ACA marketplace: What to watch for in 2016

Larry Levitt tweets core questions for the ACA private market in the coming year:

Key things to watch in health for 2016: 1. Health spending trend. 2. ACA premiums for 2017. 3. Further progress in covering the uninsured.

— Larry Levitt (@larry_levitt) December 31, 2015

That is, will marketplace plans prove affordable to a critical mass of people for whom the nongroup market is the only route to insurance? (The first question has a wider purview.) Regarding the viability of the marketplace, some further questions:

1) Whither narrow networks? For 2017, CMS has tightened the standards for network adequacy, inspiring intense squawking from the insurance industry. More constraint on insurers' ability to exclude expensive providers could put some upward pressure on providers. On the other hand...

1b) The possible positive and negative effects of cut-rate narrow network insurers with roots in Medicaid managed care (e.g., Molina and Centene's Ambetter) are worth watching.  These insurers probably pay very low rates to hospitals and doctors and have strongly undersold larger insurers in many ACA markets. In some of those markets, they've pushed the price of benchmark silver down from 2015 in a year when benchmark plans rose 7.5% on average. They may be a contributing factor in the evaporation of PPOs in the marketplace. If they thrive, they may put downward pressure both on prices and network size.

2) Will consumers respond to Swiss cheese coverage? As deductibles rise,  insurers are offering more benefits that kick in before the deductible, such as primary care visits and generic drugs with modest (or relatively modest) copays. Like narrow networks, that benefit structure is likely more attractive to healthier customers who don't anticipate running up thousands of dollars in medical costs.

3) Will silver plan selection remain stable at a bit over 2/3 of marketplace enrollees? Or will bronze plans, with their sky-high deductibles, gain market share? So far, CMS has uttered one whisper suggesting that silver plan selection is high this year. For low income buyers, bronze is a prescription for underinsurance.  Perhaps rising silver plan deductibles will drive some buyers to throw up their hands: if low deductible insurance is out of reach, why pay more for a silver plan with a $5000 deductible rather than a bronze at, say, $6500?

4) Will average incomes of marketplace enrollees increase? To date, enrollees have been heavily weighted toward lower income bands, where benefits are richer and the percentage of income paid by a subsidized buyer is much lower. Almost two thirds of 2015 enrollees had incomes under 200% of the Federal Poverty Level (FPL) and so were eligible for strong Cost Sharing Reduction (CSR) subsidies, which about 80% of buyers below that threshold obtained.  Unsurprisingly, uninsured individuals below that income level enrolled in marketplace plans at far higher rates than those in higher brackets. Much of that low-hanging fruit is picked, and while there's still plenty left, there's proportionately more uninsured at higher income levels. They may be harder, not easier to attract as time goes by, because deductibles and out-of-pocket costs are rising for those who earn too much to qualify for CSR (or for strong CSR; the benefit is negligible in the 200-250% FPL income range).

On the other hand, the rising tax penalty for going uninsured, increased ease of use of the exchanges, and the slow but cumulative dissemination of information (majorities of uninsured subsidy-eligible survey respondents still seem not to know they're subsidy-eligible) may pull in increasing numbers of higher-income subsidy-eligible buyers.

As for those who earn too much to qualify for subsidies: Both HHS and the Kaiser Family Foundation count them as potential marketplace customers -- as technically, of course they are. But whether they buy on- or off-exchange matters only for record-keeping purposes, as the off-exchange market is hard to track -- or for "PR purposes," as Charles Gaba tweeted this evening -- and for state revenue for the exchange, as Gaba also pointed out (that's true only for states that assess insurers for plans sold on-exchange only).  The main reason for the subsidy-ineligible to buy on-exchange is to hedge against the possibility of an income drop that would render them eligible for subsidy.

When I interviewed several subsidy-ineligible nongroup market customers back in 2014, all but one said they had bought their plans off-exchange, because the exchange technology was so faulty at that point .By now, for some shoppers at least the convenience advantage may have shifted to on-exchange: you compare, you select, you might as well hit "buy." On the other hand, subsidy-ineligible buyers may find preferable options offered only off-exchange -- and may also be likelier to rely on a broker, as higher income people are more likely to seek financial services. Again, what matters substantively on this front is how many of the subsidy-ineligible buy plans, not whether they buy them on- or off-exchange.

5. Will the trickle of red states belatedly embracing the ACA Medicaid expansion continue steady, become a flood, or dry out?  I'll leave the political tracking on this front to others. I would only point out, in scoping out the prospects of the private plan market, that late Medicaid expansions in some cases may create new challenges for state private insurance markets, since in many red states about a third of all 2015 private plan enrollees would be Medicaid eligible had their states expanded. Again, going forward, the exchanges are going to have to attract more buyers in higher income bands.

Stepping back, the major problem for the exchanges in my view is that the subsidy schedule is too skimpy for those in the 200-300% FPL income range -- a range in which uninsurance rates are high and takeup has been low. Given intractable GOP hostility to the law, there's no hope of fixing this problem on a national level in the foreseeable future. Some blue states may address it, either by ponying up state funds to enrich the subsidies (as Massachusetts and Vermont have done) or by extending a state-run public option to those earning more than 200% FPL (as Minnesota is considering doing), or by any alternative scheme that may be reachable via an "innovation waiver" available to states.