CASE STUDY - THE AFFORDABLE CARE ACT MARKET PLACES

OVERVIEW 7.A.: THE AFFORDABLE CARE ACT OF 2010

REVISED APRIL 11, 2021

THE AFFORDABLE CARE MARKETPLACES/EXCHANGES

HSA 312 L.EITEL

MANAGED HEALTH CARE

SPRING 2021

( ( ( ( ( ( ( ( (

THE THREE—LEGGED STOOL:

KEY ASPECTS OF THE AFFORDABLE CARE ACT MARKET PLACES IN EACH STATE.

The ACA attempted to reduce the percentage of Uninsured in the U.S. Its focus in doing this was:

· The Medicaid Expansion, and

· The implementation of the State Market Places/Exchanges.

The aim of the Market Places was to implement government regulated, State-specific Market Places, which would in essence create VIRTUAL LARGE GROUPS out of the individuals and small groups/businesses which were previously priced out of or otherwise excluded from the insurance market (because they were not in large groups, like employee groups in large businesses.)

These Market Places would be sponsored and managed either by the States, or by the Federal and State governments in partnership. The Market Places would be structured, managed, and supported in such a way that both health insurance plans and potential health insurance plan members would be asked to live according to certain rules, but would also receive various types of legal protection and financial subsidy and support.

The expected working of the Market Places is often described in terms of a Three-Legged Stool:

Those Three Legs are discussed below, and are:

· Leg 1: The rules and regulations governing the operation of the marketplaces and the health insurance plans participating in each Market Place. These are implemented by the Sponsors in each State. The rules and regulations cover types of plans, Essential Benefits, treatment of people with preexisting conditions, and much more

· Leg 2: The Individual Mandate for health insurance. This was a national mandate from 2014 through 2018. Now it is still a State mandate in 5 States.

The experience of the ACA State Marketplaces since the end of 2018 is that if you provide enough positive incentives for people to participate in the Market Places (premiums at reasonable levels, with reasonable annual rates of growth, and strong subsides for lower income families to help them pay out-of-pocket expenditures), the Individual Mandate may not be as important to the health and functioning of those Market Places as health economists, policy analysts, and insurance companies had believed.

The Biden Administration’s ARPA (American Rescue Plan Act of 2021 ) follows this philosophy, and increases the availability of low-cost and in some cases no-cost health insurance plans in the Market Places, while making the Premium Tax Credits available to qualified individuals and families with annual incomes above 400 Per Cent of the Federal Poverty Level. (End of the “Subsidy Cliff.”)

· Leg 3: Premium Tax Credits (which go down progressively as an individual/family income goes up) for health plan members which enable them to purchase health insurance through the Market Places. Also, CSR (Cost Sharing Reductions) for health plan members with incomes of 138 to 250% who purchase Silver Plans in a State Market Place.

READINGS:

READING 1., ALL.

READING 6.A., SLIDES 8-9.

READING.1. A., SLIDES 7 AND 8.

READING 1.B., ALL.

VIDEO 1.A., MINUTES 6:21 TO END OF VIDEO OR VIDEO 1.B., BEGINNING TO 9:35.

READING 3.A., ALL.

1. MANAGED COMPETITION: MAIN PRINCIPLES AND THEIR APPLICATION UNDER THE AFFORDABLE CARE ACT – THE STATE-SPECIFIC MARKET PLACES/EXCHANGES.

GOVERNMENT SPONSORSHIP OF STATE INSURANCE EXCHANGES/MARKET PLACES, FIRST IN MASSACHUSETTS IN 2006, AND THEN IN THE U.S. AS A WHOLE (2014), BECAME (ALONG WITH THE EXPANSION OF MEDICAID) THE KEYWAYS HEALTH INSURANCE MARKET FAILURES WERE ADDRESSED IN THE UNITED STATES.

A. Market Failure and Government Intervention: The failures of certain markets for goods and services, such as health insurance markets, may be corrected through regulated markets, thus preserving the best features and results of market-based exchange, while avoiding the negative effects of relying too much on unregulated (totally “free”) markets.

B. The Principles of Managed Competition: SEE READING 6.A, SLIDES 8 AND 9, FOR A BRIEF OVERVIEW OF THE ORIGINAL CONCEPT.

· A Sponsor (either an employer, a governmental entity, or a purchasing cooperative), acting on behalf of a large group of subscribers (for profit employers, not-for-profit organizations, state or local governments, unorganized individuals, small businesses) creates, structures and adjusts a health insurance market in a specified region/geographic area.

The Sponsor does this in order to overcome attempts by health insurers to avoid price competition, or in order to enlarge the pool of health insurance Members/Enrollees with access to affordable basic health insurance coverage.

· The Sponsor establishes rules of equity, selects participating plans, manages the enrollment process, creates price-elastic demand, and manages risk selection.

C. CREATIng a Health Insurance Market Place/Exchange:

· The Sponsor creates a defined market for health insurance. The size and geographic coverage of the market which is created depends on which part of the underserved population a Sponsor wishes to have adequately covered.

