The Affordable Care Act Makeover – Part 4: A Country under Construction

Part 1, Part 2 and Part 3 of this series discuss the individual health insurance market makeover than began in 2018. Parts 1 and 2 discuss how industry profitability spurred insurers to return to Affordable Care Act (ACA) markets in 2019 and 2020. Part 3 explains the enhanced premium subsidies resulting from the defunding of Cost-Sharing Reduction (CSR) payments, the catalyst behind the market makeover. The makeover is a multi-year process, and states are at different stages in the progression. This is the 4th and final piece of this series and it examines states’ progress toward market equilibrium.State Rankings and Market Equilibrium Higher gold level enrollment, the richest coverage of the three metals (bronze, silver, gold), strongly correlates with market performance. It is also viewed as a positive sign by many organizations that believe high cost-sharing is a market detriment. The chart illustrates the impact of Gold/Silver pricing on the distribution of gold enrollment and state ranking.I have compared the ten states at ‘market equilibrium’ versus other all states. For our purposes, I have defined ‘market equilibrium’ specifically as states that have expanded Medicaid and have Gold/Silver premium ratios under 103%. The presumption is that all states will eventually be at equilibrium, so it is worthwhile to compare the market landscape of states that are at equilibrium versus remaining states. It provides a potential outlook for the state of ACA markets if they are left alone and allowed to progress unencumbered. Federal legislative disruption could interfere with states’ progression toward market equilibrium and should be approached with caution. Nationwide equilibrium may take time. All states have not expanded Medicaid, but that does not mean they never will. Medicaid is now available in every state, but it took Arizona 17 years to adopt (in 1982). In 2018, the Congressional Budget Office said, “By the end of the coming decade, gross premiums for gold plans are projected to be lower than gross premiums for silver plans, and the gold plans will provide more generous benefits for people not eligible for CSRs.”The end of the decade seems like a long time; if 14 states (10 at equilibrium and 4 others that have not expanded Medicaid) already have Gold/Silver ratios under 103%, will it really take other states ten more years? I generally do not subscribe to public attention as a rational source, but it may depend how quickly the primary dynamic in ACA markets becomes the primary discussion point. If the public focus remains on sideline issues, markets will continue to stagnate like they have done from 2018 to 2020. You may believe that state governments are privy to nothing except formal communication, but they are bombarded with the same drivel that we are, and it impacts their outlook and priorities more than you know.“Market stagnation” deserves an explanation. In the summer of 2017, I estimated the new market premium relationships between metal levels. I did not refer to “market equilibrium” at the time as I did not really consider a reason for states and insurers to delay market optimization. A few weeks later, the Congressional Budget Office (CBO) released a report with premium relationships that were in line with my estimates but noted it would take insurers a few years to understand how the ACA makeover would work. They were right. In the table below, the 2018-2020 federal exchanges results for the lowest cost plan in each metal level indicate that gold/silver relationships are much higher than anticipated. A move toward equilibrium would see 1.16 in 2018 dropping rapidly each year toward the .94 and .96 estimates.How do equilibrium states compare to non-equilibrium states? In the ten equilibrium states in 2020, gold level enrollment is averaging 38%. In the remaining states, it is 13%. Medicaid expansion is less of a factor than the Gold/Silver relationship. If we drop Medicaid expansion, gold enrollment is a respectable 25%; states that have expanded Medicaid but have higher Gold/Silver Ratios are at a poor 11%. The Gold/Silver relationship is the best indicator of market success. Noting the market stagnation, the map has not changed much since 2018. Will it change in 2021? Yes. A recent Health Affairs blog notes “Higher Premium Tax Credits let consumers buy coverage other than the benchmark at lower net premium cost, increasing enrollment and making the market more attractive to consumers and insurers alike.” More states now understand the makeover dynamics, and some are taking proactive steps to achieve quicker progress toward market equilibrium.The Data and the HypeIn our fast-paced digital culture, anecdotal incidents and viral spreading often receive more consideration than underlying evidence that has been building for years, but it struck me that one insurer entering one state generated significant attention, and let’s be clear that Politico’s ‘Coronavirus boosted Obamacare’ generated real attention. Yes, it is United Healthcare (UHC), and that’s flashy because UHC was the poster child (an editor insisted that I include parenthetical “in particular, United Healthcare has exited most ACA markets”) for insurers leaving markets in 2016, although there were many exoduses from 2016 to 2018. It’s also Maryland, and most of you won’t recognize that significance, but a month ago I opined, “Maryland is the top performer among state-exchange states. In other states, its easier to draw cause/effect relationships from the market dynamics. Maryland, on the other hand, just seems to know what theyre doing.” It should be no surprise that a third insurer is willing to join CareFirst and Kaiser Permanente in the very strong Maryland market, with or without the coronavirus.We should ignore the oversized hype about Medicare for All, the “Congressional