Tuesday, June 23, 2020

In a crisis, Democrats bench the ACA marketplace

young soccer players on bench

As tens of millions of American file for unemployment insurance, about half of those who lose job-based health insurance will be eligible for Medicaid and another 25-30% for ACA marketplace subsidies, according to estimates by the Urban Institute and Kaiser Family Foundation.

The lower percentage potentially picked up by the marketplace is not in itself a knock on that program.  In the U.S., regular unemployment insurance income is very low, and normally accessed only by a minority of the unemployed. In the 35 states that have enacted the ACA Medicaid expansion, those with incomes up to 138% of the Federal Poverty Level (FPL) are eligible for Medicaid. People whose current monthly income is below that threshold are expected to make up a large percentage of those losing job-based coverage.  The $600-per-week extra unemployment insurance (UI) benefit provided for up to four months by the CARES Act does not count toward Medicaid eligibility.

That said, the marketplace has always been a leaky vessel for those who need insurance and qualify for its subsidies (let alone those who need insurance and don't qualify for subsidies, a group that abandoned marketplace coverage in droves in response to the premium runups of 2017-18). A bit less than half of those who qualify for subsidies enroll, according to the Kaiser Family Foundation's 2019 estimate (which I suspect is a tad low). Takeup of Medicaid is much higher. The Kaiser Family Foundation's 2018 estimate of the uninsured who are eligible for Medicaid (6.7 million) is less than 10% of total Medicaid enrollment (73 million in 2018).
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While House Democrats have a showcase bill pending to improve ACA marketplace subsidies and provider networks, Democrats' bills and proposals to date have essentially benched the marketplace as a resource to be boosted in an emergency effort to minimize growth of the uninsured population in the pandemic.  Consider:

  • The first major Coronavirus response bill, the Families First Coronavirus Response Act, a House Democratic production signed into law on March 21, increased the federal share of states' Medicaid funding by six percentage points on condition that states refrain from restricting eligibility and maintain coverage for anyone who was enrolled as of the bill's passage or for anyone who enrolls during the crisis until the public health emergency ends.  The bill did nothing to enhance ACA marketplace coverage or enrollment, except mandate that plans cover Covid-19 testing and ancillary services, as all modes of comprehensive insurance must. It's true that the emergency Medicaid provisions have well established precedents that make them acceptable to Republicans, whereas any enhancement to reviled "Obamacare" would probably meet Republican resistance. But at that early point Democrats had considerable leverage and might at least have mandated an emergency Special Enrollment Period in which any uninsured person could enroll as in the Open Enrollment season. Most of the 13 state-based ACA exchanges had already done this before the Families First Act became law, while HealthCare.gov, administered by the Trump administration, had not done so -- and announced at the end of March that it would not.

  • The CARES Act's $600 per week extra UI benefit, available for up to four months and so worth up to about $10,200, does not count as income in determining Medicaid eligibility but does count in determining ACA marketplace subsidies, which diminish sharply as income rises. As I noted at passage, that extra income will likely wipe out the Cost Sharing Reduction (CSR) subsidies that make ACA coverage far more comprehensive at incomes up to 200% FPL than at incomes above that threshold. More than half of subsidized pre-crisis enrollees obtain strong CSR. Many others seeking coverage after layoff will likely be bumped out of subsidy eligibility (capped at 400% FPL) altogether. 

  • The HEROES Act, a bill passed by the House Democrats and dead in current form at least in the Senate, would subsidize laid off employees' COBRA premiums at 100% through January 31, 2021. That's the least disruptive but most expensive way to keep the newly unemployed insured (and more expensive in out-of-pocket costs than Medicaid for the enrollee as well as for the government). The bill would also establish an emergency Special Enrollment Period in the ACA marketplace, in which anyone who lacked coverage could enroll without a specific "life change," and fund extensive enrollment outreach. But that benefit would likely be relevant only to those who lack access to COBRA if this bill became law.

