on paying for their care.

Lawmakers have suggested several solutions to minimize the financial problems of covering patients with pre-existing conditions.

Speaker of the House Paul Ryan has suggested creating Universal Access Programs and investing $25 billion to improve high risk pools and reinsurance programs, while Senators Richard Burr and Orrin Hatch have also put forward the Patient Choice, Affordability, Responsibility, and Empowerment (Patient CARE) Act, which would require continuous coverage for all Americans. This would prevent anyone with a medical condition from being denied healthcare access or charged higher premiums if they have had continuous coverage for at least 18 months.

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The individual mandate and the health insurance exchanges

The Affordable Care Act has also required payers to cover the costs of preventive services for patients such as immunizations, annual examinations, and cancer screenings. Additionally, young adults have the option to stay on their parents’ health plans until they turn 26, which means payers must cover these medical costs without contracting a new policy.

This leads to more spending for payers who, in turn, pass on the costs to consumers through higher deductibles and premiums. Since the individual mandate requires eligible citizens to purchase healthcare coverage or else risk a tax penalty, many consumers without employer-sponsored coverage have little choice but to purchase these higher-cost plans through the health insurance exchanges.

The state exchanges, along with the federal exchange available at HealthCare.gov, allow low-income individuals who do not qualify for Medicaid to receive a tax subsidy to be used for obtaining healthcare coverage. The health insurance exchanges are open to anyone who does not have coverage, while the subsidies are available only for those at or below 400 percent of the federal poverty line.

Those who do not qualify for tax subsidies and do not have access to employer-sponsored coverage are usually left facing large health insurance costs on the exchange. While the individual mandate led to a large increase in the number of Americans with health insurance, many are still choosing to take the tax penalty because they are ineligible for subsidies but can’t afford the full price of insurance from the exchange.

Those who do not purchase healthcare coverage face a tax penalty, which is calculated in two different manners, HealthCare.gov states. The tax penalty amounts to either 2.5 percent of household income or $695 per person, whichever is higher. A family must pay $347.50 for every child under 18 years of age without coverage, up to a maximum of $2,085 per year.

George Kalogeropoulos, Founder and CEO of HealthSherpa

George Kalogeropoulos, Founder and CEO of HealthSherpa

Source: HealthSherpa

While the individual mandate was meant to bring more young adults into the public health insurance marketplace and provide a lower-risk population for payers, many young adults have taken the tax penalty instead, explained George Kalogeropoulos, Founder and CEO of HealthSherpa, in a prior interview. Payers are now facing financial losses due to the older and more expensive populations they’re serving on the health insurance exchanges.

Payers are suffering from this state of affairs in part because of a plan design cap where “a 65-year-old can pay no more than 3 times what a 21 or 22 year old pays for premiums,” Kalogeropoulos said.

Previously, insurers were able to charge as much as 10 times more for older, riskier, and less healthy policyholders.

Health insurance companies operating through the exchanges have found themselves serving a more expensive consumer base than the Obama administration initially predicted. Insurers are taking on more healthcare costs than in prior years while receiving fewer premiums from healthier populations.

For instance, according to a Blue Cross Blue Shield report, in 2014 and 2015, the payer saw a rise in the number of enrollees with conditions like hypertension, diabetes, depression, coronary artery disease, human immunodeficiency virus (HIV) and Hepatitis C.

Removing the cap between young and old or at least expanding it to five or six times the premium cost could go a long way to bringing in younger adults to purchase coverage on the exchanges and providing payers with a low-risk pool, some stakeholders believe.

Additionally, legislative action could bring a more severe tax penalty to those who don’t follow the individual mandate and purchase insurance, encouraging more participation in the exchanges.

“It could be better if there was broader enrollment and that is primarily what insurers want to see.”

Payers and policymakers are seeking broader enrollment and more continuous enrollment in order to stabilize the market and keep payers profitable.

“It could be better if there was broader enrollment and that is primarily what insurers want to see,” Joel Ario, Managing Directors at Manatt Health, told HealthPayerIntelligence.com in October 2016. “The second challenge is to make sure that as many people as possible are continuously enrolled in the program, so that payers do not have people coming in and out of the program. These are shared goals between insurers and the Obama administration.”

Continuous coverage requirements could also help, suggested Kalogeropoulos.

“One obvious solution is something that CMS has attempted to do within the context of the existing legislation: really tighten up those special enrollment periods so that payers aren’t getting a very negative risk pool. Also, potentially instituting continuous coverage requirement, which would allow payers to have an exclusionary period, is advised,” Kalogeropoulos said.

As a result of high financial losses on the exchanges, some national insurers, like UnitedHealthcare and Aetna, have decided to either drop out of the exchanges completely or cut back on the number of regions they’re serving.

At the end of 2015, UnitedHealthcare announced it would drop out of the ACA health insurance exchanges.

In August 2016, Aetna also decided to pull back from a number of the regions it was serving through the health insurance exchanges. Instead of selling health plans in 778 counties the payer had previously been operating, Aetna will be serving only 242 counties in 2017.

