Try as it may with its positive press releases on enrollment statistics and healthcare inflation numbers, the Obama administration has to be on edge as it waits for bids to be submitted in June for the fourth year of the Affordable Care Act (ACA).
While the program’s rocky start was overcome, we have written often about the harbingers of rough seas ahead for Obamacare. First there was the massive under-funding of the risk corridor program that led to plans receiving just 13 cents on the dollar for year one. This led to the folding and exodus of a number of co-ops and small plans throughout the country. Next came the November announcement by United Healthcare that it had to reduce its earnings forecast due to poor performance in its Exchange line of business. It indicated uncertainty on whether it would remain in the program in the future, although it has tempered such statements of late. United Healthcare offers one of the two lowest cost Silver benchmark plans in about 40% of the counties in the national Exchange marketplace. These Silver plans are the products most Americans with premium and cost-sharing subsidies enroll in.
Well, the gloomy news continues from other major national insurers participating in the Exchange. Anthem, a large Blues plan in more than a dozen states with significant Exchange enrollment, recently reported a poor fourth-quarter showing. This is in part due to higher than-expected medical expenses in the Exchange and other individual lines of business.
Aetna recently reported no change in its Exchange performance, but it had earlier taken account for the fact it was not making money in 2015 and hoped that 2016 would be different. Aetna’s chief compliant is the cost of individuals who enroll outside of the normal open enrollment period. While the Centers for Medicare and Medicaid (CMS) has begun tightening rules, it is still relatively easy to qualify for an exception to enroll outside of open enrollment and there is no immediate penalty or bar to dropping coverage after costly medical services are rendered. The penalty comes only at tax time and is rather de minimis in the early years. For plans, this leads to recoupment of too little premium to cover the expenses of an adverse population. Other large plans, which tend to get the sickest populations simply because of name recognition and the relative strength of networks, have echoed the same concern.
Now, in terms of numbers, these three large entities add up to only about 20% of the total 12.7M enrollees as of today. Notwithstanding this, it stands to reason that if large national insurers cannot withstand the adverse selection, high medical costs, and vagaries of the financing system (short- and long-term), it certainly raises questions about Obamacare’s future in terms of plan participation, plan selection, sufficiency of networks, and stability of premiums. How the big three approach 2016 bids and 2017 participation – whether they withdraw or substantially change their approach even if they stay in – will indeed factor prominently into the future sustainability of Obamacare.