Personal Small Business Corporate & Institutional About Us
Reports of its death have been exaggerated. We’ll take a look at two signature programs of the Affordable Care Act (ACA) – the state health insurance exchanges (aka “ACA marketplace”) and Medicaid expansion.
Despite worries about an impending “death spiral” the ACA’s health insurance exchanges have survived. Five years in, participating insurers are generally profitable, rates are stabilizing and “bare counties” – those with zero insurers – are practically non-existent.
According to Avalere Health’s mid-September analysis, ACA plans’ annual premium increases are projected to grow 3.1%, on average, heading into 2019. This represents a significant slowdown compared to the last open enrollment cycle, when average premiums jumped 30% in one year.
Health and Human Services Secretary Alex Azar announced in September that the premium for the ACA’s benchmark plan, which is a standard ACA plan that covers all ten essential health benefit categories such as emergency services, hospitalizations and prescription drugs, is actually projected to drop by 2% in 2019.
Of the 47 states and District of Columbia examined by Avalere, 12 are projected to see premiums decline for 2019. Tennessee, North Carolina, Louisiana, Wisconsin, Iowa, Minnesota, Wyoming, Oklahoma, Arizona, Alaska, New Hampshire and New Jersey are the states expected to experience lower average premiums next year.
Premium changes are not the only indicator that ACA exchanges look more stable this year. Fewer insurers appear to be fleeing from the marketplace. In fact, the number of insurance companies participating in 2019 is largely unchanged from last year. This is helping to eliminate “bare counties” – counties devoid of any issuers offering individual health plans under the ACA.
This news is reassuring for the nearly 12 million Americans enrolled in ACA health plans in 2018, many of whom will reapply for 2019.
But take caution – the ACA marketplace continues to face headwinds. Plans must evaluate certain financial risks in their premiums. This year introduces new legal and political factors:
Cost-Sharing Reduction (CSR) payments. Cost-sharing reduction payments are dollars that previously went to low-income recipients who require assistance with paying for out-of-pocket costs, such as co-payments. The Trump Administration halted those payments for 2019 which means that insurers must factor them into rates.
Lack of an individual mandate. The penalty for not obtaining coverage was zeroed out for 2019. Many analysts believed that this would destabilize the market by shifting the risk pool to older/sicker individuals, but Congress’s accountant, the Congressional Budget Office (CBO), did not view it as market destabilizing. Congress removed the individual requirement to purchase insurance in the 2018 Tax Cut and Jobs Act.
Lack of stabilization for issuers experiencing losses. Bipartisan members of Congress have asked for dollars to be distributed to plans experiencing losses. However, so-called stabilization funds have not come to fruition. Still, rates overall appear to be manageable for the near-term.
Short-term plan and association health plans (AHP). Short-term plans provide benefits at sometimes 1/3 of the cost of conventional plans. These “skinny” plan options were brought back to life this fall. They often do not cover pre-existing conditions and frequently exclude common services like prescriptions. If a significant portion of the younger, healthier ACA plan customers jump to skinny plans, the ACA plans’ customer mix could be pushed to higher-cost enrollees. Government actuaries do not currently anticipate significant enrollment in these plans.
Legal risk. The legal risk may be low but many state leaders want the entire ACA to go away entirely. Twenty state attorneys general filed a lawsuit in Texas claiming that the ACA is unconstitutional given Congress’ recent changes to the individual mandate (lowering the penalty to $0 for citizens who skip coverage). This could be a case that is ultimately decided by the Supreme Court. States contend that the entire statute is inseverable from the individual mandate. Further, the states argue that the Supreme Court concluded that the ACA is only constitutional because it constitutes a tax. They assert that if the individual mandate is gone, the penalty (tax) is gone and the ACA is no longer constitutional.
Despite these challenges -- which are not small -- insurers have evolved. The ones that have remained in the market understand their customer mix better and have the patient experience to underwrite more accurately. We are seeing a more mature marketplace with stabilizing rates despite the headwinds.
The ACA-passed Medicaid expansion is still on the books, despite 2017 efforts to “block grant,” or provide each state a lump sum to cover Medicaid enrollees. The ACA called for expansion up to 138% of the federal poverty level (FPL). Today the FPL is about $25,000 for a family of four.
Several states have asked the Centers for Medicare and Medicaid Services (CMS) for Medicaid waivers tailoring the program to individual state needs. The Trump Administration has emphasized its desire for greater state flexibility and policies that lead to personal responsibility and independence e.g., work requirements and copayments.
Work requirements are viewed by the Administration as an incentive for adults to take greater responsibility for their health and well-being. Kentucky, Indiana, Arkansas and New Hampshire have received federal approval to impose work/volunteer/job training requirements on certain adult Medicaid beneficiaries. One state – Kentucky – has seen its work requirement invalidated in court.
Consumer advocates fear that work requirements will result in loss of coverage for those who rely on the program. Arkansas was the first state to implement its program. That state announced in early September that 4,353 people have been dropped from Medicaid for failing to meet work requirements. The Arkansas plan is being challenged in federal court, but implementation continues while the lawsuit proceeds. Indiana and New Hampshire are scheduled to begin work requirements in January.
Partial expansion could be an avenue to grow coverage in red states. Utah passed a partial expansion of Medicaid last spring that would cover adults up to 100% of the federal poverty level. Utah’s waiver is pending at CMS. If approved this could open the door to other red states boosting coverage.
On the flip side, two ACA expansion states -- Arkansas and Massachusetts -- have requested to rollback ACA eligibility. CMS punted on the Arkansas request last March, only approving the work requirement section of the waiver.
Will CMS treat Utah differently as they are expanding the program for the first time, while the other two states are paring back eligibility? We will wait and see if the agency will allow states more flexibility under ACA’s expansion vs. Obama’s all-or-nothing deal.
There are limits to the Administration’s flexibility in working with states. We saw the first glimpse of where the Administration may draw the line on waiver requests when CMS denied lifetime limits on Medicaid benefits in Kansas last May.
Although the state of healthcare is currently in flux, there have been several options discussed for addressing the on-going healthcare debate in our country with the two most likely paths under deliberation by the administrative branch being:
Healthcare is of utmost interest to American voters. Under Medicare for All, a government agency would provide health care to every citizen. That would upend the current healthcare system and erase employer-sponsored coverage, which is how roughly 155 million Americans now get insurance. So the likelihood of this scenario playing out will be highly contingent upon outcomes of the election cycles and the American public’s penchant for more healthcare deliberation and disruption In the near-term, the most likely outcome will be a stabilization of the current system with tweaks made depending on the party in power.
The article you read was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of The PNC Financial Services Group, Inc. (“PNC Financial”), and does not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Financial nor any affiliate will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in this article are not necessarily the opinions of PNC Financial or any of its affiliates, directors, officers or employees.
PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). Banking and lending products and services, bank deposit products, and treasury management services, including, but not limited to, services for healthcare providers and payers, are provided by PNC Bank, National Association, a wholly-owned subsidiary of PNC and Member FDIC. Lending, leasing and equity products and services, as well as certain other banking products and services, require credit approval.
©2018 The PNC Financial Services Group, Inc. All rights reserved.
We have tools to help you bank when and where you want.Mobile Apps Directory »
Be part of our inclusive culture that strives for excellence and rewards talent.Visit PNC Careers »
The PNC Financial Services Group, Inc. All rights reserved.