At least for now, the Affordable Care Act is here to stay. This means that the health insurance exchanges — which make it possible for people who do not get health insurance through work or government programs to buy it — will continue to function. Right now they are on shaky ground. There are three ways to shore up and improve the exchanges to increase choice and ensure that they operate smoothly.
The ACA markets have seen insurers withdraw despite increasing profitability, mainly because they don’t know what the rules will be for 2018 and beyond. Nineteen counties currently don’t have an insurer selling individual plans in 2018. The people signing up for insurance are showing stable needs as the Centers for Medicare and Medicaid Services estimated that people on the exchanges weren’t on average getting sicker in 2016, suggesting that the risk pool is not getting worse.
The first step for improving the exchanges should be to stabilize the ACA markets. According to the Kaiser Family Foundation, the painful price hikes in the 2017 insurance plans offered by the exchanges were sufficient to stabilize the finances of many insurers. Oliver Wyman, an actuarial consulting firm, estimated that more than two-thirds of the projected 2018 rate increases are due to insurers not knowing whether they will be paid for all required offerings and whether the government will enforce the individual mandate in 2018.
Providing clarity on these two issues will dramatically reduce premium rate increases in 2018. The simplest way to do this is for both chambers of Congress to pass a bill that guarantees the funding of Cost Sharing Reduction subsidies. These subsidies decrease deductibles and other out-of-pocket costs for low-income Americans who buy insurance on the exchanges. The Senate’s Better Care Reconciliation Act (BRCA) funded these subsidies and Rep. Nancy Pelosi (D-Calif.), the House minority leader, has asked that these subsidies be included in future deals.
However, there is a dispute as to whether these subsidies were ever fully funded. The courts have held that they weren’t. Clarifying that these subsidies are funded costs the government nothing while it reduces the premium increase in 2018 by half.
A second way to improve the stability of the exchanges is to get more healthy individuals to buy plans through them. There are currently four types of plans, designated by the names of metals: platinum, gold, silver, and bronze. Under the most-expensive platinum plan, the insurance company pays for 90 percent of the cost while the person covered pays 10 percent. Under the least-expensive bronze plan, the insurance company covers 60 percent of the expected costs of health care.
The BCRA would have allowed a plan to cover 58 percent of expected costs. Former Sen. Mark Begich (D-Alaska) once proposed adding a copper plan, which would cover 50 percent of the expected costs. By lowering health insurance premiums, a copper plan would be more attractive to relatively healthy people, which would increase enrollment and lower average premiums.
A third way to improve the exchanges is to help insurers pay for extremely high claims, like those of a child in California with Medicaid costs as high as $21 million or an Iowa teenager’s $12 million in annual claims due to a rare genetic glitch. Such claims create incredible market distortions.
Reinsurance is insurance for insurance companies. National reinsurance spreads the risk of bad luck across the entire nation instead of asking a single state government or market to absorb the costs of bad luck. CMS will run a reinsurance program for multimillion-dollar claims starting in 2018. Alaska, Iowa, and Minnesota have reinsurance programs to prevent super-high claims from dominating their state market places. In addition, Secretary of Health and Human Services Tom Price and CMS Administrator Seema Verma have asked states to submit reinsurance proposals to CMS.
Any of these reinsurance systems take some of the burden from the general pool that covers the vast majority of people who do not have multi-million dollar claims, while providing additional resources to those who need the most aid.
Rule certainty, expanded plan flexibility, and reinsurance are key ways to lower premiums, cover more people, and enhance the stability of the individual market. Both parties have previously supported these straightforward fixes, and should continue to do so.
David Anderson is a research associate with the Duke-Robert J. Margolis, MD, Center for Health Policy.
