October 20, 2016
Aetna’s August announcement that it will exit the Affordable Care Act marketplaces, commonly known as the “exchanges,” in 11 states for the benefit year beginning in 2017 continues to fuel concern that people in counties throughout the country — especially rural counties — will have limited choices when selecting an individual health plan next year.
According to a recent analysis by the Kaiser Family Foundation, as many as 19 percent of all marketplace enrollees across the United States could have only one choice of insurer going into 2017, compared with only 2 percent of enrollees in 2016. In rural counties, the numbers increase: 41 percent of all marketplace enrollees will have only one carrier to choose from for marketplace policies in 2017, compared with 7 percent in 2016.
While 2017 health plan and rate information will not become entirely available until open enrollment begins in November, five states — Alabama, Alaska, Oklahoma, South Carolina and Wyoming — are likely to have only one marketplace insurer available in all counties. In 2016, Wyoming was the only such state.
Earlier this year, Pinal County, Arizona, was at risk of having a complete absence of insurers providing a marketplace plan when the two then-current insurers, Aetna and Blue Cross and Blue Shield of Arizona, both announced at different times that they would no longer offer individual ACA plans in the county.
In early September, BCBSAZ modified its earlier stance, stating that it had reconsidered the company’s exit given Aetna’s withdrawal, giving Pinal County consumers a reprieve for at least the next year.
Insurers have been vocal regarding ACA marketplace-related losses, and carriers losing money have either actively sought premium increases for 2017 plans or withdrawn from markets entirely where they have determined losses are unsustainable.
Losses are attributed to several factors. These include the complex interaction between the sicker, higher-risk population covered by marketplace plans; the relative lack of healthy individuals in the marketplace risk pools; and the failure of the market stabilization programs to adequately address the overall goal of providing certainty to insurers, protecting against adverse selection and stabilizing premiums in the individual market.
This analysis explores the possible regulatory implications of insurers’ exits from the rural marketplace and the potential regulatory responses to the issue.
Historically, rural markets have had limited options for health insurance. Private insurers have often been reluctant to enter a rural market due to the limits on potential membership (making it difficult to spread risk over a larger population) and the difficulty in obtaining favorable contracts with rural providers that have little or no competition. As a result, in the pre-ACA environment certain rural areas simply did not have an individual product available to consumers.
The ACA addresses some of these rural market challenges by eliminating denials for preexisting conditions — which is important for an often less healthy rural population — and making subsidies available for those who previously could not afford coverage. However, the ACA did not alleviate the difficulty of adequately spreading risk and obtaining favorable contracts from providers in areas with minimal competition.
Beyond the new ability of individuals to more readily pay for coverage due to federal subsidies, incentives for insurers to offer coverage in rural areas — especially those areas geographically removed from a metropolitan statistical area — are absent from the ACA. This lack of incentives, combined with the losses marketplace insurers have experienced to date, makes rural marketplace coverage particularly challenging.
Stakeholders may differ as to what should be done to stop the exit of marketplace plans from rural counties, but action to improve the status quo is needed to ensure that marketplace coverage is available to rural consumers for the long term.
Successful action is likely to involve a multifaceted approach, including creation of incentives for insurers to do business in rural markets and implementation of revisions to reinsurance and risk adjustment programs to adequately address the adverse risk carriers have often experienced in rural markets.
State and federal regulators have a role in helping to reverse insurer exits from rural markets. They should balance consumer and business interests, and they should carefully consider options that will reverse the current withdrawals and improve insurers’ participation in the rural marketplace.
State insurance departments, historically the regulators of insurance companies, can regulate an insurer once it enters into a regulated line of business, but they cannot mandate that insurers enter into any particular marketplace unless such a mandate is reasonably related to an insurer’s existing business.
Alaska and Nevada, which both have significant rural populations, have each taken steps — through different means and different state authority — to encourage marketplace insurers to remain in rural areas.
Nevada has created an incentive for insurers to remain in the marketplace by tying participation in the arguably attractive state Medicaid market to the offering of marketplace plans.
Companies participating in state Medicaid managed care programs are also required to provide at least one silver level and one gold level qualified health plan for the individual market on the state-designated health insurance exchange. Failure to provide such plans disqualifies managed care companies from Medicaid participation.
