In his recent waffling over crucial ACA policy elements, President Obama has hurt exchange participation and has endangered perhaps lost his credibility with the one group he most needs to make Obamacare a success: the insurers themselves.
Having argued effectively that the ACA's employer mandate and its minimum coverage requirements (no more junk policies!) were absolutely essential to reform, the Obama administration has now decided to delay the effect of these critical ACA components for as long as two years. It reminds me of those brilliant comedy sketches from Gilda Radner on Saturday Night Live. Her spunky-old-lady character, Emily Litella, would rant furiously on some bizarre issue, only to suddenly change her mind, slump her shoulders, and say Oh. Well. never mind.
And it would be funny except that these seat-of-the-pants policy changes have ugly financial consequences for the health plans that have stepped up to compete on the exchanges. After much urging from the administration, these plans have stuck their actuarial necks out fundamentally altering their product designs and their approach to risk to compete in an untried new market paradigm. Some plans have taken a toe-in-the-water approach (Cigna, UnitedHealth Group) while others have jumped in (WellPoint, Health Net) to offer new comprehensive ACA-compliant plans on the exchanges under the promise that (as the law said) the plans outside the exchanges would have to play by the same rules, and that the employer mandate would assure plenty of small-group purchasers for these new, community-rated health plans.
Obviously, these profit-driven companies didn't plan to take on exchange risk out of the goodness of their hearts. The Blue plans did it to defend their market share in the small-group and individual markets. Aetna and others did it because they believe the insurance industry is evolving away from employer-based group health insurance and into a regulated individual marketplace. Insurers recognized they wouldn't make money off the exchange business in the first year, and they continue to rely on the exchanges loss-mitigation programs (stop-loss protections, etc.) to mitigate any losses this year. But they also joined in the expectation that the ACA's business models would be upheld and the new paradigm could stabilize and shape a new normal for the industry.
But Obama's late policy changes have disrupted the Obamacare business model that the plans counted on when setting their premiums. By allowing people to keep renewing their old, medically underwritten mini-med plans, Obama has changed the rules mid-stream, to the extreme disadvantage of exchange plans. It means that fewer healthy individuals (remember that the former plans were only sold to relatively healthy individuals) will shop in the exchanges. It also means that the pool of people in the exchanges will be older and sicker, and more expensive to cover. By extending the old plans renewability through 2016, Obama has assured there will be very little predictability or stabilization in the next two years, particularly in the individual market. (About 15 million Americans were enrolled in individual plans in 2013). The delay in the SHOP exchanges for employer groups of less than 50, together with the two-year delay in the mandate for midsize employers also further de-constructs healthcare reform.
Who's hurt by this The nation's Blue Cross and Blue Shield plans generally have the highest exposure in the individual and small-group segments, the ones targeted by the ACA's market reforms. So it's not surprising that they (with few exceptions) participate heavily in the exchanges, where they're defending their turf from potential incursion by the national plans.
The big winners in exchange enrollment. WellPoint, Health Net, Health Care Service Corp., and regional Blue plans are now dealing with an older, sicker population than they bargained for, and know that the mini-med plans will be out there for renewal through 2016. The new nonprofit cooperatives, without the deep pockets of the commercial health plans, are also hurt by the policy changes. On the other hand, UnitedHealth Group, the nation's largest insurer and a substantial seller of mini-med plans, may do very well this year by playing it safe.
More changes to Obamacare's rules and timetable are expected the administration is suggesting a 2 percent payment boost to exchange plans to try to make up for the impact of the delays, for example. It's also considering rules to govern the adequacy of narrow network plans in the Exchanges. In such an unpredictable business environment, how are insurers supposed to make their business decisions for 2015 and 2016? How many insurers will be willing to stick with the exchanges, particularly if there are limits in how far they can adjust premiums
Admittedly, the Obama team has had to bring the ACA into being under the worst political conditions imaginable. But for a time, at least, the insurers on the exchanges had bought into the new paradigm and had a vested interest in making the exchanges work. Having been stung by these adjustments, many of these players who need to decide soon on their Exchange participation for 2015 may just want to say Oh. Well.. never mind.