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Trump’s executive order would mean cheaper insurance premiums for healthy Obamacare customers
President Trump is expected to sign an executive order on Obamacare this week that would allow people to buy cheaper health insurance with fewer regulations, targeting healthcare goals that eluded congressional Republicans all year.
The full details of the executive order have not been released, but enough information has been reported to reveal its overall framework. Trump would direct the Departments of Labor, Treasury and Health and Human Services to make changes to regulations so more people could band together to buy “association health plans” which would allow individuals or small businesses to band together, such as members of a Chamber of Commerce, to buy plans sold across state lines. The order also would allow people to buy short-term health insurance plans for longer than the Obama administration allowed and would encourage the use of health savings accounts.
Both association health plans and short-term plans are less expensive than Obamacare plans because they offer limited coverage. They don’t guarantee same-cost coverage, or any coverage, for people with pre-existing illnesses and they do not cover a broad range of medical care, from addiction treatment to maternity care.
Critics have referred to the plans as “junk insurance,” warning that expanding access to them would take customers back to the days before the passage of Obamacare, formally known as the Affordable Care Act. They also warn that providing such options would peel more people from Obamacare’s exchanges, leaving an even sicker — and costly — population with Obamacare plans.
But people who don’t receive federal help paying for their premiums, meaning people who make more than $48,240 for an individual or $98,400 for a family of four, and who do not have a pre-existing illness, may look to use one of the options. Many of those customers are facing double-digit premium increases in 2018. The number of people who have unsubsidized health insurance is pegged at anywhere from 6 to 9 million people. Some will face insurance that is so expensive that under Obamacare they will not be required to pay the law’s penalty if they decide not to get coverage.
The executive order could offer an alternative, but it’s not clear how quickly the plans will become available to customers. Open enrollment for Obamacare begins Nov. 1 and runs through Dec. 15, and officials at the different agencies may not be able to change regulations in time for the start of 2018. The White House declined to provide details about the timeline for implementing the executive order.
Kathy Bakich, national health compliance practice leader at Segal Consulting, said the association health plan regulations may take longer than the short-term plans because the administration may have to propose new rules and take public comments, which could take months. The original rules took more than a decade to create, she said.
“There is a legitimate need in the marketplace for new types of systems to allow small employers to band together,” she said. “Whether this is the right way to do it is a tough question.”
It’s not clear how far the changes to the regulations can go. Depending on how they are written, they raise potential openings for fraud or for insolvency if claims exceed an association’s ability to pay them out, because states won’t be able to regulate plans that are sold elsewhere to crack down on problems or revoke licensing. Bakich raised the possibility of another option, known as reinsurance, that would inject federal funding into the exchanges so that higher-cost claims were paid for while others who have coverage would not see premium increases, but there is little appetite among most Republicans for such a proposal.
Instead, association health plans have been pushed even among House members, who passed a bill to allow more of them earlier this year.
“Unlike larger organizations, America’s small businesses are limited in their ability to negotiate for lower healthcare costs for their millions of employees,” said Rep. Virginia Foxx, R-N.C., chairwoman of the House Education and the Workforce Committee. “It’s time to level the playing field. That’s why the committee advanced and the House passed common-sense legislation to allow small businesses to band together through association health plans.”
Trump had been discussing the idea of association health plans with Sen. Rand Paul, R-Ky., for months. On Tuesday he said on Twitter that he was moving to act because Congress “can’t get its act together on healthcare.” Paul chimed in as well, sharing Trump’s tweet and calling it a “great plan” and a “big deal for millions of Americans.”
“Sen. Paul brought this idea to President Trump as a way to fix many problems in the individual market without more regulations and spending,” Doug Stafford, chief strategist for Paul’s political action committee, said in an email. “They have worked on this for quite some time now and are pleased it will be enacted soon.”
The association health plans could allow members of different industries to band together or allow individuals to join in. The proposal has been billed as one that would allow people to buy insurance across state lines because health plans could be located in states with fewer regulations, which would make them less expensive.
The proposal on short-term plans may be easier to tackle. The Obama administration changed the rules for short-term plans in fall 2016, saying they could be offered for only 90 days at a time, meaning that a customer’s deductible would renew if he were to purchase a plan again at a later date. Prior to that, insurers stretched the definition of “short-term,” with some providing coverage for as long as 364 days. It’s not clear what the difference in pricing will be, but in 2016 the average price for an Obamacare premium was $393 a month and short-term plans averaged about $124 a month. By 2017 unsubsidized premiums for mid-level Obamacare plans had risen across the country by an average of 22 percent and are expected to rise in the double-digits again next year.
Insurers have said that the increases are a result of uncertainty over how the Trump administration or Congress would change Obamacare, but also from incurring losses from selling the plans, which younger, healthier and cheaper enrollees haven’t flocked to.
