Market stabilization rule could collapse the ACA exchanges

By Virgil Dickson
April 14, 2017 - Modern Healthcare

Insurers are reeling from regulatory changes to the individual insurance market that they say will lower revenue and does nothing to address their biggest financial concerns.

A final rule released Thursday was supposed to help stabilize the marketplace created by the Affordable Care Act in lieu of any resolution to repeal and replace the healthcare reform law.

But the insurance industry immediately reacted with fear, saying the moves would reduce enrollment and therefore sales. The result could leave hospitals on the hook for more uncompensated care.

The White House finalized a rule Thursday that attempted to pacify insurers who said they needed some stability in the individual marketplace before they committed to selling plans in 2018.

The rule cuts open enrollment to six weeks from three months and makes it harder for consumers to gain coverage outside of that period. It also lets insurers pay a lower percentage of medical costs and allows them to refuse coverage to people who haven't paid their premiums.

Those moves will disproportionately affect low-income individuals, according to Emily Evans, a health policy analyst at Hedgeye Risk Management. Of the 9.2 million people who selected plans on this last enrollment period, 6.5 million had incomes between 100% to 250% of the federal poverty level.

This population tends to have the most trouble accessing cash between Thanksgiving and Martin Luther King Day and the least amount of trouble when W-2s are issued in January, Evans said.

The final rule sets the 2018 enrollment period from Nov. 1 to Dec. 15, 2017.

Evans believes the rule will significantly limit participation in the exchange plans.

Kaiser Permanente noted the same and worried the shortened enrollment window would reduce plan sales, which would impact the overall risk pool and could result in higher premiums.

Further, the new open enrollment dates overlap with Medicare open enrollment which is from October 15 - December 7th.

Insurance brokers, who have historically signed up at least half of enrollees during open enrollment, say they intend to shift focus and resources to the more stable and lucrative Medicare, according to Michael Levin, Co-Founder and CEO of Vericred, a healthcare data services company.

"This will result in fewer brokers and other advisors helping individuals in what will arguably be one of the most difficult open enrollment periods," Levin said.

Experts are also saying it appears that the rule will do little to stop the exit of insurers from the individual market. The two key issues that insurers care most about are whether the administration will enforce the individual mandate and whether the payment of cost sharing subsidies will continue.

"If insurers are to plan ahead and develop networks and products to serve this population well over time, they need to know that the (federal and state) marketplaces will be there for at least several years and what subsidies will be available to make insurance affordable for purchasers," said Alice Rivlin, a senior fellow in economic studies and the Center for Health Policy at the Brookings Institution.

The insurance industry's two biggest concerns remain outstanding. The rule doesn't address the individual mandate at all and only indirectly addresses cost sharing subsidies.

Right now, silver plans must cover at least 68% of costs, with the rest coming out of consumers' pockets. The final rule drops that amount to 66%, resulting in cheaper plans but up to $1,000 more out of pocket for consumers.

To offset these costs, the administration suggested increasing by $200 million to $400 million the subsidy funds provided to enrollees in 2018.

However, the increase in cost sharing reductions was added to the rule by CMS actuaries who must score the impact of rulemakings based on existing law. As such, insurance companies shouldn't look at that part of the rule as an assurance that the money will be paid, according to Edmund Haislmaier, a senior fellow at the Heritage Foundation.

A federal district judge in a lawsuit brought by House Republicans found the federal payments for the cost-sharing reductions unconstitutional. President Donald Trump could drop the Obama administration's appeal of the ruling and halt the payments. He warned last week that he might do that if Democrats don't negotiate with him on repealing and replacing the ACA.

Removing the subsidies would lead to a collapse of the market plans, experts say.

"The continuation of cost sharing reductions is vital to ensuring that plans remain in these markets and that premiums, which continue to rise as a reflection of increasing health care costs, remain affordable to the millions of Americans who pay for their own insurance," said Charlie Sheffield, executive director of the Colorado Association of Health Plans.

The collapse of the individual market would be another way to force Democrats' hand, Trump has said.

Still, health plans say the rule is a first step at addressing the concern of sicker people flooding the marketplace to pick up insurance for the sole purpose of covering expensive services and then dropping coverage.

"The rule should help improve the functioning of the individual market, and our members are thankful to see improvements on special enrollment periods and greater flexibility in product design," said Dominick Pallone, executive director of the Michigan Association of Health Plans.