As the election of 2016 draws closer, it is not surprising that more and more articles relating to the Affordable Act of 2010 (ACA) are appearing on the front pages. If the republicans win the Presidency, they will probably move to repeal the ACA and start a process to replace it. If the democrats win, repeal will be off the table, but changes will still be inevitable. The most pressing of several contentious issues relates to several large insurers who are planning to pull out of the health care exchanges starting in 2017 unless premiums are allowed to go up significantly.
In Tennessee, my home state, Cigna and Humana have received permission to raise premiums by 46 and 44 percent, respectively. Blue Cross Blue Shield of Tennessee, losing an estimated $500 million on the state’s exchange by the end of 2016, has been given permission to raise premiums 62 percent for 2017.
Texas Blue Cross has lost a billion dollars on the state exchange and is requesting a 60 percent premium increase for 2017. Blue Cross Blue Shield of Minnesota has pulled out of that state’s exchange as losses over the last three years are $500 million.
The average premium rise for plans being offered on the state exchanges will be 24 percent for 2017. The rates must rise to offset losses due to the risk profile of those buying insurance being much worse than originally expected.
Insurance companies were early supporters of the ACA. They envisioned millions of healthy people forced to buy health insurance with higher premiums mandated by the law. The higher premiums were meant to off-set the lower premiums being paid for those with pre-existing conditions. The lower premiums were, again, mandated by the law under the “community standard” provision.
What the insurers failed to properly predict were the millions of healthy people who elected to not buy insurance; instead paying the penalty (tax?) which was much lower than the premiums required. The insurers found themselves paying more for health care than they were receiving in premium income. Predictably, many insurers suffered significant financial losses; many have opted out of the health care business.
One of these large insurers, Aetna, has recently announced that it will pull out of 11 of the 15 states where it currently offers health insurance on the exchanges. This is following the lead of United Health Group which is also planning to withdraw from several exchanges in the same time-frame. If Aetna follows through on its plan, it will only offer exchange plans in 242 counties, down from the current level of 778. In those counties where it is pulling out, consumers will find there are fewer plans to choose from or, in some instances, no plans on the exchanges at all.
Aetna’s decision to roll back on its coverage comes on the news that its planned merger with Humana is going to be blocked by the Justice Department. The Justice Department also has moved to block a similar merger contemplated by Anthem and Cigna. The Justice Department believes that consolidating the health insurance industry to just a few key companies will lead to monopolistic practices; there will be less competition and as a result, consumers will face higher costs.
If the consumer is unable to find a suitable plan on the exchange for their county, they have the option of buying their own health insurance from companies who are not participating in the exchanges. However, these buyers would not be eligible for premium and cost sharing supports which are only available for those who buy insurance on the exchanges. Medicaid would be an option but not for those whose income is too high to qualify.
It is foreseeable that state or federal regulators will try to convince some insurers to enter into the counties which have lost their carriers. They could do this by promising the approval of high premiums or perhaps, governmental subsidies to offset any potential losses. High premiums, no competition, and governmental subsidies would be a win for the carrier.
Under the ACA, many people have gained health care coverage through the loosening of restrictions on Medicaid. Many more have gained coverage through the exchanges. Those with pre-existing conditions cannot be denied coverage due to the individual mandate of the law and those same people will not be charged higher premiums due to the community rating requirement. These are all good things.
Medicaid contractors, used to delivering lower cost care, are surviving.
The ability to buy health insurance at any time of the year is another factor leading to healthy people holding off on buying until they needed to be covered. These factors led to healthy people not buying insurance and those who need to use the insurance to buy it now. Not getting the premiums of the non-users has been a game changer for the insurers. Aetna has claimed $430 million in losses on individual products since January 2014.
Promised governmental subsidies to insurers are being blocked by the Congress that has not yet appropriated those funds; the funds are not likely to be appropriated so long as the House is under republican control. Seeing the political lines in the sand, the insurers are not relying on the promise of future funding while their losses continue to pile up.
In order to get the healthier patients to buy insurance, the penalties for not participating will have to be increased. To help off-set the rising costs that the insurers are seeing from the unhealthy patients who are now buying insurance, the premiums and deductibles will have to go up. There will need to be a time frame in which no one will be allowed to buy on the exchanges or apply for Medicaid; these steps are needed to get the healthier people to buy insurance now. These non-users of health care will be subsidizing those who are users but that is how insurance is supposed to work.
As the election draws closer, these rising costs are going to result in political consequences. The democrats passed the law and there was not a single republican vote in support. As the ACA is looking more and more like an entitlement, politics will make reforms more difficult, even unlikely. It will be interesting to see how the press handles this conflict. My guess is that little will be reported until after the election.
by Darryl S. Weiman, M.D., J.D.
Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN