How would the addition of a public option affect hospitals?

Oct. 11—The broad agreement among healthcare industry stakeholders and advocates that urgent changes are needed to the government-run marketplaces is running into the reality that such changes are politically impossible. So can the marketplaces survive without changes?

The changes that insurers and others are seeking to improve the sustainability of the marketplaces created by the Affordable Care Act (ACA) range from the relatively modest—like further restricting special enrollment periods—to the more extreme, such as greatly increasing subsidies and penalties for potential enrollees.

But in the current Congress, the only step  under active consideration is an initiative to block the Obama administration from providing new subsidies to insurers under the risk corridor program.

Despite statutory language promising such funds, the administration and Congress interpreted the program as budget-neutral, so only a fraction of those funds have been paid out. As a result, insurers have been seeking those subsidies through lawsuits. Policy watchers expect Congress to include language in an end-of-the-year, must-pass government funding bill to prevent the Obama administration from settling those lawsuits with funds from other federal accounts.

Barring the election of Democratic majorities in both chambers of Congress, some healthcare industry observers have wondered what will happen to the marketplaces if no additional funding or recommended policy changes are enacted.

The Obama administration is considering a number of smaller administrative tweaks, such as limiting the use of third-party funding to help enrollees afford their coverage, noted Matt Fiedler, chief economist of the White House Council of Economic Advisors.

In an interview, Fiedler downplayed the need for the administrative step of eliminating more of the special enrollment periods (SEPs), as insurers have urged. More important, Fiedler said, are stricter documentation requirements for those seeking to sign up during an SEP. The administration has launched an audit-based approach to obtaining the documentation required before SEP enrollment and a pilot to verify documentation of all enrollees before coverage is activated.

Sustainability Questioned

But larger changes sought by insurers likely would require congressional action.

The Obama administration has taken the public position that the ACA marketplaces will survive without such action. However, some supporters have begun to openly worry that the marketplaces will not survive without major changes.

“Changes are necessary to sustain them, and with those changes they will thrive,” said Jared Bernstein, a former member of President Barack Obama’s economic team. In an interview, Bernstein noted some individual ACA marketplaces are in worse shape than others.

Richard Burkhauser, a policy analysis professor at Cornell, agreed with that assessment.

“There’s no question that something has to change,” Burkhauser said in an interview.

Burkhauser said Republicans and Democrats need to come together to figure out ways to keep the marketplaces, which provide coverage to 11 million people, functioning.

Needed changes, Bernstein said, include Democratic presidential nominee Hillary Clinton’s proposal to provide more assistance with out-of-pocket costs for ACA enrollees, in the form of a tax credit worth up to $5,000 for families. The RAND Corporation estimated that change would cost $90 billion.

“Because the system now has more skin in the game and people are facing higher out-of-pocket costs, that can be a real strain on someone who has a very high-deductible plan, for example,” Bernstein said.

Critics of the law agreed that the marketplaces are not sustainable without major, costly changes.

Some of the individual ACA marketplaces already have fallen into “the early stages of a death spiral,” Douglas Holtz-Eakin, president of the right-leaning American Action Forum, said at an Oct. 11 Washington, D.C., health policy event. Specifically, in 2017, nearly 36 percent of ACA marketplace rating regions were expected to have only one insurer offering plans, according to an Avalere projection, and nearly 55 percent were expected to have two or fewer.

The only change likely to save the marketplaces is an increase in either the individual mandate penalty or insurance premium subsidies, and “neither is going to happen in the next Congress,” Holtz-Eakin said.

Fiedler discounted the possibility of a death spiral in the ACA marketplaces because available subsidies rise as premiums rise, and that would prevent rising premiums from driving out all of the healthy enrollees.

Referring to the classic insurance market death spiral, Fiedler said, “That mechanism simply can’t function in this market.”

About 85 percent of ACA marketplace enrollees qualify for premium subsidies, although most subsidies cover far less than the full cost of coverage. Additionally, ACA marketplace plans share risk pools with private-marketplace individual plans, which do not offer subsidies and cover an estimated 6.9 million enrollees, according to a recent report from the U.S. Department of Health and Human Services (HHS). Premium hikes could adversely affect enrollments off-exchange, although up to 2.5 million individuals with such coverage may be eligible for subsidies if they switch to the ACA marketplaces, according to HHS.

Brian Blase, a senior research fellow at the Mercatus Center at George Mason University, agreed that major changes are needed to allow the ACA marketplaces to survive. But in the meantime, the marketplaces are likely to become increasingly dominated by cost-effective, Medicaid-like insurance plans with very narrow provider networks and high deductibles.

Public Option

Despite public displays of confidence in the ACA marketplaces, Obama and Clinton have urged Congress to add a public insurance alternative in at least the worst-performing marketplaces. Some hospital advocates have joined insurers in opposing the so-called public option, but Moody’s recently concluded that the addition of a public option would provide a large insurance coverage increase and be a credit positive for not-for-profit hospitals.

“The most important contribution the next president could make would be the public option,” Bernstein said.

Holtz-Eakin countered that a version of the public option already has been tried in the form of the publicly supported not-for-profit CO-OPs, which failed in 17 of the 23 ACA marketplaces in which they were launched.

Holtz-Eakin described the public option as simply a CO-OP with “infinite taxpayer backing.”

The public option also is likely to cause the few remaining private insurers to flee any market where it is introduced, said Mark Warshawsky, a senior research fellow at the Mercatus Center.

“It would be the natural movement toward single payer,” Warshawsky said at a reporter briefing.

Meanwhile, Bernstein and members of the Obama administration contend that the average premium hike expected in 2017 is an anomaly tied to the ending of two of the three ACA insurer-backstop programs.

But insurers blame the sicker-than-expected ACA marketplace population on the premium hikes. And critics expect premiums to continue spiraling without an influx of healthy enrollees.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, October 11, 2016