The Incredible Self-Destructing Healthcare Marketplace

Too frequently what gets overlooked in policy making are the regulations that implement or update legislation.  As Henry Mintzberg observed over 30 years ago policy is oftentimes formed without being formulated.  For example, the Congress did not define the most important provision in MACRA.  The Congress simply defined financial risk under an Alternative Payment Model (APM) as monetary losses in excess of a nominal amount.  It was CMS that determined via regulatory rule making specific revenue and benchmark-based standards.  While the focus has largely been on Congressional Republican efforts to repeal the ACA, three weeks ago the Trump administration recommended regulatory changes, via a proposed “market stabilization” rule, that will likely, should it as anticipated go final this month or next, have a more near term negative effect on state marketplaces.     

The market stabilization rule, announced February 15th, proposes six insurance reforms.  Briefly and again (these were summarized by the THCB editors the day they were published), the proposed rule would reduce the 2018 open enrollment period from three months to six weeks, or from November 1 to January 31 to November 1 to December 15.  The proposed would allow what was previously prohibited under the ACA’s “guaranteed availability” provision.  That is the proposed would now allow an insurance company to collect past due premiums before re-enrolling an individual in coverage.

The proposed would require pre-enrollment verification for all Special Enrollment Period (SEP) categories for all applicants served by the Healthcare.gov platform beginning in June 2017.  It would expand the de minimus actuarial value (AV) of plans from +/-2 percent to -4/+5 percent, that is the agency would allow plans to offer less comprehensive coverage under a certain metal level, beginning in either plan year 2018 or 2019.  The proposed would allow states, instead of the Department of Health and Human Services (DHHS), to determine insurance plan network adequacy (or rely on an insurer’s accreditation) and would reduce a plan’s requisite percent of Essential Community Providers (ECPs) from 30 to 20 percent.    

While CMS argues in the proposed these changes “are urgently needed to stabilize markets,” the agency provides no evidence that any of these reforms will actually stabilize the markets.  The agency does, remarkably, admit these reforms might actually produce the opposite effect, or destabilize the markets.

Shortening the open enrollment period by six weeks could, CMS states, “lead to a reduction in enrollment” because “primarily younger and healthier enrollees . . . usually enroll late in the enrollment period.”  The agency’s solution to “potential gaming” concerns under its proposed “guaranteed availability” reform is not only based on no evidence but, CMS admits, the agency is unable to quantify the extent of the problem or “determine the amount of past due amounts that consumers would have to pay in order to resume coverage.”  “The additional steps required to verify [SEP] eligibility,” CMS states, “might discourage some eligible individuals from obtaining coverage, and reduce access to health care for those individuals, increasing their exposure to financial risk.”  CMS also notes, requiring 100 percent SEP verification, “if it deters younger and healthier individuals form obtaining coverage, it could also worsen the risk pool.”  Therefore, CMS states, the “net effect of pre-enrollment verification and other proposed changes on premiums and enrollment is uncertain.”  Proposed changes in the de minimus values could, CMS notes, “reduce the value of coverage to consumers, which could lead to more consumers facing increases in out-of-pocket expenses, thus increasing their exposure to financial risk associated with high medical costs.”  The agency is “uncertain” what net effect transferring network standard reviews to states would have and lessening the percent of ECP participation CMS recognizes could lead to cost increases in “the form of increases travel time and wait time for appointments or reductions in continuity of care for those patients whose providers have been removed from their insurance issuer’s networks.”

In sum, CMS states “the net effect of the proposed rule provisions on enrollment, premiums and total premium tax credit payments are ambiguous.”  “On the one hand,” CMS writes, premiums could fall if “more young and healthy individuals obtain coverage” and insurance plans “are able to lower costs due to reduce regulatory burden and greater flexibility in plan design.”  “On the other hand,” CMS writes, a “shortened open enrollment period, pre-enrollment verification . . . , reduced actuarial value of plans, less expansive provider networks result in lower enrollment, especially for younger, healthier adults, it would tend to increase premiums.” 

What we do know is that it is more likely than not these reforms will prove destabilizing.  Concerning the proposed shortened open enrollment period, CMS presents no evidence that a shortened open enrollment period “reduces opportunities for adverse selection.”  Even if the Trump administration’s decision to pull back ads and outreach the last week of 2017 open enrollment did not have a negative effect, we know that just 367,000 people signed up for coverage in the final two weeks of 2017 open enrollment on the federal exchange compared to 700,000 in the last week of 2016 enrollment.

