The Takeaway: Oh Aetna, Aetna, Aetna
Without a doubt the biggest health policy/politics story of last week was Aetna’s announced pullout from a large number of ACA markets. Predictably, the announcement was greeted with pronouncements of doom for the ACA. You might think that people who have been predicting disaster since 2010 and have been wrong every time would be a little more circumspect by now. Silly you.
Let’s separate the reality from the political spin. A number of factors are contributing to the related phenomena of premium rate increases and carrier market exit. First, the marketplace risk pool is smaller, older and sicker than many analysts anticipated – not always for bad reasons. For example, fewer employers are dropping coverage than CBO expected, making the universe of people eligible for marketplace plans smaller. Other factors driving utilization in the marketplace plans include pent-up demand from the previously uninsured, the extension of certain non ACA-compliant plans that has kept what is likely to be a healthier population out of the ACA marketplace, and the gradual phase-in of the individual mandate, which has probably led some people to decide that going uninsured is still a better deal economically. Congressional efforts to undermine the ACA’s risk stabilization programs have not helped either. And two of those programs are expiring in the next year, leading to a one-time premium bump.
In the case of Aetna, there are carrier-specific factors at work, as well. In particular, there seems to be a link between the prospects for Aetna’s merger with Humana and its decision to pull out of the marketplaces. In a July letter to the Department of Justice (DOJ), Aetna warned if the merger was blocked, it would pull back on its marketplace participation. The announcement of the pullback came shortly after DOJ sued to block the merger. If you are a complete cynic, you would see this move as either retribution or, at best, a negotiating ploy. It’s probably closer to the truth to say the company expected to make a lot of money from the merger and needed some regulatory goodwill to pull it off. In the absence of that goodwill, and with the merger now in doubt, they became less willing to sustain losses in the ACA market.
An understanding of the underlying dynamics leads to the conclusion that some of the factors that are causing the current turbulence will simply abate over time, even if no action is taken. The noncompliant “grandmothered” plans will fade away after 2017, the individual mandate will increase and the pent-up demand will decline. Coupled with stepped up efforts to enroll more young adults, we can expect the ACA market risk pool to improve. Meanwhile, carriers that have gotten out of the game and shed their unfavorable risk are likely to come back in with more competitively priced plans.
At same time, ACA supporters should not be looking at recent developments through rose-colored glasses. At a minimum, plan pullouts and 2017 rate increases coming on the heels of co-op failures create a negative profile for the ACA at a politically sensitive moment. More importantly, these events underscore a structural weakness in the law. The marketplaces were designed to operate with a public option in order to guarantee both the universal availability of coverage and to create a cost-effective benchmark plan with a broad provider network against which private insurers would have to compete. While a great deal of energy was spent during the fight for passage debating the merits of the public option, not enough attention was paid to how to make sure the marketplaces worked properly in its absence. The co-ops were one half-hearted attempt, but they were always a weak reed that has now pretty much broken.
States still have a number of levers they could pull, including creating a state-based public option or requiring carriers to service the ACA market if they wanted to sell to other segments. However, that presumes the state government in question wants to make the ACA succeed – not at all a safe presumption. In fact, the very states that are probably going to have the hardest time with the recent market shifts are the ones least committed to the ACA’s success. Fixes at the federal level are technically pretty straight forward, but remain politically challenging with a Congress committed to repeal.
What this means is that in many places, the gradual stabilization of the ACA market will just have to play out over time. In the short run, unless the current or a subsequent administration can identify some fixes that lie within their current scope of regulatory authority, ACA performance will remain something of a self-fulfilling prophecy at the state level – succeeding where state administrations want it to succeed and struggling somewhat where they don’t.