One of the main reasons for high levels of UnInsurance in the U.S. in 2008 was lack of a market for individuals and small businesses seeking health insurance . Other markets - Medicare, Medicaid, and employer-based insurance offered by and through large employers - had problems, but the problem for individuals and for businesses with fewer than 100 employers was considered the most pressing.

· The market which is created by a Sponsor must first and foremost be comprised of a large population of subscribers: this follows the principles of large group health insurance.

· You want a market of interested health insurance purchasers which is large enough to attract the involvement of many insurance plans.

· Those plans will only want to participate in a new market if they have access to a large subscriber population – this is because the health insurance plans want to be able to predict the expected utilization of large groups in order to create and provide affordable health insurance plans with reasonable premiums.

· They also want to insure groups in which there is a predictable and reasonable balance between those likely to use Personal Health Care Goods and Services in a given year, and the majority of plan members who will utilize few or no such services and goods. (Following the principles of the Concentration of Health Expenditures.)

· Prior to the passage of the Affordable Care Act: One of the main reasons that health insurers were uninterested in insuring individuals and small groups was that those potential subscribers were NOT in sufficiently large groups or were not in any insurable group at all.

The challenge for the Affordable Care Act implementation was to create large VIRTUAL groups in each state by creating State-specific Market Places or Exchanges.

D. Creating rules to ensure that health insurers and purchasers of health insurance policies are attracted to and participate in the State Market Places/Exchanges. SEE READING:

LEG 1: OF THE THREE-LEGGED STOOL – RULES AND REGULATIONS OF THE MARKET PLACE

· The ACA established a comprehensive core set of Essential Health Benefits (Personal Health Care Goods and Services) which all health insurance plans participating in the State Market Places must provide. Each State is allowed to define these benefits with some variations, but the benefit package is roughly the same throughout the U.S.

The only difference in plans (Bronze, Silver, Gold, and Platinum variations marketed in each State Market Place) has to do with premiums, deductibles and other out-of-pocket expenditure – subscribers are thus purchasing on the basis of price, not plan contents or quality.

· The ACA established that individuals with Preexisting Medical Conditions would not be denied insurance by any entity providing health insurance, and that health insurance premiums for people with Preexisting Conditions could not be higher than those charged for comparable individuals and families without those Conditions. (COMMUNITY RATING.)

· The ACA established a series of special financial arrangements to support health insurance plans which participated in the first few years of the State Market Place operation. Risk corridors, reinsurance, and special risk adjustments were meant to help participating health insurance plans get used to and succeed in the first few years of State Market Place implementation.

LEG 2: OF THE THREE-LEGGED STOOL – THE INDIVIDUAL MANDATE

· The ACA established an Individual Mandate – All Americans were required to have health insurance for at least 9 consecutive months each year or face an increasingly substantial financial penalty. The Individual Mandate was ended by Congress effective in 2019 (and thus was in effect nationally 2014 – 2018). A number of States still maintain their own Individual Mandates, but the Mandate is no longer national.

The reason for the Individual Mandate was this: To ensure that all health insurance plans, especially those participating in the State Market Places, would be assured of a large and balanced set of subscribers on an ongoing basis.

Previously, one of the reasons health insurance plans did not want to serve individuals and very small groups was their fear that, without any kind of broad State or Federal health insurance mandate, the sickest part of the population would forgo insurance until the last minute, leaving these plans without sufficient premium funds to pay for the health care needs of the group as a whole.

The fear was that only healthier individual and very small group subscribers would purchase insurance – and that the sicker members of those categories would buy insurance only when they needed it, thus starving the health insurance plans of premium funds to pay for services.

Premiums would then shoot up, healthier plan members would leave, and increasingly the plans would only serve the relatively sicker parts of the population. Plans would become increasingly unaffordable and financially insolvent. The extreme version of this situation would be what is called a “health insurance death spiral. ”

LEG 3: OF THE THREE-LEGGED STOOL

· Increasing the affordability of health insurance plans in the State Market Places. To enable lower income subscribers to afford the health insurance plans offered in the Market Places, the ACA created cost subsidies (to offset out-of-pocket expenditures for lower income plan members) and premium tax credits to offset premium expenditures. These purchase incentives especially benefitted those State Market Place subscribers with family incomes between 138% and 250% of the Federally established family specific Poverty Levels.

· In addition, the ACA required, at least for lower income State Market Place subscribers, that total out of pocket expenditures not exceed a certain percentage of annual family income.

E. SPONSORHIP AND ADMINISTRATION OF THE STATE MARKETPLACES – ORIGINAL INTENTIONS AND ACTUAL ADMINISTRATION.

· The ACA established State Market Places, especially for individuals and their families, and very small businesses.

· Under the ACA, States could service both groups through one single Market Place, or through an individual and a separate small business marketplace (SHOP).

With some exceptions, most States now service both individuals and small businesses through one marketplace. Also – if individuals in small businesses have incomes below 138% of the Federal Poverty Level, they may be eligible for Medicaid in those States which have expanded Medicaid.

