Exchange Death Spiral Delayed Yet Again

Contributor : Bill Melville - Principal Analyst

Publish date: 16 Jan, 2019

While the exchanges did not suffer the damaging blows expected by most prognosticators, the health reform law’s threats are still quite real.

The naysayers were legion. As the tax reform law stripped the penalty for the individual mandate in the Affordable Care Act—effectively nullifying the mandate—the end of the health reform law flashed before the eyes of many who followed the ACA’s various travails.

Here it was. The existential threat that the health insurance exchanges won’t survive. Without the individual mandate, people will drop coverage and leave the exchange plans covering only people who really need insurance coverage—those with high healthcare costs and major illnesses. Adverse selection would cause the markets to crater, and the exchanges would finally fall victim to their long-awaited death spiral.

Yet 2019 open enrollment showed the resilience of these relatively new institutions. New insurers entered the markets and some recent departures changed their minds (hello, Anthem). Fewer people switched plans, so auto-reenrollment was a much bigger factor than in previous years. Florida continued to lead all Healthcare.gov states, with its enrollment even growing slightly to 1.8 million lives (CMS statistics).

Sure, the markets are down in many places. Healthcare.gov enrolled 8.5 million people, down 400,000 lives from 2018. Several large state exchanges have yet to report, notably California and New York. California alone accounted for 1.5 million exchange lives in 2018 (Decision Resources Group statistics).

Results are mixed among other state-run exchanges, with Colorado and Minnesota seeing slight upticks. Many state-run exchanges have longer enrollment periods than Healthcare.gov, with some enrolling new lives into January. Washington state extended its deadline due to heavy volume at the deadline.

There will always be some enrollment fluctuations from year to year, but these results are far from the rush to drop coverage expected when the mandate went away. If anything, the bigger drop came from 2017 to 2018, when affordability issues still played a pivotal role in people not signing up, especially for those who earned too much to qualify for exchange subsidies that could have blunted high premium costs.

Does this mean the time has come to rest easy about challenges to the ACA? Of course not.

While exchange fluctuations are easier to follow, state individual markets are harder to gauge. People buying off-exchange policies might be more likely to drop coverage or buy a non-ACA-conforming policy because they weren’t eligible for subsidies in the first place.

Nearly nine years after its passage, it remains difficult to assume any part of the ACA is safe.  While a Congressional repeal is off the table with the Democrats now controlling the House of Representatives, myriad threats remain, especially from changes to CMS rules that could further undercut the ACA.

In mid-December 2018, a Fort Worth judge ruled that the entire law was unconstitutional. Not the mandate or the exchanges or the subsidies but the whole shebang.

That would wipe out everything from the end-of-lifetime benefit limits to the Center for Medicare and Medicaid Innovation—the R&D arm of CMS that the Trump administration is now using to forward its proposals on cutting Part B drug costs.

Legal scholars say this ruling is unlikely to go far, but few legal cases challenging the ACA have been cut and dry. No one saw the law surviving as a tax back in 2012, or the same ruling making Medicaid expansion voluntary for states. Even upholding the subsidies in 2015 never felt like a sure thing until the Supreme Court issued its 6-3 ruling.

While the exchanges did not suffer the damaging blows expected by most prognosticators, the health reform law’s threats are still quite real.

Bill Melville is a principal analyst at DRG and national healthcare policy expert whose work appears in Health Plan Analysis and Market Overviews. Follow him @BillMelvilleDRG

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