The proposed SEP changes are problematic for several reasons.  First, CMS presents no evidence the SEPs are being misused.  If anything, as Laurel Lucia’s noted in her February 16 Health Affairs essay,  research shows only approximately 9 to 10 percent of those eligible to enroll during a SEP actually do so. 1  The short duration of SEP enrollment is, or should be, anticipated since pre-ACA data shows there’s considerable churn in the individual market.  It’s neither surprising nor unusual for SEP enrollees to utilize comparatively more services in part because SEP enrollment takes considerable effort and those with the greatest health care needs are those most motivated to enroll.  As Brookings’ Matthew Fielder noted, “even if the entire cost differential between SEP enrollees and other enrollees resulted from inappropriate use of SEPs, the overall implications for average claims costs in the individual health insurance market would be modest.” 2  If anything, awareness of SEPs should be improved and the enrollment process made easier by, for example, improving the process by which individuals can transition from Medicaid to the marketplace.  This is particularly important since, per CMS’ own research, those 18 to 24 are far less likely to complete a verification process due to “hassle costs” than those 55 to 64.        

CMS believes expanding actuarial value (AV) de minimus values would help issuers design new plans thereby promoting competition.  Again, the agency provides no evidence in support of this belief.  Research shows however that allowing up to 4 percentage points below standard values would reduce premiums as well as premium tax credits since tax credits adjust dollar-for-dollar.  This change would allow for less generous silver benchmark plans for as many as 9 million silver plan enrollees.  The Center for Budget and Policy Priorities (CBPP) estimated that a silver plan with a 66 percent AV would increase costs for a family of four with an income of $65,000 by $550 per person. 3

Concerning the state marketplaces generally while participation by more young and healthier individuals and more plans would certainly help, the evidence is they’re not in a death spiral.  After accounting for 2017 increases, marketplace premiums approximate CBO’s initial projections.  For example, in 2016 premiums were 12 percent to 20 percent below CBO’s initial estimates.  As for premium increases, the ACA ensures that an individual’s contribution to the benchmark plan is capped at a certain percentage of their income.  ACA enrollment has increased every year since 2014 and enrollees are becoming healthier.  CMS’ own estimates show that per member per month spending slightly decreased between 2014 and 2015. 4

In late January THCB posted an essay I wrote titled “ACA Repeal and the Ethics of Belief” where I cited William Clifford’s seminal 1877 essay, “The Ethics of Belief.” 5  Clifford argued it is “wrong always, everywhere, and for anyone, to believe anything upon insufficient evidence.”  The resulting danger is that we “become credulous,” or willing to believe anything, and to do so results in society, he said, “sink[ing] back into savagery.”  If you read the administration’s proposed “market stabilization” rule, it appears we’re sinking.

End Notes

1. Laurel Lucia, “How Do We Make Special Enrollment Periods Work?” Health Affairs Blog (February 16, 2016).  At: http://healthaffairs.org/blog/2016/02/16/how-do-we-make-special-enrollment-periods-work/.

2. Matthew Fielder, “Trump Administration’s Proposed Change to ACA Special Enrollment Periods Could Backfire,” Brookings Institution (February 17, 2017).  At: https://www.brookings.edu/blog/up-front/2017/02/17/trump-administrations-proposed-change-to-aca-special-enrollment-periods-could-backfire/.

3. Aviva Aron-Dine and Edwin Park, “Trump Administration’s New Health Rule Would Reduce Tax Credits, Raise Costs, For Millions of Moderate-Income Families,” Center on Budget and Policy Priorities (February 15, 2017).  At: http://www.cbpp.org/research/health/trump-administrations-new-health-rule-would-reduce-tax-credits-raise-costs-for.

4. CMS, “Changes in Individual Market Costs from 2014-2015,” Near-Zero Growth Suggests An Improving Risk Pool.” (August 11, 2016).  See also, Jason Furman and Matt Fielder, “The Economic Record of the Obama Administration” Reforming the Health Care System,” (December 2016).  At: https://obamawhitehouse.archives.gov/blog/2016/12/13/economic-record-obama-administration-reforming-health-care-system.

5. The essay is at: https://thehealthcareblog.com/blog/2017/01/23/aca-repeal-and-the-ethics-of-belief/.