Big private insurance companies bailing out of a government-sponsored healthcare program, complaining about financial losses. Hundreds of thousands of customers lose their health plans. Terminations are especially severe in rural counties, leaving virtually no competition. Total enrollment drops.
Obamacare, 2016? No, Medicare, 1998-2002. During that time, insurers canceled nearly half of their contracts to participate in the managed care program then known as Medicare+Choice and now called Medicare Advantage. Between 300,000 and 1 million customers lost their plans. Total managed care enrollments fell to 4.6 million from 6.4 million. The future of the program was very much in doubt.
And yet, enrollments in Medicare Advantage today number 17.2 million.
What happened? An answer comes from Sabrina Corlette and Jack Hoadley of Georgetown University's Health Policy Institute. In a new study published by the Robert Wood Johnson Foundation, they apply lessons from that experience and other healthcare reforms to the state of the Affordable Care Act individual exchange.
Resistance by private insurers to the Medicare managed care program elicited concerns about the program's survival. That should sound familiar to followers of the ACA's individual exchanges, which have suffered withdrawals by insurers covering hundreds of thousands of enrollees nationwide. The most recent announcement comes from Aetna, which said Monday that it would cease selling exchange plans next year in 11 of the 15 states where it has been participating. That potentially will force more than 500,000 customers to find new plans. The company will continue to sell exchange plans only in Delaware, Iowa, Nebraska, and Virginia.
Similar uncertainties also affected Medicare Part D, the prescription drug benefit Congress created in 2003—creating a market for private drug plans that, like Medicare managed care and the ACA exchanges, had not existed before. As Corlette and Hoadley observe, policymakers aware of Medicare+Choice's troubled history wrote a fallback plan into Part D that ensured its success. But they didn't take all the same steps in creating the ACA exchanges, which explains why those are still experiencing birth pains.
When you provide a public benefit using private companies," Corlette told me, "those companies are going to make business decisions that are not in the public interest. Policy makers have to be ready to manage that."
These programs differ from each other in significant ways, so the solutions chosen for Medicare aren't entirely applicable to the Affordable Care Act. But they do provide a rough roadmap to guide Congress and state and federal regulators.
That's because the programs faced similar problems, endemic to situations in which insurers are required to accept enrollees regardless of the risk that they'll require costly healthcare. That happened with Medicare managed care and with the government's Federal Employees Health Benefit Program, which delivers group coverage to government workers. In 1989, Corlette and Hoadley found, Aetna withdrew from FEHBP because of this so-called adverse risk selection; more recently, other commercial insurers, including United Healthcare, have cut back their participation.
Typically, this translates into a complaint that the insurers aren't being paid enough to shoulder the risk—the essence of their problem with the ACA exchanges. Congress responded to the insurance industry's complaint about Medicare managed care by increasing reimbursements to the insurers starting in 2003, temporarily paying about 10% more than they were paid for straight Medicare treatments.
"Congress threw money at the problem," Corlette says. The changes enticed insurers back into the managed care market: While nearly a third of Medicare enrollees had no access to managed care in 2000, nearly all did by 2006.
That remedy won't work for the ACA, because the insurers aren't paid directly by the government, but by enrollees. Premiums, deductibles and co-payments are set via marketplace competition, overseen (in some cases) by state insurance regulators.
Congress could, however, increase subsidies to help enrollees meet those costs. That would encourage signups by more people, especially younger and healthier customers who are needed to bring insurers per-customer expenses down. That would lure insurers back into the system, Corlette and Hoadley contend. Hillary Clinton has advocated that change as part of her Presidential campaign, but enacting it will require Congressional cooperation.
Congress took steps to avoid similar uncertainties with Medicare Part D. For any region left without at least two privately administered prescription plans, the government would assign a private insurer to administer a plan but would carry the financial risk itself. As it happened, the fallback was never needed.
Policy makers also provided three permanent risk adjustment mechanisms for Part D which have helped "keep the market—and—prices stable," Corlette and Hoadley observe. Congress wrote similar programs into the ACA, but limited two of the three to just three years, expiring this year. Congress further hobbled one of the temporary programs, rendering it almost completely ineffective. As we've reported, those shortsighted limitations have undermined the exchanges—at the expense of millions of customers. "Congress probably should have given the risk program more time to make sure they worked as intended," Corlette says.
Another possible option is to force insurers to participate in the exchanges, perhaps as a tradeoff for something they want. As we've observed, some of the same insurers who are bailing out of the individual exchanges are making big profits in Obamacare's Medicaid expansion programs; why not tie the two together? Another option has been pioneered by Florida, which conditioned its consent to the proposed merger of Aetna and Humana to the merged company's agreement to offer individual exchange plans in five counties where it was not yet operating. Insurers want and need accommodations from state and federal authorities all the time; there's plenty of opportunity to make deals.
For all that, the most important lesson from Medicare and other public programs has been ignored by the insurers themselves: the creation of a new marketplace with a large risk pool will mean new risks that have to be covered.
The risk profile of the overall public in itself should not be a surprise; as insurers know from their experience with Medicare, Medicaid, and employer health plans, a small minority of patients always accounts for the preponderance of costs. Before the ACA, insurers in the individual market dealt with this reality simply by refusing to offer insurance to high-risk customers or pricing them effectively out of the pool. Under the ACA, such "medical underwriting" is forbidden. Consequently, the risk profile of ACA customers looks a lot worse than that of the pre-ACA individual market, though not much different from employer-sponsored insurance, in which all customers must be covered.
Corlette acknowledges that the key to making the ACA market work is to broaden the customer base by attracting more low-risk customers. But she questions whether the insurers themselves have taken sufficient steps to bring them into the pool. "What are they doing to market to young healthies?" she asks. "From what I've seen, instead of doing more outreach, they're disappearing into their bunkers. To some extent, if the risk pool is unbalanced, they're to blame."