Wednesday, February 21, 2018

The ACA marketplace is damaged and taking new hits...but it's not a high risk pool and probably won't be

Update, 3/8/18: Various analyses are now predicting steeper premium hikes and coverage losses than I anticipated here, resulting from the combined effects of mandate repeal and greenlighting of short-term and AHP plans. See Urban Institute, 2/26, and Covered California, 3/8.
Since it first hit email boxes a few months (or maybe a year-plus?) ago, Vitals, Axios' healthcare e-newsletter, has beguiled its way into a first read. Editor Sam Baker, and Axios generally, have taken the holy grail (or shibboleth) of contemporary prose, concision, to a new level, sating our short attention spans while salting news aggregation with interpretation.  I find the trademark "be smart" tagline a touch patronizing, but the substance of that signposted takeaway is nearly always on point.

That said, I'm going to quibble with today's lead storylette, with a point behind the quibble that goes beyond Axios, I think.

The news item is HHS's proposed rule to allow loosely regulated short-term health plans to be sold for terms as long as a year rather than three months, the limit that went into effect last April. Since short-term plans are cheap, medically underwritten and not bound to cover Essential Health Benefits, they are poised to attract healthier buyers. With this rule, Trump's HHS punches one more hole in the ACA risk pool

Here's my quibble. According to Sam Baker, The ACA-compliant individual market is "sliding deeper into something a lot more like a makeshift high-risk pool, in which healthy people are absent and the government simply pays to cover sick people." I think that's overstated.

Baker quotes Avalere Health's Chris Sloan to the effect that people who aren’t eligible for premium subsidies “are just not enrolling in this market."  True, in a way.  But in what way? Unsubsidized buyers have always accounted for about 16-18% of on-exchange enrollment, and, for several years, a bit shy of 50% of all enrollees in the ACA-compliant market, including off-exchange.  Was that percentage always too low? It's shrinking now, in response to the steep premium hikes of 2017 and 2018 -- but how much? We don't know yet.

Yes, unsubsidized buyers are being priced out. And that's a really bad problem from a social standpoint. In fact, if you don't turn around and fix this market (easily doable, given political will) you have to offer alternatives to the unsubsidized, as the Trump administration is doing. And yes those alternatives will worsen the risk pool. But there's a limit to how much.

So, how much? Here's how Baker's kicker frames it:
The bottom line: All of this leaves the exchanges as a de facto home for people who really need coverage for preexisting conditions or who are poor enough to be shielded from the rising cost of that coverage.
How "poor" is "poor enough"? ACA subsidies are available to enrollees with incomes up to 400% of the Federal Poverty Level. It used to be the case that subsidies would phase out for younger buyers with incomes as low as about 260% FPL, but by now most enrollees with incomes under 400% FPL are subsidy eligible. They are not all "poor." For a family of four, 400% FPL is $98,400.

In fact 60% of the U.S. population is in households with incomes under 400% FPL. In 2013, on the eve of ACA implementation, 84% of the uninsured had incomes below that level -- reduced to 80% by 2016, according to the Census Bureau's Current Population Survey (see reports published in 2015 and 2017).

Taken together, the Medicaid expansion and the ACA marketplace offered subsidized coverage to most of those uninsured as of 2013. For those eligible for marketplace subsidies, the deal has gotten worse in some ways and for some people, and -- thanks mainly to the unintended effects of Trump's CSR sabotage -- better for others.  On the one hand, competition and choice have degraded, networks have narrowed, and out-of-pocket costs have risen at each metal level. On the other hand, bronze plans have become free or near-free for many, and gold plans have become much more affordable  for a significant subset of buyers (gold enrollment almost quadrupled in Maryland and California in 2018; we don't have metal level breakouts for the federal exchange yet).

Admittedly, marketplace takeup has always been poor in the 200-400% FPL income range, as 200% FPL is the cutoff for strong Cost Sharing Reduction subsidies. So it's true that marketplace enrollment skews toward low income as well as poor health. And to the extent that off-marketplace enrollment shrinks [see update below], the risk pool is degrading -- though the wide availability of discounted gold may boost enrollment somewhat in the 200-400% FPL range.

In any case, as long as the ACA subsidy structure remains in place, there's a hard limit to how much worse the risk pool is likely to get. Subsidized enrollment is stable at about 8-9 million per year. Claims that the marketplace may degrade into a high risk pool have been loudly voiced on Twitter by Andy Slavitt, in his warnings about what he calls the Trump administration's attempts at "synthetic" (i.e. administrative) repeal, and sometimes even by Larry Levitt, who has also emphasized the likely relative stability of the marketplace, barring further effective sabotage.  I think there's varying degrees of hyperbole in the warnings, rather casually shorthanded by Baker today -- though lord knows the market is bad enough already for the subsidized.

From a policy standpoint, leaving the politics aside, it would be easy to tweak the ACA marketplace enough to make it a roaring success: cap the rates insurers pay providers, cap premiums as a percentage of income for all buyers, raise the actuarial value of benchmark coverage. As an approximate shorthand for these measures: turn the marketplace into Medicare Advantage for the under-65 population.

If Democrats gain large majorities and the presidency in the near future (a big "if"...) such efforts may be superseded by more sweeping healthcare reform ventures. But as Sabrina Corlette and Jack Hoadley of Georgetown have illustrated, just about all publicly supported health insurance markets have entered crisis/contraction phases and been fixed by legislative and regulatory relief -- the most salient example being the private Medicare market, which Republicans showered with love while creating the prescription drug benefit (also elaborately safety-padded) in 2003.  If only Republicans had created the ACA marketplace....

Update: Courtesy of Loren Adler, Matt Fiedler of Brookings' October 2017 report on insurer financial performance in the individual market in the ACA era forecast that the 20.5% increase in ACA-compliant premiums in 2017 would reduce unsubsidized enrollment by 12.3% and overall enrollment by 5.3% (p. 16). Add even steeper premium increases in 2018 -- though partially cushioned for the unsubsidized by the concentration of the cost of unreimbursed CSR in on-exchange silver plans in many states -- and it seems likely that unsubsidized enrollment, most of it off-exchange, will have shrunk about 25% from 2016 to 2018 -- a hit to overall individual market enrollment of about 10%.  That's substantial -- and absent any fixes for 2019, more is likely coming. 

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