· The ACA did not eliminate individual and very small business health insurance purchased directly from private health insurance companies. However, those plans (which are not purchased through the Market Places) are not supported by the premium tax credits and the cost subsidies that are available if someone has purchased a plan in a Market Place.

Also – those individual and small business plans purchased directly from health insurance plans, and not through the Market Places, must still meet all of the ACA law and related regulations with respect to Essential Health Benefits, Preexisting Conditions, and other aspects of the ACA that apply to plans sold through the Market Places.

· The Obama administration, in order to ease implementation of the ACA, allowed individuals and employees of small businesses to buy insurance plans which, in terms of coverage and other aspects, did not fully comply with the ACA. These plans were to be purchased for limited periods of time, and as an interim measure.

· Sponsorship:

· About 12 States (including New York State) currently sponsor and administer their Market Places in accordance with Federal law and regulation, but essentially on their own, without relying on the Federal ACA website to enroll members. They also make their own arrangements with Navigators, subcontracted groups which perform outreach to attract new members to participate in the Market Places.

· Another 4-5 States work more closely with, and rely on, the Federal government for administration of their Market Places, but are likely to go on their own, in the style of New York State, in the near future.

· The remaining States rely heavily on the Federal ACA website, and on working with the Federal government on enrollment and other administrative aspects of the ACA Market Places. This may change as the per capita cost of States running and maintaining their electronic websites/Market Places continues to go down.

· Market Place Administration – Other Aspects:

· See READING 3.A. for a description of some of the key administrative functions performed by Sponsors for the Market Places.

2. THE STATE MARKET PLACES/EXCHANGES: ACHIEVEMENTS, OBSTACLES AND CHALLENGES.

A. ACHIEVEMENTS:

· Expanded Enrollment.

· Especially – Increased Individual and Small Business Access to Personal Health Care Goods and Services.

· Selected Improvements in Population Access to Personal Health Care Goods and Services.

· Continued relative success in face of the hostility of certain State governments, and of the President and the Republic majority in the Senate.

B. OBSTACLES AND SHORTCOMINGS – LIMITS WITH ORIGINAL MARKET PLACE DESIGN AND APPROPRIATED FUNDS:

· Limited application of CSR (cost subsidies) and Tax Premium Credits.

· Limited application of limits on how much of an individual/family’s income may be spent for deductibles and other out-of-pocket expenditures.

· Overall – the Market Places do not work especially well for individuals/families with incomes above 250% of the Family size specific Federal Poverty Levels.

· Variability, from State to State in Essential Health Benefits covered – Magnitude of problem To Be Determined.

· ACA still leaves a role for private insurance company issuance of Individual and Small Business plans – thus keeping Market Places from taking full advantage of larger and larger numbers of subscribers. Also – this increases the likelihood that healthier individuals and families will not be in Market Places, thus potentially shifting the balance of plan membership in the Market Places toward a mix with higher utilizers of services.

C. OBSTACLES AND SHORTCOMINGS– VARIABLE STATE COMMITMENT TO THE FULL AND EFFECTIVE IMPLEMENTATION OF THE MARKET PLACES:

· High percentage of high deductible health plans offered in the Market Places – inhibiting demand for health care goods and services.

· Network inadequacies, including overreliance of health insurers on Narrow Provider Networks

· States which have also implemented the Medicaid Expansion are more likely to integrate enrollment functions for old Medicaid, the Medicaid Expansion, Child Health Plus, and the Market Places – this makes it more likely that citizens in those States who are potentially eligible for any of these health insurance options will learn about all their options, and will more likely linked to an appropriate option.

This means that Market Place enrollment, and overall health insurance enrollment, is enhanced in some States.

· States which are in partnership with the Federal government to implement and manage Market Places, especially States with Republican Governors and/or Legislatures, are less likely to assertively use and expand the program. They tend to make limited use of Outreach, including use of Navigators and Advertising

D. OBSTACLES – THE TRUMP ADMINISTRATION AND CONGRESSIONAL REPUBLICANS:

· Weakens the size and balance of well and sicker plan subscribers within the State Market Places and participating health insurance plans by encouraging the use of Alternative health insurance plans which operate outside of the Market Places, and which operate with fewer protections in terms of benefits covered by those plans.

· Undermines the system of Cost Subsidies (CSR).

· Weakens Premium Tax Credits by changing the way they are calculated.

· Shortening Annual Enrollment Periods.

· Creating other Administrative Obstacles.

· Weakening the overall use Navigators, Advertising, and other Outreach efforts.

· President Trump routinely denigrates the ACA’s benefits and positive aspects.

· The national Individual Mandate is eliminated by the Republican controlled President and Congress (both houses) in 2017, effective 2019. Theoretically this further weakens State Market Places.

3. THE STATE MARKET PLACES – AND THE FUTURE OF HEALTH CARE REFORM: LESSONS, EXAMPLES, AND A BASELINE FOR REFORM.

A. SEE OVERVIEW 8.