When United Healthcare announced its withdrawal from the ACA marketplace this spring, Nevada was one of the few markets in which the insurer remained. According to some observers, United’s subsequent decision to remain in the Nevada marketplace was directly connected to the requirement that insurers offer marketplace plans and the insurer’s interest in remaining in that market’s Medicaid programs.
Alaska has taken a different approach, addressing the issue of marketplace insurers’ financial losses through the creation of a reinsurance fund that uses an existing premium tax assessment imposed on Alaskan insurers of all types.
The Alaska Legislature passed House Bill 374 in June of this year. Independent Gov. Bill Walker signed the measure into law in July after Alaska lawmakers and the state Division of Insurance had explored various alternatives to address the problem of insurers’ losses, particularly those from high-cost cases, and the risk of withdrawals from the market.
One example of the impact of high-cost cases is Premera Blue Cross. In the first half of 2015, Premera experienced $11 million in claims from only 37 cases, amounting to over 24 percent of the $45 million in claims liability for 8,500 insureds over the same period of time.
The goal of the new legislation is to provide reinsurance to carriers, addressing high-cost cases as did the pre-ACA catastrophic risk pools. It remains to be seen, however, whether such legislative efforts will be successful in the long term in encouraging insurers to remain in the rural marketplace.
At the federal level, the Centers for Medicare & Medicaid Services, the sub-agency of the Department of Health and Human Services responsible for the implementation and oversight of the ACA, has been informed on an ongoing basis by insurers and other stakeholders about the inadequacies of the insurance market risk stabilization programs.
Reinsurance, risk corridors and risk adjustment have provided some benefit to address the financial impacts of the new marketplaces. However, the reinsurance and risk corridors programs end this year, and full payment to insurers has not been made under the risk corridors program.
Under the risk adjustment program, insurers that have higher risk pay less into a risk adjustment pool and insurers with lower risk pay more. The funds are distributed to the high-risk carriers.
This program uses a complex formula that many say should be revised. Although the program is intended to provide increased payments to health insurers that attract high-risk populations and reduce incentives to avoid higher-risk enrollees, the risk adjustment formula does not include some of highest medical care costs.
For example, prescription drug costs, including specialty drugs, are arguably one of the highest costs for insurers. Nonetheless, to date those costs have not been included in the risk adjustment formula.
CMS has recently taken steps to improve some aspects of risk adjustment, noting that revisions are needed. On Aug. 29, HHS issued its annual proposed rule for health insurance issuers (“Notice of Benefit and Payment Parameters for 2018”), which would add prescription drug costs to the risk adjustment methodology beginning in 2018 benefit year.
The proposed rule also revises the risk adjustment methodology to more adequately account for members who enroll in plans for less than 12 months. Many of these members have serious health conditions, resulting in higher costs for insurers. It remains to be seen whether the risk adjustment changes will be enough to stabilize the market and allow the program to achieve its intended results.
Prior experiences in other federal programs, such as Medicare Advantage, formerly known as Medicare+ Choice, and Medicare Part D implementations may be useful in exploring how to improve ACA risk stabilization programs. Insurer participation was lower than expected in both programs (especially in rural markets) due to high costs, the risk for potential losses and the market upheaval inherent to the implementation of a new, comprehensive program.
For example, in Medicare Advantage, Congress temporarily increased payments to insurers as an incentive for them to participate for the time period in which the market adjusted to the new MA business.
For Part D, a permanent reinsurance program was established, in place now for 13 years, to reimburse participating insurers for 80 percent of drug costs above a catastrophic level and assisting carriers that may have been adversely selected against. The ACA does not currently contain any such mechanisms.
The examples from MA and Part D are instructive, both from the perspective of needing to revise programs to address negative developments in the market and to consider the possibility of making some type of risk stabilization programs permanent.
Recognizing that providing health insurance coverage in certain rural areas may be a permanently high-risk business and designing financial and business incentives to serve that market may pave the way to giving consumers more health plan options.
There is no certainty regarding what the ACA marketplace will look like in five years. New entrants will continue to emerge, and existing marketplace participants may continue to withdraw and be replaced as business models evolve in response to the overall changes in the health care market.
It is important, however, for regulators and affected stakeholders to work together to address the factors impacting insurers’ decisions to exit the ACA marketplace in ways that expand consumer health plan choices and incentivize insurers to participate in less attractive markets.