Despite Premium Increases, the ACA Marketplaces Are Not In Crisis
We’ve heard a lot of rhetoric in the past few days about the recent announcement of premium increases for the Affordable Care Act marketplaces. Like clockwork, the ACA repeal machine has sprung back into action to argue, as it has for the past six years, that the law will collapse any day now.
Yet despite the bad headlines, the sky is not falling. It is important to explain why this year’s premium increases are different, and why they mostly represent a one-time correction rather than a new normal. While the increases are significant, the Affordable Care Act is not in crisis, and the marketplaces remain viable long-term.
According to the Department of Health and Human Services, average premiums for the marketplaces’ second-lowest cost silver plans are rising by 22 percent in 2017. This is a stark change from the past two years, when these premiums only grew by an average of 2 percent and 7.2 percent – well below the double-digit increases common prior to the Affordable Care Act.
Why are premiums rising more this year? There are a number of reasons, but perhaps the most important is that many insurers simply mispriced their plans in the first year. Entering a new insurance market for the first time requires a great deal of guesswork. When setting their premium rates, insurers had to estimate how healthy the new population would be and how much health care they would use, but without being able to rely on claims data from past years. Many insurers guessed wrong, so their premium revenue was not enough to cover the medical expenses they paid. That’s why premiums in 2014 initially came in 15 percent lower than the Congressional Budget Office had projected. In fact, average premiums after the new increase now match up almost exactly with the CBO’s original projections from 2009 – suggesting that this increase is in large part a one-time correction to where premiums should have been priced originally.
In addition, actions by Republicans in Congress exacerbated the effects of insurers’ mistakes. The drafters of the ACA anticipated that the new market would be difficult for insurers to navigate initially, and built in stabilizing mechanisms. One of the most critical of these was the risk corridor program, which was intended to mitigate pricing uncertainty in the first few years by supporting insurers who turned out to have priced their premiums too low. Yet despite the fact that risk corridors were also established to support insurers participating in Medicare Part D, Senator Marco Rubio and other Republicans in Congress undermined the ACA’s risk corridor program by largely defunding it. Notably, they did this after insurers had already set their premium rates – rates that assumed the full risk corridor funding would be available. According to one analysis, this was responsible for about two-thirds of insurers’ individual market financial losses in 2014. These losses contributed significantly to the premium increases we see today.
Of course, the other fact that critics of the law are attempting to obscure is that the vast majority of Americans are not affected by these premium increases. Almost 50 percent of Americans were covered through their employers in 2015, while another 36 percent were covered through public programs such as Medicare, Medicaid, and CHIP. These consumers are all unaffected by the premium increases, which only affect the estimated 7 percent of Americans who get coverage on the individual market. In fact, premiums for employer-sponsored coverage are growing more slowly than they did before the ACA.
Furthermore, 84 percent of the 10.4 million marketplace enrollees receive tax credits to help afford their premiums. These tax credits will increase along with rising premiums, so these marketplace enrollees will be shielded from premium hikes. After accounting for these tax credits, more than 70 percent of current marketplace enrollees can still find coverage for $75 per month or less. And despite the exits from the marketplaces by some insurers, about 80 percent of consumers will still have a choice of two or more insurers.
Nevertheless, the increases remain a significant problem for the enrollees who do not receive premium tax credits, as well as for people who purchase individual market coverage directly from insurers rather than through the marketplace. Many non-tax credit eligible enrollees may be able to find cheaper plans by shopping around rather than simply renewing their current plans.
As explained earlier, the factors causing these increases should be considered growing pains rather than permanent features; indeed, evidence indicates that the marketplace risk pool grew broader and more stable from 2014 to 2015. Nevertheless, there are several policy changes that could help stabilize the marketplaces more quickly. These include:
- Creating a “guaranteed choice” public option plan as a fallback in order to ensure choices for consumers, especially in rural areas where there may be less competition.
- Expanding the ACA’s premium tax credits and cost-sharing subsidies to improve affordability for consumers.
- Enhancing the ACA’s stabilizing mechanisms by improving the risk adjustment program and encouraging states to create their own reinsurance programs.
- Forbidding insurers from selling exclusively outside of the exchange, or requiring all individual market plans to be sold through the exchange.
- Expanding Medicaid, for states that have not already done so. In states with Medicaid expansion, marketplace premiums are 7 percent lower on average due to a healthier risk pool.
It’s important to remember that the marketplaces and the ACA’s consumer protections remain a dramatic improvement from the old status quo of the individual market. Before the ACA, many consumers were locked out of the individual market entirely due to pre-existing conditions, while those who could find coverage often found that their plans lacked essential benefits like prescription drugs or maternity coverage. The ACA is not perfect, but it is still working to provide coverage and improve financial security for millions of Americans. Its problems are not fatal or unfixable.
20 million Americans now have health coverage thanks to the ACA, and the uninsured rate has never been lower. And despite the bad headlines, open enrollment for 2017 starts tomorrow, November 1. Healthcare.gov is already live, and people across the country are already comparing their plan choices and preparing to enroll in coverage. It should be our goal to build on that progress, not abandon it.