What the latest insurer exits mean for the ACA exchanges

Topics: Exchanges, Insurance, Health Care Reform, Politics and Policy, Federal Government

By Heather Drost, senior editor

Some experts are questioning the stability of the Affordable Care Act's exchanges following news in recent months that three of the five biggest U.S. health insurers all will dramatically reduce their 2017 exchange offerings. The law's fourth open enrollment period is scheduled to start on Nov. 1.

Where insurers stand

Last week, Aetna—the third-biggest insurer in the United States—said it will drop exchange plans for 2017 in 69 percent of the counties where it has previously sold plans. The company cited pre-tax losses of more than $430 million since January 2014, including a $200 million pre-tax loss in the second quarter of 2016.

Humana, the fifth-biggest U.S. health insurer, and UnitedHealth Group, the largest insurer in the United States, also have announced plans to scale back their 2017 exchange participation due to financial losses sustained in the marketplaces.

The remaining two of the five biggest insurers, Anthem and Cigna, have reported financial losses, but as of now have no plans to exit the exchanges. In fact, Cigna—fourth biggest U.S. insurer—has proposed expanding its exchange plan offerings.

Anthem CEO Joseph R. Swedish told the New York Times, "We're all in ... We're committed, but we do need adjustments and not just at the margins."

"Back when UnitedHealth was the only insurance company bailing out, it was easy to dismiss as just one company trying to boost its bottom line," Bloomberg's Max Nisen wrote. "But when all five big insurers are bleeding money, it's clear you've got bigger problems."

And it's not just the for-profit companies that are reporting losses. According to the Times, Health Care Service Corporation—which oversees not-for-profit Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma, and Texas—said it lost $1.5 billion last year on its individual exchange plan business. The losses have prompted insurers in some states to increase their premium rate requests for 2017.

Effects on exchange competition

So what does this mean for exchange competition? Back in May, the Kaiser Family Foundation projected that the number of counties with just one insurer selling exchange plans would rise from 225 counties in 2016 to 664 counties in 2017. A separate KFF analysis released last month showed that after a brief spike in 2015, average exchange plan options per state have declined: States in 2015 had an average of 6.9 insurer options, which fell to 6.5 in 2016 and is projected to drop to 5.8 insurers per state in 2017. In comparison, states in 2014 had an average of 5.9 insurers per state.  

But following Aetna's announcement, Stephen Briggs, a spokesperson for Arizona's Department of Insurance, last week said that at least one county in the state could have no insurers selling exchange plans for the 2017 coverage year.

Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation at the University of Michigan, told USA Today that Aetna's move "is concerning for the stability of the individual marketplace in many places."

Experts divided

Industry observers are at odds over whether the latest insurer exits and premium increases signal that the exchanges have reached a tipping point, or whether these are one-time adjustments to achieve  equilibrium.

For example, Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation at the University of Michigan, told USA Today that Aetna's move "is concerning for the stability of the individual marketplace in many places." Similarly, Megan McArdle, a Bloomberg View columnist, wrote, "The exchanges do not seem to be stabilizing; instead, they seem to be growing more unstable over time, particularly outside large urban areas where there are enough providers and slack capacity in the health care system to provide some check on the problems that have plagued insurers elsewhere."

However, a Los Angeles Times editorial argues that critics "are confusing the growing pains of a new market with the death rattle of a failing one."

Sara Collins, vice president for health care coverage and access at The Commonwealth Fund, told the Los Angeles Times, "It's not surprising that we're seeing some shake-up in the [exchanges] this year." She added, "There are going to be winners and losers like any competitive market you can think of. Some will compete and gain market share, others won't." Collins noted that other major insurers, such as Blue Cross, Blue Shield and Kaiser Permanente, have not left the exchanges.

In fact, Kaiser CEO Bernard Tyson in an interview with Modern Healthcare said the company is "absolutely" remaining in the exchanges. While acknowledging that the market is currently "unstable," he said, "I view it through the lens of my mission ... It obligates to us to figure it out, not to get out."

Legislative fixes

Some industry observers say the solution lies with Congress—even if it seems unlikely that lawmakers will act.

Sabrina Corlette, a professor at the Health Policy Institute of Georgetown University, told the New York Times that conflicts between insurers and the federal government are unsurprising. "The bigger issue is a lot of people just don't find [exchange coverage] affordable," she said, "Clearly that is something Congress is going to have to deal with."

Separately, a New York Times editorial argued, "Congress should strengthen the [exchanges] to ensure sufficient competition," such as "by extending tax credits to families that now earn too much to qualify" in an effort to increase enrollment among healthy U.S. residents.

Lawmakers also could provide better safeguards for insurers stuck with unusually expensive customers, the Los Angeles Times editorial said.

Looking ahead

In the meantime, the Obama administration is taking matters into its own hands by preparing a major advertising push to enroll new healthy participants in the exchanges. According to the Times, the administration told health care advocates and insurance counselors that "interested consumers could appear in television, radio, print and/or digital ads and on social media" touting the benefits of coverage.