August 8th, 2016 BY HealthNetwork
This November, Americans will not only choose a new president, but they’ll also choose new health insurance policies as the Affordable Care Act opens its fourth enrollment period. For some consumers, choosing a health insurance policy may be more difficult than it was last year. That’s because several of the country’s top insurers have cut ties with the ACA marketplaces for 2017. Among these is United Healthcare, the nation’s largest insurer, who announced earlier this year that it would only be participating in a handful of exchanges for the upcoming season. The company is not alone in its decision. Since UHC made the announcement, others have also announced withdrawals.
Based on numbers alone, the impact of these withdrawals is not as tremendous as early media reports suggested, but some consumers could see substantial changes in terms of choice and cost. United’s exit combined with other insurer dropouts may also indicate an underlying instability in the Obamacare health insurance model. Making matters worse is the fact that this year is an election year – a particularly important one when considering the future of the ACA. These factors may impact 2017 enrollment as a whole.
The Cost of Doing ACA Business
Insurers calculate the cost of premiums by assessing the risk pool, which is made up of everyone who has a specific plan. In the past, insurance companies could keep costs down by refusing to offer coverage for people with pre-existing conditions or those who needed more care. The Affordable Care Act made it illegal for insurers to do this. Now, everyone can get coverage regardless of health status. This is good news for people with health problems, but it does mean that insurers must rely on healthy, typically younger individuals to sign up for insurance on the Obamacare marketplaces. People who aren’t sick don’t need as much care, which keeps costs stable for the risk pool at large.
Unfortunately, young and healthy people have not made up the majority of Obamacare enrollees so far. When insurers set their rates, they were counting on a balanced risk pool. Because the necessary demographic hasn’t signed up as expected, insurance carriers are losing money on the ACA exchanges. By now, insurance and health experts anticipated that the marketplaces would stabilize. That hasn’t quite happened. New estimates predict stability by 2018, at which point insurers should be able to account for the cost of doing business in today’s health insurance market.
Some insurers aren’t willing to wait it out, however, which has led to marketplace dropouts from major insurers. United Healthcare led the way, but others have followed, including Humana, Aetna and at least one minor health insurer in New Mexico. In April, United announced that it would cut ties with marketplaces in most states due to expected losses of about $650 million this year.
Blue Cross Blue Shield of North Carolina also lost money during the first two years that the marketplaces were active – around $400 million. A.M. Best Co. reported that Blue Cross Blue Shield as a company suffered a substantial reduction in profits between 2013 and 2015. During that time frame, the major insurer’s profits dropped 75 percent. However, Blue Cross Blue Shield does not have any current plans to withdraw from the ACA exchanges. Instead, insurers are filing for premium rate increases in 2017. Last year, BCBS of North Carolina raised premiums by an average of about 30 percent to make up for lost revenue.
On the opposite end of the spectrum, some insurers have reported an increase in profits due to participation in the Obamacare marketplaces. Anthem, which actually oversees plans for Blue Cross and Blue Shield in 14 states, has been considering boosting its presence on the exchanges for 2017. This expansion could help to counteract the impact of dropouts from other insurers.
How Insurer Dropouts Affect the States
Health experts aren’t sure how the mass exit of several big names in the insurance industry will affect consumers in terms of numbers, but there have been some estimates. States with already limited competition will be affected the most. Rural areas and southern states in particular could face some challenges. Even before United and other insurers started dropping out, some consumers had few choices to begin with. And in terms of direct impact, United Health only accounts for about 6 percent of marketplace enrollees nationwide.
United Healthcare’s involvement in the ACA marketplaces has grown since 2013, but despite offering plans in 34 states last year, the company remains a relatively minor presence on the exchanges. According to ACASignups.net, United is withdrawing from 28 of those 34 states. Nevada and New York are the only confirmed states with UHC participation for 2017. Virginia is likely to offer UHC plans, but the remaining three states – Illinois, Ohio and Wisconsin – have not confirmed either way.
United isn’t the only major insurer cutting ties with the ACA marketplace. Humana, another big name, is also pulling its individual insurance offerings. In some cases, Humana is dropping individual plans from both the Obamacare marketplaces and the individual, off-exchange market altogether. For instance, Humana is cutting individual health insurance options in Nevada. Residents of Alabama, Kansas, Wisconsin and Virginia will also lose access to Humana’s non-group insurance options. According to ACASignups.net, about 25,000 people will be affected:
- Alabama: 15,222 enrollees
- Kansas: 1,822 enrollees
- Wisconsin: 6,639 enrollees
- Virginia: 1,825 enrollees
The total population of these four states is about 22 million people, making the actual impact relatively small. These numbers also represent both on- and off-exchange enrollment in some cases. Consumers have many options for getting coverage, including non-marketplace individual enrollment. Humana’s exit may be troubling for political reasons rather than practical concerns.