charade court case”, and the discussion surrounding the coronavirus boosting market interest; they are not serious threats to the ACA landscape. Real threats remain and we should separate the substance from the hype to understand them. If left alone, ACA markets will continue to strengthen as more states approach equilibrium. If we tinker with the dynamics, the consequences may be unintended, much the same way many stakeholders believe the ACAs makeover itself was a grand accident.Joe Biden’s claims his plan “will increase the size of tax credits by calculating them based on the cost of a more generous gold plan rather than a silver plan”, which of course would reduce premium subsidies when states reach equilibrium level. His “public option” could create unsuspecting disruption as well, and a lower age for Medicare eligibility would increase ACA premiums, at least according to a RAND study measuring the impact a pre-equilibrium enrolled population.Am I likewise concerned that President Trump’s cumulative actions will harm ACA markets? I originally thought they would, but my view started to changenbsp;in June 2017 after closely watching his policy actions. While he, his supporters, and his detractors label him an ACA enemy, I have comfortably been a contrarian the last three years highlighting the positive implications of his policies as others have predicted disaster. Despite the campaign-style rhetoric, President Trump’s three year record is calling the only successful repeal effort “mean” and destroying its momentum, enhancing premium subsidies, providing alternative options for those harmed by the ACA, offering states additional flexibility, and strengthening individual markets by allowing employers to access them.His policy actions have made the ACA too popular to repeal (by my definition), causing more people to say they were helped and fewer to say they were hurt by the ACA since 2016. Of course, insurers could not resist the temptation to get back in the new and improved game. As Joe Biden himself said during a recent debate, “If you want to know what a president will do, look at what he has done”. When President Trump was campaigning, all we had to rely on was his campaign proclamations; now we have a three-year record. You’re welcome to believe “we practically got rid of Obamacare when we got rid of the individual mandate”, but every conceivable ACA market measure indicates that markets have improved since 2016.The Serious MatterIf we are serious about improving ACA markets, we need to stop prioritizing sideline issues when what really matters is enforced ACA compliance, which results in a correction of the price relationship of plans that people buy relative to price of plans that determine the government subsidy.Forget about government-sponsored advertising. Forget about who is operating the exchange. Forget about short term plans and the overblown politics surrounding them. Forget about a shorter open enrollment period, that the insurance industry lobbied for and President Obama authorized, but somehow was twisted into President Trump’s doing with nefarious intent. Forget about escape options. Forget about the politics. Forget about risk corridors. Forget about the court case which Congress will resolve when it is no longer a political benefit. We can even forget about Medicaid expansion. Forget about all the side issues that cloud what really matters in individual health markets, and that is what consumers pay relative to the benefits they receive. And please, please, please, stop saying that the coronavirus is what is attracting insurers to ACA markets. It is the profitability opportunity, and it’s been enhanced by a 2018 subsidy boost.ConclusionACA markets have improved due to regulatory changes that have been implemented since 2017. It requires a separation of politics from policy to appreciate that, which will undoubtedly prevent many of us from achieving clarity, but I appreciate you staying with me for this long.The ACA’s rating rules harm markets, and that is acknowledged by ACA supporters and detractors alike. In a vacuum, community rating drives up premiums and repels healthy people. The ACA’s sustaining lifeblood is generous premium subsidies which allow consumers to pay less than full inflated premiums. ACA markets struggled through 2017. The dynamics of the subsidy calculation were significantly improved in 2018, and states and local markets have responded on different timelines. It has been a multi-year process for some states and ten high-performing states are at market equilibrium now. The ACA is stronger today because the proportion of premiums paid by consumers is less, more healthy people are attracted to markets, and insurers financial results have improved. These dynamics have led insurers back to ACA markets beginning in 2019; the turning point in ACA markets was a change in the subsidy dynamics, not the rise in the unemployed population due to the coronavirus. As we work to improve ACA markets and pricing relationships in 2021, it is important that we remember what really matters and not become sidetracked by punditry. Can a relative ACA market assessment really be as simple as equilibrium measurements of metal level pricing relationships? This is the measure that I have closely watched for the last three years. The stagnation in 2019 and 2020 has been surprising, which I primarily attribute to states being sidetracked by side issues. Ultimately, with federal patience, all states will be at market equilibrium, and that will benefit consumers which will in turn benefit insurers and attract more of them to ACA markets. If allowed to proceed, the ACA makeover will make ACA markets and the underlying law stronger nationwide. Of course, some of us will want to halt the ACA construction if given the opportunity, not because we don’t like the work, but because we don’t like the contractor.