- Health insurance executives have faced various regulatory challenges since the Patient Protection and Affordable Care Act was passed in 2010. Payers have had to participate in new health insurance marketplaces and face different restrictions such as the individual mandate or the elimination of pre-existing condition clauses. The individual mandate requires all eligible Americans to obtain health insurance or risk a penalty, which means payers have an additional 20 million consumers to cover.
Both the increase in the number of patients accessing medical care and the elimination of the pre-existing condition clause have brought a different and more costly risk pool for the health insurance market. This, in turn, led to a rise in premium rates and high-deductible health plans as payers attempted to reverse their financial losses from the Affordable Care Act.
George Kalogeropoulos, Founder and CEO of HealthSherpa, discussed in an interview how the changing risk pools in the marketplace are causing issues for health payers.
“The ACA commoditizes the carriers in the sense that it standardizes their products through the essential health benefits and it also caps their profits through the medical loss ratio. It’s a very different profile than many of them were used to having in the market and it’s a very different profile from what many of them want to be,” Kalogeropoulos told HealthPayerIntelligence.com. “They are essentially a commodity provider of paying for services. The real places where they’ve been struggling to differentiate now is on the networks and on certain types of additional benefits they offer.”
“The problem is because of the brutal cost competition on the exchanges, there’s actually a lot of pressure to both constrain the networks but also to keep the benefits to just the EHBs because otherwise you’ll incur unreasonable costs,” he continued. “Our experience of enrollment shows that a disproportionate percentage of people enrolling in the public exchanges are actually purchasing the cheapest plans. That creates a very brutal cost competition amongst the payers who are looking to do well in the public exchanges. The people who are signing up on the public exchanges have turned out to be sicker and poorer than the typical customer that a typical health payer was used to serving in the past.”
Solutions to Affordable Care Act challenges
What should be done to fix these problems with the Affordable Care Act? Is repealing the healthcare law the best option as outlined by House Speaker Paul Ryan’s replacement plan? Or would it be more beneficial to fix some of the issues within the Affordable Care Act while keeping major portions of the legislation? George Kalogeropoulos outlined some of HealthSherpa’s revisions to fix the Affordable Care Act and addressed payer concerns.
“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. “Possibly inserting some flexibility on the cap of the premium multiple is one solution. A 65-year-old can pay no more than 3 times what a 21 or 22 year old pays for premiums. Prior to ACA that multiple was more like 10 or 11 fold.”
“The net effect is that older people are underpaying and younger people are overpaying in premiums,” Kalogeropoulos explained. “It’s no surprise that not very many younger folks are enrolling. Essentially, improving the risk pool will benefit payers. There’s a small business exchange in the Affordable Care Act that has flat enrollment numbers at 10 percent of what they were projected to be. It’s clear that SHOP is one of those things that need to be pruned out of the Affordable Care Act. What you would want to do is take that risk pool and consolidate it with the individual exchange by having small businesses direct employees to get coverage through the individual exchange.”
Kalogeropoulos also outlined how some of the political debates regarding the Affordable Care Act are not completely different from the criticism surrounding Medicare legislation in the 1960s.
“If you look at when medicare was first being debated in the 1960s, it was viewed basically as communism in disguise. There was a lot of negative reaction to it. People called it socialism or encroaching government power. Of course, fast forward 50 years and Medicare is such a critical part of the nation’s healthcare infrastructure. It is not a politically contentious issue,” Kalogeropoulos stated. “Before medicare 50 percent of seniors had health insurance and now 95 percent of seniors have health insurance. You can see a similar thing happening with the ACA. Uninsurance rates are the lowest they’ve ever been recorded.”
The consequences of inaction
The federal government including the Senate and the House of Representatives will need to work toward implementing some of the revisions necessary to strengthen the Affordable Care Act and alleviate payers concerns especially with regard to operating through the public health insurance marketplace. What would happen if the government does not move forward with revising the Affordable Care Act?
“Our biggest concern is inaction because the ACA needs refinement. We believe it’s a solid foundation but there’s things that need to be done to make it better for the payers and things that need to be done to make the risk pool more sustainable. That’s to be expected. If we don’t do those things, we run the risk of the insurance death spiral, which leads to higher premiums forcing healthier people out of the market resulting in higher costs and fewer healthier people on the public marketplace,” Kalogeropoulos explained the outcome of stalling on healthcare reform. “That’s a real risk if no one moves to reform the law.”
“No one across the political spectrum wants to get rid of health reform. They want to get rid of ObamaCare. Health reform is something that has had extensive bipartisan support in the past. If you look at the proposals coming out of the GOP such as Ryan’s plan starts out with repeal but then goes into saying to institute a subsidy and have subsidy threshold be 300 percent instead of 400 percent on federal poverty level,” he continued.
“It goes on to institute a continuous care requirement, put more emphasis on health savings accounts, and let people deduct premium payments from their taxes. All of this is really health reform revised instead of repealed. The biggest risks are inaction or the repealing and failing to replace.”
The outcomes of ACA revision
However, if the Affordable Care Act is preserved and improved upon, the uninsurance rate is expected to drop even further especially if Medicaid expansion continues and national health payers will be more likely to come back to serving on the health insurance exchanges.
“We think you will see a dramatically reduced uninsurance rate,” Kalogeropoulos said. “We’ve seen the lowest ever uninsured rate and we should see that number go even further down particularly if we fix things like the Medicaid gap among states that haven’t expanded Medicaid. There are people who can’t get subsidies and cannot get Medicaid. Doing something to fix that like extending subsidies, will take care of those people.”
“Several million more would have coverage then. A drop in the uninsurance rate would definitely follow. Also, a healthier functioning exchange ecosystem would occur,” he concluded. “Essentially, that healthier ecosystem would both draw the big carriers back in like Aetna and UnitedHealth but also make it possible for them to be profitable. Bringing part-time and full-time employees to the public exchanges would bring a healthier risk pool. Because coverage decisions and spending decisions would occur on the individual level, there are potentially very strong benefits in terms of containing cost.”