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Is the Affordable Care Act Imploding?

President Trump has said on various occasions that the Affordable Care Act (ACA) is implodingexploding, or collapsing.

Larry Levitt, MPP

There is very little evidence for this.

The ACA includes 2 main components. One is an expansion of Medicaid. The other is new rules for private insurance plans along with tax credits to make coverage more affordable for low- and middle-income persons buying through new insurance marketplaces.

The Medicaid component—which expanded eligibility up to 138% of the poverty level for all adults—seems to be working just fine, with 11.2 million newly eligible people enrolledNineteen states have chosen not to expand Medicaid at this point (following an earlier Supreme Court decision that made the expansion optional for states). But the program can hardly be described as collapsing.

Presumably the president is referring instead to the ACA’s health insurance marketplaces and the individual insurance market.

Since 2014, health insurers have been required to offer coverage to everyone, including people with preexisting conditions, and prohibited from varying premiums by health status. The hope was that a stick (the individual mandate) and carrot (tax credits that subsidize premiums) would convince enough younger and healthier people to sign up to balance out those who are older and sicker.

However, the enrollment mix has skewed more toward individuals who are older and sicker than insurers expected, and many had to raise premiums significantly in 2017—22% on average for benchmark plans in the marketplaces.

So, maybe the ACA marketplaces are, in fact, collapsing? The evidence suggests otherwise.

Enrollment declined by about half a million in 2017, but even so, 12.2 million people signed up for coverage in the marketplaces, hardly a sign of collapse.

The Congressional Budget Office concluded recently that the individual insurance market “would probably be stable in most areas” under the ACA.

The reference to “most areas” is important, because insurers pool risk at the state level and choose whether to participate in the marketplaces on a county-by-county basis. That means there are really more than 3000 separate insurance markets across the country, so it’s impossible to generalize.

There were some fragile insurance markets going into 2017—particularly in rural areas, with low population density and little competition among hospitals and physicians—but by and large, the marketplaces have been stabilizing and improving.

A recent S&P analysis showed insurer financial performance in the individual market improving in 2016, with an expectation for continued improvement, assuming “business as usual.”

The “business as usual” part is a key caveat. The marketplaces are not collapsing, but the Trump administration has the tools at its disposal to make them implode (that is, as defined by  Merriam-Webster, “collapse inward as if from external pressure”).

The first signs were mixed: the administration cancelled advertising about marketplace coverage scheduled to air during the last 2 weeks of open enrollment, likely suppressing enrollment. It also pulled back on plans to strengthen enforcement of the individual mandate. On the other hand, it issued new proposed regulations to promote market stability that should encourage insurers.

The next and most significant sign of whether the Trump administration is looking to undermine the marketplaces or make them work effectively is how they handle so-called “cost-sharing reduction” payments to insurers.

Insurers are required to provide low-income marketplace enrollees with plans that have lower deductibles and copays. The federal government makes payments to insurers to cover the additional cost involved, totaling about $7 billion this year. The House of Representatives sued the Obama administration, challenging its authority to make these payments, and a district court judge sided with the House. The Obama administration had planned to appeal and was continuing to make the payments while the suit was in progress.

The payments would continue if Congress appropriated funding to cover them or the Trump administration appeals the decision. Alternatively, the administration could immediately end the payments.

If the federal government stops making the payments to insurers, they would be forced to raise marketplace premiums to cover the difference (an estimated 19% increase). Or, more likely, insurers would see the move as a signal that the administration is looking to undermine the marketplaces and just exit the market altogether.

The Trump administration had been equivocal about whether it supports continuing the payments, although President Trump recently suggested in an interview with the Wall Street Journal that he might withhold the payments to encourage Democrats to negotiate over revisions to the ACA. “Obamacare is dead next month if it doesn’t get that money,” the president said. “I haven’t made my viewpoint clear yet. I don’t want people to get hurt … What I think should happen and will happen is the Democrats will start calling me and negotiating.”

Insurers have to make initial decisions about whether they will participate in the marketplaces in 2018 and what premiums they will charge by June 21. Ambiguity over how the Trump administration will operate the program and what Congress may do could lead insurers to leave the marketplaces or raise premiums significantly as a hedge against the uncertainty. Already, Humana has announced it will leave the market entirely, and Wellmark and Aetna have said they will pull out of Iowa.

Widespread insurer exits—which could leave counties with no insurers and therefore no ability for people to obtain coverage or premium tax credits—would no doubt lead to finger pointing and debate about who is to blame: former President Obama and Democrats or President Trump and congressional Republicans. Kaiser Family Foundation polling suggests that President Trump and Republicans would get the short end of that stick, with 61% of Americans holding them responsible for any future ACA problems.

Who gets blame could influence who has leverage in a debate about how to address problems that arise, which could also reopen broader discussion about repealing and replacing the ACA. But, regardless of who the public assigns responsibility to, chaos in the marketplaces could lead to many people losing coverage without any vote taken in Congress.

About the author: Larry Levitt, MPP, is Senior Vice President for Special Initiatives at the Kaiser Family Foundation and Senior Advisor to the President of the Foundation. Among other duties, he is Co-Executive Director of the Kaiser Initiative on Health Reform and Private Insurance.
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