Obamacare, Bakich said, left a gap in terms of dealing with people who don’t think they can afford the robust coverage and also say they don’t want a wide range of services.
“They just want to be protected from bankruptcy and buy the catastrophic plan and be protected from losing everything in a medical crisis,” she said.
Kev Coleman, head of research and data for HealthPocket, a website that helps consumers compare and buy health plans, said he is a proponent of allowing short-term plans to be used for a longer period, saying that industry data show people use them for about six months and that they are meant to be transitional.
Short-term plans and Obamacare plans have locked in rates with states for 2018 and that will not change the individual market, he said.
He also disputed that the short-term plans would be destabilizing to the Obamacare exchange, noting that the Obama-era regulations went into effect in April and that the number of people who used them previously were small. Data from 2015 peg customers at 148,100.
“This market has been around for decades and it hasn’t been a destabilizing force,” Coleman said.
Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation, said on Twitter that people who don’t receive subsidies but who have pre-existing illnesses such as cancer or diabetes would be particularly vulnerable because the short-term and association plans wouldn’t cover their medical needs.
“Short-term insurance plans can offer inexpensive coverage to currently healthy people, but they would exclude people with pre-existing conditions,” he wrote. “If healthy people can enroll in short-term plans and avoid the individual mandate penalty, the ACA marketplaces could collapse. Anything that creates a parallel insurance market for healthy people will lead to unaffordable coverage for sick people.”
But Coleman said working within the existing Obamacare system hasn’t worked.
“Politicians interested in optimizing the health of ACA risk pools would be well-advised to work backwards from consumers’ insurance priorities in order to arrive at a compelling market solution,” Coleman said. “You can’t achieve healthy risk pools without a product that has broad appeal.”
Changes in 2017 Federal Navigator Funding
The Affordable Care Act (ACA) created Navigator programs to provide outreach, education, and enrollment assistance to consumers eligible for coverage through the Marketplaces and through Medicaid and requires that they be funded by the marketplaces. For the past two years, the Centers for Medicare and Medicaid Services (CMS) has funded Navigator programs in the 34 states that use the federal marketplace through a multi-year agreement that was expected to continue for the current budget year. In August, CMS officials announced significant reductions to Navigator funding for the 2018 budget year. These funding reductions coming so close to the start of the 2018 open enrollment period will affect the help many Navigators can provide to consumers seeking to enroll in coverage.
This data note analyzes funding changes and discusses the implications for Navigators and consumers. It presents results of a Kaiser Family Foundation online survey of federal marketplace (FFM) Navigator programs conducted from September 22, 2017 – October 4, 2017 about 2017 funding awards (for the 2018 open enrollment period), the relationship between funding amounts and program performance, and the likely impact of funding changes on programs and the consumers they serve. It also includes insights from a roundtable meeting of more than 40 Navigators co-hosted by the Robert Wood Johnson Foundation and Kaiser Family Foundation held on September 15, 2017, as well as analysis of administrative data.
BACKGROUND
In 2015, CMS signed three-year agreements with Navigator organizations to provide consumer assistance to residents of federal marketplace states. The multi-year agreements promoted continuity and experience among Navigator professionals. Multi-year agreement also spared CMS and Navigators the time and expense involved in reissuing grants during critical weeks leading up to open enrollment. Under the agreements, Navigator programs in the FFM states are required to set goals and report performance data throughout the year relating to specific duties and activities.
Funding amounts under the multi-year agreements have been determined annually — $60 million for the first budget year (which runs September through August), and $63 million for the second budget year. CMS notified continuing programs of the grant amount available to them for the coming year in late spring; programs then submitted work plans, budgets, and performance goals based on that amount. Once CMS approved these plans, final awards were made in late August.
In May 2017, continuing Navigator programs were notified of available third-year funding amounts, which totaled $60 million, with grants for most programs similar to the year-two funding amount. In June, programs submitted their work plans and budgets corresponding to these amounts. The Navigator programs expected final Notice of Awards (NOA) by September 1, 2017.
On August 31, one day prior to the end of the second budget period of the grants, CMS announced it would reduce Navigator funding by more than 40%. CMS issued a bulletin stating that funding for the third year would be based on program performance on its enrollment goals for the second budget period. On September 13, 2017, two weeks into the third budget year of the grant, FFM Navigator programs received preliminary NOAs for third-year funding, which totaled $36.8 million, or 58% of the year-two awards. (See Appendix A for funding awards by program.)
