Could Public Option Strengthen ACA Health Insurance Exchanges?

August 31, 2016 - The ACA health insurance exchanges are facing greater risk now that a number of healthcare payers have decided to drop out of the marketplace. UnitedHealthcare was the first to announce its departure from the ACA health insurance exchanges. More recently, Aetna - facing opposition to its health insurance merger with Humana - has moved a majority of their resources outside of the exchanges as well.

“Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint. We currently plan, as part of our strategy following the acquisition, to expand from 15 states in 2016 to 20 states in 2017,”  Aetna CEO Mark Bertolini wrote in a letter to the Department of Justice.

“However, if we are in the midst of litigation over the Humana transaction, given the risks described above, we will not be able to expand to the five additional states. In addition, we would also withdraw from at least five additional states where generating a market return would take too long for us to justify.”

Along with Aetna’s departure, OscarHealth, a new startup, was also struggling in the marketplace and has been decreasing its participation, according to The New York Times. Blue Cross health plans have also mentioned difficulty with operating in the exchanges. Many healthcare payers are admitting today that their losses in the ACA health insurance exchanges are increasing, which leads to more problems for the marketplace and consumer interests.

With more and more healthcare payers dropping out of the ACA health insurance exchanges, the cost of premiums and other insurance benefits are likely to increase due to the decline in competition within this public marketplace.

As many as 17 percent of the population served by the exchanges may have only one payer available in the coming year. This means that competition is decreasing significantly. Competition within the market is vital because it would reduce premium costs and improve services.

The declining competition and number of payers dropping out of the exchanges is a major problem for the health insurance marketplace. But what are the solutions?

First, health payers may come back if the ACA marketplace begins growing. Also, positioning a public option for Americans through the ACA health insurance exchanges could stimulate competition once again.

Both President Barack Obama and former Secretary of State Hillary Clinton have supported the idea of creating a public option on the exchanges similar to the way the Medicare program is run. Creating such legislation for a public healthcare option would be difficult to pass within the Senate and House of Representatives.

Nonetheless, Jacob Hacker, the Stanley Resor Professor of political science and the Director of the Institution for Social and Policy Studies at Yale University, wrote in an editorial that one of the biggest improvements to the Affordable Care Act should come in the form of creating a public option for consumers on the health insurance exchanges. This would offer an additional and vital option for healthcare coverage while also boosting competition within the marketplace.

This competition would be vital in counties that are facing only one health insurer to provide coverage through the exchanges. Hacker argues that a national public option would be simple enough to incorporate since the Affordable Care Act has already expanded Medicaid and offered a system in which low-income families could obtain insurance through the exchanges.

“A downside of government health care would be higher taxes. Currently, small business can claim a tax credit for giving their employees health insurance; if government took over, the effective tax rate on these businesses would rise. The biggest downside, though, is the possibility that with private insurers eliminated from the market by Medicare-for-all, government costs might creep up faster than they have in recent years,” Bloomberg reported some of the potential downsides of a public option.

“However, that doesn’t appear to have been the case with other developed countries. And it’s important to remember that nationalization of basic insurance is different from full nationalization of the healthcare industry -- wealthy customers would still be able to purchase insurance for the things government won’t cover, or pay out of pocket for faster or higher-quality service. So maybe a public option, leading to Medicare-for-all, isn’t such a huge or scary step after all.”

Using already existing technological infrastructure from the Medicare program, creating a public option could be very possible for the federal government, claims Hacker. It’s also vital to consider the fact that the Medicare program has provided more reasonable rates to providers and their healthcare spending has grown much more slowly than that of private healthcare payers.

An analysis from the Henry J. Kaiser Family Foundation shows how Medicare and Medicaid spending has been growing much more slowly in recent years than that of private insurance.

By using Medicare as an example, the federal government could create a public option through the exchanges that would improve competition and slow down the rising rates of healthcare spending among private and public payers.

There may be disadvantages for payers to have such a public option, but if a general goal across the industry is to reduce the rising costs of medical care, then ensuring quality care at a reduced price through public coverage options should be considered.

Dig Deeper:

Did Aetna Need Merger to Stay in Health Insurance Exchanges?

How the Affordable Care Act Changed the Face of Health Insurance