By JONATHAN HALVORSON
In a previous post, I described how some features of the Affordable
Care Act, despite the best intentions, have made it harder or even impossible
for many plans to compete against dominant players in the individual and small
employer markets. This has undermined aspects of the ACA designed to improve
competition, like the insurance exchanges, and exacerbated a long
term trend toward consolidation and reduced choice, and there is evidence it
is resulting in higher costs. I focused on the ACA’s risk adjustment program
and its impact on the small group market where the damage has been greatest.
The goal of risk adjustment is commendable: to create
stability and fairness by removing the ability of plans to profit by “cherry
picking” healthier enrollees, so that plans instead compete on innovative
services, disease management, administrative efficiency, and customer support.
But in the attempt to find stability, the playing field was tilted in favor of
plans with long-tenured enrollment and sophisticated operations to identify all
scorable health risks. The next generation of risk adjustment should truly even
out the playing field by retaining the current program’s elimination of an
incentive to avoid the sick, while also eliminating its bias towards incumbency
and other unintended effects.
One important distinction concerns when to use risk
adjustment to balance out differences that arise from consumer preferences. For
example, high deductible plans tend to attract healthier enrollees, and without
risk adjustment these plans would become even cheaper than they already are,
while more comprehensive plans that attract sicker members would get
disproportionately more expensive, setting off a race to the bottom that pushes
more and more people into the plans that have the least benefits, while the
sickest stay behind in more generous plans whose premium cost spirals upward. Using
risk adjustment to counteract this effect has been widely beneficial in the
individual market, along with other features like community rating and
However, in other cases where risk levels between plans differ
due to consumer preferences it may not be helpful. For example, it has been
documented that older and sicker members have a greater aversion to change (changing
plans to something less familiar) and to constraints intended to lower cost
even if they do not undermine benefit levels or quality of care, like narrow networks.
These aversions tend to make newer plans and small network plans score as
healthier. Risk adjustment would then force those plans to pay a penalty that in
turn forces enrollees in the plans to pay for the preferences of others.
By KATHERINE HEMPSTEAD PhD
The 2019 ACA plan year is notable for the increase in insurer participation in the marketplace. Expansion and entry have been substantial, and the percent of counties with one insurer has declined from more than 50 percent to approximately 35 percent. While urban areas in rural states have received much of the new participation, entire rural states have gained, along with more metropolitan urban areas.
Economic theory and common sense lead most to believe that increased competition is unquestionably good for consumers. Yet in the paradoxical world of the subsidized ACA marketplace, things are not so simple. In some markets, increased competition may result in a reduction in the purchasing power of subsidized consumers by narrowing the gap between the benchmark premium and plans that are cheaper than the benchmark. Even though the overall level of premiums may decline, potential losses to subsidized consumers in some markets will outweigh gains to the unsubsidized, suggesting that at the county level, the losers stand to lose more than the winners will win.
One way to illustrate this is to hypothetically subject 2018 marketplace enrollees to 2019 premiums in counties where new carriers have entered the market. Assuming that enrollees stay in the same metal plan in both 2018 and 2019, and that they continue to buy the cheapest plan in their metal, we can calculate how much their spending would change by income group.
Under these assumptions, in about one quarter of the counties with federally facilitated marketplaces (FFM) that received a new carrier in 2019, both subsidized and unsubsidized enrollees would be better off in 2019, meaning that they could spend less money and stay in the same metal level. In about thirty percent of these counties, all enrollees are worse off. In almost all of the rest, about forty percent, there are winners and losers, but in the aggregate, the subsidized lose more than the unsubsidized win. Overall, in about 70 percent of FFM counties with a new carrier, subsidized enrollees will lose purchasing power, while in about 66 percent of these counties, unsubsidized customers will see premium reductions. In population terms, about two-thirds of subsidized enrollees in counties with a new carrier will find plans to be less affordable, while a little more than half of unsubsidized enrollees will see lower premiums.
By the end of 2014, more than 6.5 million people were enrolled in health insurance plans through the Affordable Care Act (ACA) Marketplace, also called the “exchanges.” In some cases, this was relatively easy. But for many, the ACA’s first open-enrollment period was a confusing and frustrating time, compounded by a lack of clear, easy-to-understand information about plan options, coverage, and cost.