  • A proposal just released by the Center for American Progress, a think tank closely aligned with Democrats, would automatically extend emergency Medicaid coverage to anyone enrolled in unemployment insurance or SNAP (food stamp) benefits, and extend eligibility to others with incomes up 200% FPL. Like the CARES Act UI supplement, this would all but eliminate the CSR benefit that renders actual healthcare, as opposed merely to health insurance, affordable to marketplace enrollees (a weak strain of CSR is available in the 200-250% FPL income bracket). Medicaid is a better solution for people with incomes under 200% FPL than marketplace coverage -- the proposal makes sense on the merits. But that's the point.
The fact that the CAP proposal is clearly the most cost-effective way to insure the newly uninsured, as Kaiser's Larry Levitt told Greg Sargent, is an implicit indictment of the design of the ACA marketplace, which so many prospective enrollees find unaffordable.  As CAP proposal author Topher Spiro points out, ACA marketplace plans, which pay commercial rates to providers, cost more per adult enrollee than Medicaid plans, $7,024 vs. $5,669, while saddling enrollees with high premiums and out-of-pocket costs. While provider networks may be marginally more extensive on average in ACA plans than in Medicaid, the marketplace has increasingly been dominated by narrow network plans.

The ACA marketplace was allegedly modeled after the Massachusetts healthcare reform bill enacted in 2006, but that is really not the case. Subsidies in the Massachusetts Health Connector were (and remain) far more generous at incomes up to 300% FPL, the original subsidy threshold, than in the marketplace in other states. Enrollee costs at income up to 150% FPL are comparable to Medicaid's, with enrollees' costs increasing more proportionately at 150-300% FPL than in the regular ACA marketplace. Insurer participation was originally limited to managed Medicaid providers, with competition structured in such a way as to ensure they would pay providers at rates close to those paid in Medicaid. Plans offered in ConnectorCare, the current essentially separate marketplace offered to enrollees with incomes up to 300% FPL, are in a single risk pool with plans above that threshold, so enrollees at higher incomes benefit from the relatively high takeup of ConnectorCare benefits. Massachusetts has the lowest uninsured rate in the nation, 3% in 2018, and the lowest average individual market premiums.

The ACA marketplace was designed to mollify Republicans, healthcare providers (who did not want the footprint of government payment rates expanded), insurers, and conservative Democrats who effectively stood in for the moderate Republicans who no longer existed. It relied on competition among insurers to hold prices down, without creating the market conditions empowering insurers to  pay providers at Medicare or Medicaid rates, and without subsidizing coverage generously enough to make it attractive to prospective enrollees. While the "ACA 2.0" bill released today does strengthen subsidies enough to make offerings more attractive, it leaves insurers to negotiate provider payment rates on their own, and so remains needlessly expensive The next wave of reform should restructure the marketplace so that it's more like Medicare Advantage or managed Medicaid  -- i.e., like Massachusetts' ConnectorCare.

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Updated 9:00 p.m.; first bullet point added.

Update, 6/25/20: Update: a reader pointed out to me, quite reasonably, that a considerable number of marketplace enrollees access provider networks far better than they would get in Medicaid, and that the ACA would never have passed if it were offering Medicaid-type service to the broad public -- those who either need or recognize they may someday need the individual market. True on both counts. My built-in assumptions are that if the marketplace, or a program occupying the marketplace's current place, were built right it would have offered coverage that a) paid "public" rates to providers and b) compelled provider participation by, say, requiring that any provider who accepted Medicare also accept the new public plan. Building a reformed market out of Medicaid would also entail improving access to providers, and so probably paying them more than current Medicaid rates. The precise line between expanding the Medicaid model -- as, for example, in the Basic Health Programs established in New York and Minnesota or via a de facto Medicaid MCO market like Massachusetts' ConnectorCare (all explored in this post) -- and building a new public program as in Medicare for America remains to be worked out. 

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