It’s easily forgotten that Congress and the Obama administration did the health insurance industry an enormous favor in enacting the Affordable Care Act in 2010.
Several favors, in fact. They placed commercial insurers at the center of Obamacare, giving them most of the responsibility for covering enrollees—and therefore access to an army of new customers. They left in place private insurers’ access to the immense Medicaid pool via Medicaid managed care. They killed the public option, which would have provided a nonprofit counterweight to private insurers, hopefully goading the latter into maintaining competitive pricing and customer service.
One would expect the insurance industry to show some gratitude for these handouts. One would be wrong. The nation’s big insurers haven’t ceased badmouthing Obamacare and grousing about losses, which in many respects are their own fault. Over the last year or so, several have announced they’re withdrawing from the program’s individual exchange market, or threatened to do so.
These threats generally are treated as evidence of flaws in Obamacare that can be rectified only if the government capitulates to the insurers’ demands—for looser benefit mandates and tighter restrictions on special enrollment rights, among other things.
Yet the authorities aren’t entirely powerless. It’s time for the government to push back and deliver the following message to insurers: If you want to reap the profits from participating in public health programs, you’ll have to participate in the Affordable Care Act too. To put it in terms the insurance companies understand: no more cherry-picking.
It’s true that the ACA individual market has flaws that warrant addressing. The Department of Health and Human Services has taken action on some of these, typically at the behest of insurers; it has reduced some of the options for signing up for coverage outside of the annual open-enrollment periods, for example. Some other issues, as we’ve reported, stem either from ill-advised or cynical congressional action (step forward, Marco Rubio), or congressional gridlock. It may be too early to make too much of this, but it’s possible that the next Congress will be more amenable to making the necessary adjustments for the ACA to work better.
Yet other insurer complaints are suspect. Aetna’s abrupt reversal of sentiment on the potential profitability of its Obamacare exchange business is an example: Three months ago, its CEO, Mark Bertolini, was praising the exchange market as “a good investment,” albeit one in which profits were still a year or more away—which is a pretty good definition of an “investment” in the future. Aetna was preparing to expand the states in which it offers individual exchange plans.
Then the U.S. Department of Justice sued to block its proposed $37-billion merger with Humana. Suddenly, Bertolini was saying that “the poor performance” of the exchange market warrants “a complete evaluation of our current exchange footprint” and cancellation of its 2017 expansion plans.
This is a very selective reading of Aetna’s experience with the Affordable Care Act. The truth is, it’s well in the black. The company has projected losses of $300 million on its exchange business for 2016, but in the same conference call in which he dissed the ACA exchange business, Bertolini also announced a record $6.5 billion in government program premiums for the first quarter of 2016 alone, an increase of 13% over the same quarter a year ago.
“This steady growth has been driven by a combination of new contract wins, county expansions in existing states, and ACA-related expansion membership,” he said. “Looking to the future, we are confident that Aetna is well positioned to take advantage of the strong growth dynamics of the Medicaid business.”
Aetna’s not alone. UnitedHealth, which has distinguished itself with the volume of its whining about Obamacare exchange losses and the speed of its withdrawal from that business, disclosed last month at its second-quarter earnings conference call that its Medicaid business is doing fabulously. Its revenue in that line rose 14.7% to $8.3 billion year-to-year and it added 225,000 enrollees, including new members in Iowa, New York and Pennsylvania, which have expanded Medicaid under the ACA. And Anthem, which has been complaining (albeit quietly) about the difficulty of scoring profits in the exchange market, has been buying up Medicaid insurers — including Simply Healthcare, which had nearly 200,000 Medicaid and Medicare members in Florida, for $1 billion last year.
Not only are the big insurers reaping the benefits of Obamacare via the Medicaid expansion. Centene, a smaller company that targets low-income customers, is happily serving 1 million Medicaid expansion members in nine states, not including 60,000 it has picked up in Louisiana, which just launched its own expansion.
These profits parallel those that insurers reap via Medicare Advantage, a managed care program in which the government pays a flat rate that generally exceeds the standard Medicare reimbursement rate in return for their taking on all responsibility for a member’s health needs. Medicare Advantage has been popular among enrollees and such a reliable profit-maker for insurers that they keep piling into the pool—the average Medicare Advantage member can choose from among 19 plans; in some states and counties, the choice of Obamacare exchange plans is down to one or two.
“It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer,” commentator Andrew Sprung observed in February.
This all hints at the leverage the government might have against the insurers threatening to leave the ACA exchange market. What if it conditioned participation in Medicaid and Medicare managed care on a certain minimum participation in the private exchanges? Alternatively, it could reinvent and restore the public option, whether by offering Medicare to all Americans under 65 or sponsoring its own public plans.
These mechanisms might work because, given their lower premium rates, they might attract more low-use enrollees—the elusive young and healthy cadres needed to help subsidize costlier and older members.
It isn’t clear what legislation or administrative changes would be required to make any of these changes happen. The insurance industry surely would mobilize politically to kill the public option again, but might be more amenable to expanding the public managed care pool to accommodate more customers.
On the other hand, as Sprung observed, doctors and hospitals would be losers, as they would be receiving lower government reimbursements for a larger patient population. But even the expanded Obamacare population is small in relation to the overall patient market—perhaps 30 million customers in ACA and government programs, compared to nearly 150 million receiving their coverage through their employers.
The point is that it’s a mistake to view insurers’ withdrawals from ACA exchanges as a sign that it’s impossible to provide affordable health coverage to more Americans. It’s more a sign that the fundamental error in the ACA’s design was giving too much away to the insurance industry. If the government started threatening to take some of that back, the betting here is that the insurers would be sounding a lot more cooperative, and complaining a lot less.
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