Aetna lost $200 million in its second quarter of 2016 and faced pretax losses of more than $430 million starting from January 2014 until August 2016.

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Merrill Matthews, a resident scholar at the Institute for Policy Innovation

Merrill Matthews, a resident scholar at the Institute for Policy Innovation

Source: Institute for Policy Innovation

The rise of high-deductible health plans

Payers have started to raise their premiums to compensate for the challenges inherent in the health insurance exchange environment.  In response, patients are trying to choose plans that offer the lowest possible monthly premiums, even though these reduced costs are balanced by higher out-of-pocket deductibles payable when they receive care.

“The more people pay out of their own pocket for healthcare, the less upward pressure you have on healthcare costs."

“People are moving to high-deductible health insurance policies because those are the only ones really affordable under the Affordable Care Act. The health insurance profession has long known that high deductibles help control healthcare spending,” Merrill Matthews, a resident scholar at the Institute for Policy Innovation, told HealthPayerIntelligence.com.

“The more people pay out of their own pocket for healthcare, the less upward pressure you have on healthcare costs because people are making their own choices and looking for value for their healthcare dollar when they’re spending their own money,” he continued. “What the Affordable Care Act was intended to do was to bring everyone into a relatively low deductible, low co-pay health insurance policy that was going to cover the vast majority of their expenses. What we have are very high-deductible policies that are forcing people to pay for an awful lot of care out of pocket.”

The average premium rate on the exchanges rose by 2 percent in 2015, 7.5 percent in 2016, and is predicted to grow 25 percent in 2017, which has sparked concern about the sustainability of the current insurance ecosystem.

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The controversy over Medicaid expansion

Medicaid has also been affected by the ACA.  Thanks to the Supreme Court ruling that made state Medicaid expansion optional, a large number of states have declined federal funding to expand their low-income insurance programs.

Some states that declined to expand Medicaid cited the fact that the ACA’s federal funding would run out after five years, leaving states to cover the costs in the future.  Non-expansion states fear that the extra costs would strain their budgets.

However, Medicaid expansion may actually produce financial benefits for state governments. Medicaid costs rose 6.9 percent in states that didn’t expand in 2015 while the same costs only grew 3.4 percent in states that did broaden Medicaid coverage, according to National Public Radio.

And states may be able to pay for Medicaid expansion out of existing programs, like free clinics, that would be reduced or eliminated if more low-income patients had insurance coverage, added a report from the Center on Budget and Policy Priorities.

“While many critics point to the large cost of Medicaid programs, one recent analysis indicates that Medicaid eligibility for children produces enough additional tax collections over the long term to approximately pay for itself,” the report points out.

“The evidence therefore indicates that the benefits of Medicaid coverage are large and that the long-term public cost may at least be partly mitigated by higher tax recipients from beneficiaries over time, while non-expansion states are forgoing significant federal transfers.”

Medicaid expansion in more states may also help to address the coverage gap produced by the ACA.

While the health insurance exchanges offer tax subsidies for some low-income families, those that were meant to be eligible for Medicaid under the ACA do not currently receive financial aid.  These consumers have incomes that are below the limit for tax credit eligibility and too high for the older, traditional version of Medicaid in the states that didn’t expand, leaving at least 5.5 million citizens in a coverage gap.

This gap is problematic for commercial payers, as well.  If patients who are supposed to be eligible for Medicaid sign up for plans on the insurance exchanges instead, commercial payers will be responsible for paying for their care.

However, these individuals may have greater health spending needs than the rest of the population, which would put greater financial pressures on payers.

According to the report from the Center on Budget and Policy Priorities, it would behoove payers to align with advocates and urge the remaining 19 states to expand their Medicaid programs.

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How payers can succeed in a challenging ACA marketplace

When considering some of the difficulties of operating under the Affordable Care Act, healthcare payers can take steps to succeed in the new environment the ACA brought. First, commercial payers could be more competitive in the public marketplace by being the first to meet consumer needs and securing loyalty from their customers.

One method for improving patient satisfaction is to invest in price transparency and the development of user-friendly payment and price comparison strategies.

“Poor member service has a significant impact on a health plan’s bottom line, where a bad experience could very well mean a lost customer,” said HealthEdge CEO Steve Krupa.

“Improving a health plan’s customer service representative’s ability to effectively research and answer simple member questions in a timely manner, or enabling a member to have accurate and user-friendly self-service options to seek answers to questions, will have an immense impact on wasteful costs in the system.”

By improving price transparency within their provider network, payers could assist their consumers in choosing the least expensive quality healthcare option when in need of X-rays, specialty care, or other medical testing. This is especially relevant for payers offering high-deductible health plans that have led patients to make more critical purchasing decisions.

Additionally, payers are advised to work with their provider network to share both patient data and spending data to better coordinate care and strengthen population health management in order to reduce overall costs.

For instance, with a greater emphasis on wellness and preventative care, patients will likely experience fewer high-cost emergency room and hospital admissions.

These simple strategies may help payers make the best of a difficult market and make sure that they develop the skills required to improve profitability while ensuring a high quality experience for ACA consumers.

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