Aetna is also considering the future of its participation in the ACA exchanges, which is a complete departure from the company’s earlier stance. In May, the nation’s third largest health insurer reported that it was not only staying on board for 2017, but that it was also considering expanding its options. On Aug. 2, the company announced that it would be dropping those expansion efforts. Aetna offers coverage in 15 states, but that could change for next year even though the company has reported better-than-anticipated earnings for the second quarter this year.
No other major insurer has announced plans to drop out of the individual marketplaces. Cigna and Anthem are currently attempting to merge, but neither company has indicated that it plans to scale back on ACA participation. Whether the withdrawal of other major players will impact this decision remains to be seen.
Big insurers aren’t the only ones losing money and severing ties with the Obamacare exchanges. In New Mexico, Presbyterian Health Plan announced in July that it would drop out of the marketplace for 2017. The company currently covers approximately 10,000 people in New Mexico, which represents about 18 percent of the state’s total ACA enrollment. Instead of marketplace plans, the company intends to offer group plans and individual, off-marketplace coverage.
Cutting Costs Elsewhere
Insurance companies are looking for ways to cut costs across the board, and one area appears to be commission payments for agents and brokers. This unexpected side effect of lost revenue from ACA exchanges has left some brokers scrambling to reassess their business model. As it stands, agents and brokers get paid commissions from the insurers that they represent. Consumers who need assistance with enrollment, including the actual signup process, use agents at no added cost. The price of doing business is rolled into the overall cost of premiums. Now, some insurers are cutting commissions in an effort to save on administrative costs.
One example comes from Illinois, where at least three major insurers have already eliminated payments to agents and brokers, one of which is Blue Cross, the state’s largest insurer. But the problem is happening elsewhere, too. United Healthcare stopped commission payments nationwide earlier this year. Some states are fighting back against the practice. For example, California regulators have been considering forcing insurers to offer commissions while the insurance department in Connecticut stopped UHC from cutting commissions in that state.
Insurance companies have been struggling with special enrollment periods, which allow consumers to enroll on the ACA marketplaces outside of the standard 3-month window that begins in November. Some enrollees attempt to take advantage of special enrollment periods to game the system – they sign up late and drop coverage once they get employer-sponsored insurance, for example. The government is working on addressing the problem via the Centers for Medicare & Medicaid Services, which oversees the Obamacare exchanges.
Cutting commissions may seem like an expedient way to save room in the administrative budget, but insurers may be shooting themselves in the foot. Some enrollees need in-depth assistance when it comes to navigating the health insurance market, especially when it comes to Obamacare and the exchange sites. Brokers and agents can play an important role in helping people sign up for the coverage that they need without making costly or unnecessary mistakes. Enrollment on and off the marketplace could suffer without access to free assistance from qualified insurance agents. To recoup their losses, brokers may start charging fees for their services.
The Impact of Dropouts on Consumers
United Healthcare may not have a huge presence on the ACA marketplaces, but the company’s withdrawal could affect competition and choice nationwide. An analysis conducted by the Kaiser Family Foundation revealed that:
- Nearly 3 million consumers would be left with just one or two insurers to choose from if United withdraws from all of the exchanges;
- In 532 counties where UHC offers coverage, a United exit would leave consumers with just two choices for insurers;
- In another 536 counties where UHC offers plans, the company’s withdrawal from the marketplace would leave just one choice in insurer; and
- Areas where competition is already limited – like rural areas and southern states – would see the most significant changes in marketplace options.
Just over 1,100 counties throughout the United States already face the dilemma of choosing from one or two insurers. If United withdraws from the exchanges altogether, then that number would grow to the point that 53 percent of U.S. counties would face the same challenge. Despite these statistics, several media outlets have asserted that United’s exit would be modest in general. It’s true that 3 million people would face limited options in terms of insurers, but Kaiser Family noted that 70 percent of enrollees on ACA exchanges would still have access to three or more insurers even with UHC dropping out.
From a financial standpoint, some consumers will also face much higher premium rates if United does withdraw from the Obamacare marketplaces. One of the goals of the ACA was to encourage insurers to compete for business on an open market. If large insurers leave, then competition is limited – and premium prices could go up even further. Insurers have already filed for larger premium hikes in 2017. According to Kaiser Family Foundation:
- In 327 counties throughout 22 states, premiums would increase by about $1 to $25 per month without United Healthcare.
- In 304 counties across 15 states, premiums would increase by approximately $25 to $100 a month if UHC drops out.
- In 13 counties across Arizona, Florida and North Carolina, premium rates would jump by $100 more per month without competition from United.
Limited competition and higher premium rates aren’t the only problems that consumers will have to deal with for the upcoming enrollment season. Mergers and acquisitions among the country’s largest insurers could also affect competition and the plan options available to consumers on the individual market, both on and off the exchanges. Anthem is acquiring Cigna, and Aetna is planning to merge with Humana. Premium rates have not been finalized for 2017, but insurance experts are already predicting much higher spikes than last year due in large part to the fact that insurance companies priced their plans far lower than they should have at the outset. As America prepares for its fourth enrollment period and an upcoming presidential election, the impact of insurer dropouts will undoubtedly play a major role in the future of the ACA and the American health care system as a whole.