Why all of the doom and gloom about ACA exchanges?

By Jill Zorn

Silver or Platinum gavelWhile the Affordable Care Act (ACA) has led to 20 million more people being covered by health insurance, there is no denying that it is facing some severe headwinds.

In the last few weeks we have learned that Aetna is withdrawing from most of the ACA marketplaces where it currently competes and the percentage of exchange enrollees with only one or two insurers to choose from will go from 14% to an estimated 38%.  For example, with the winding down of Connecticut’s co-op, we will only have two insurers competing in Access Health CT.  Insurers remaining in the exchanges are demanding steep rate hikes.

In addition, enrollment in the exchanges is well below projected levels and the people they serve, even three years into the roll out, are sicker than anticipated.

No wonder Sarah Kliff, a health policy journalist at VOX, has written several pieces recently with these headlines:

Obamacare’s Marketplaces are Doomed

Is Obamacare Failing?

What’s Going Wrong with Obamacare?

Although many marketplaces remain competitive and rate increases won’t all be as steep as the insurers would like, the challenges faced by the ACA marketplaces are significant.  Why are they not living up to their potential?

The answer lies in the many policy compromises required to pass the ACA in the first place.

As Richard Kirsch points out in his book, Fighting for Our Health, the Epic Battle to Make Health Care a Right in the United States, and in his paper commissioned by our foundation, Beyond the ACA:  Moving Toward a Health Care System that Works for All of Us (see page 13), reforming the dysfunctional U.S. health care system is extremely challenging, to say the least.

  • Most people under 65 HAVE health coverage. They are relatively satisfied with that coverage and are fearful that major change could mean losing what they have
  • The health care industry must be appeased sufficiently, because they have a huge amount of lobbying power to fight off changes that they feel will impact their profits too severely

A third challenge is the public perception that government is the enemy and the “free market” is the solution to every problem.  Here is an apt description in the New York Times review of the book American Amnesia, by Yale professor Jacob Hacker and his co-author Paul:

The country has been brainwashed by a powerful alliance of forces hostile to government: big business, especially Wall Street, spending unparalleled lobbying dollars to advance its narrow self-­interest; a new wealthy elite propagating wrongheaded Ayn Randian notions that free markets are always good and government always bad.

Up against these political challenges, the ACA was designed to thread the needle very carefully by setting up health insurance exchanges that would subsidize many new customers for the insurance industry, without disturbing the large majority of Americans who were happy with their employer sponsored insurance.  Supporters of the law also had to try to satisfy small government deficit hawks by keeping the cost of the ACA to the federal budget under control and by not having too heavy a hand in forcing individuals to buy insurance.

The many compromises made included:

  • Keeping the individual mandate penalty relatively low,
  • Capping subsidies at 400% FPL, when many people, particularly in high cost states like Connecticut, cannot afford to pay the full cost of premiums,
  • Dropping the public option, which was bitterly opposed by the insurance industry

Add to that, these two unanticipated factors as the ACA has played out:

  • The lack of Medicaid expansion in some states has put even more pressure on the exchanges
  • The failure of some of the risk reduction provisions of the ACA to protect insurers in the early years of the law to work as planned

It’s also important to remember the individual market has always been extremely troubled, and is plagued by many of the same problems it has always had, even with all of the “fixes” provided by the ACA.

Put this all of these factors together and you have a recipe for many of the difficulties that are now unfolding.

Can these challenges be overcome?  Just this week the Obama administration proposed regulations to try to address some of these concerns.   And many ideas are being floated about what the next administration could do to repair the ACA exchanges and which of these can be accomplished with or without congressional action.

Our next blog will highlight some of these ideas.

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