DISCUSSION
The Administration’s decision to reduce funding for Navigator programs comes at a challenging time for consumers who rely on coverage through the marketplaces. High-profile insurer exits from the marketplaces, rising premiums, and uncertainty over the federal commitment to funding the cost sharing subsidies are likely sowing confusion among consumers about whether coverage and financial assistance remain available. This confusion, coupled with a shortened open enrollment period, increases demand for the consumer education and in-person enrollment assistance Navigators provide. At a time when more help may be needed, the funding reductions are likely to reduce the level of in-person help available to consumers during this fall’s open enrollment and throughout the 2018 coverage year.
Navigator programs generally report that they do not understand the basis for the funding decisions, and our survey results suggest that there is not a clear link between funding and performance of programs relative to goals on the measures they are required to track and self-report. This ambiguity makes it difficult for programs to plan for the future.
Both the magnitude of the reductions and the timing has caused disruption to Navigator program planning and operations. Programs plan to adopt various strategies in response to the reductions, including reducing their geographic service area and cutting services, such as outreach and assisting with complex cases. Three programs report they will terminate operations, leaving consumers in their states with very limited access to in-person help. While consumers may be able to turn to other assister programs or brokers, less in-person assistance will be available in some areas, especially for people with complex situations or who live in remote or rural communities.
9 Vermont hospitals join state’s all-payer program
Nine hospitals in Vermont have signed on to participate next year in the state’s all-payer pilot.
OneCare Vermont, the accountable care organization that is heading the effort, estimated that 120,000 Vermont residents will be covered under the program in its second year, according to an article from Seven Days, compared with 30,000 in year one.
In all-payer models, providers are reimbursed based on patient outcomes, not on how many procedures are performed.
“It’s a huge step—120,000. I’m happy with it,” OneCare CEO Todd Moore told the publication.
OneCare announced that a variety of providers would be joining the model for 2018 in addition to the hospitals, according to an article from Vermont Business Magazine. The all-payer program will also include one hospital in New Hampshire, two federally qualified health centers and 19 skilled nursing facilities.
Twenty-four independent physician practices and 30 independent specialty practices have signed on as well, the magazine reports.
However, some major Vermont providers are hesitant, Seven Days reports. Community Health Centers of Burlington, for instance, has passed on joining the program for 2018 because it’s not prepared yet. Peter Gunther, the system’s chief medical officer, told the publication that joining would “take a lot of work” and officials are concerned that the program could increase the administrative burden on providers.
Vermont isn’t the only state to test an all-payer system; Maryland has operated under one for several years. By 2014, 95% of hospital revenue in the state had shifted to alternative payment models. Much of the success was related to its ability to form effective partnerships early on.
But the outlook isn’t completely sunny. Economists have argued that the program should shut down, as it’s more expensive than other models for operating healthcare.The head of the state’s hospital association has also noted that challenges, like allocating resources to mitigate risk, remain for providers.
Ex-Cleveland Clinic Innovation executive pleads guilty in $2.7M fraud case, prison time likely
The former head of Cleveland Clinic Innovations pleaded guilty Tuesday for his role in defrauding the nonprofit academic medical center out of more than $2.7 million via a shell company.
Gary Fingerhut was arraigned in U.S. District Court and pleaded guilty to one count of conspiracy to commit wire fraud and honest services fraud and one count of making false statements, Crain’s Cleveland Business reports.
Although he won’t be formally sentenced until Jan. 30, Fingerhut’s attorney told the publication that federal prosecutors will ask U.S. District Judge Christopher Boyko for a sentence of between 41 and 51 months in federal prison. He may also be ordered to pay restitution to the Cleveland Clinic.
Fingerhut served as the executive director of the clinic’s innovation arm for two years until an FBI investigation revealed in 2015 that he was involved in a fraudulent scheme with the chief technology officer of a spinoff company to contract with a company that never intended to perform or provide any goods and services. The deal was in violation of Cleveland Clinic’s ethics and compliance policies and requirements, which prohibit employees from receiving any financial benefit from companies the Clinic did business with, and the organization fired Fingerhut.
Federal prosecutors said Fingerhut accepted at least $469,000 in payments in return for not disclosing the fraud scheme, which diverted nearly $3 million from the Clinic.
Fingerhut’s attorney, J. Timothy Bender of Bender, Alexander & Broome in Cleveland, told Crain’s that Fingerhut is very sorry for his role in the fraud scheme.
How Have Health Insurers Performed Financially Under the ACA’s Market Rules?
Abstract
- Issue: The Affordable Care Act (ACA) transformed the market for individual health insurance, so it is not surprising that insurers’ transition was not entirely smooth. Insurers, with no previous experience under these market conditions, were uncertain how to price their products. As a result, they incurred significant losses. Based on this experience, some insurers have decided to leave the ACA’s subsidized market, although others appear to be thriving.
- Goals: Examine the financial performance of health insurers selling through the ACA’s marketplace exchanges in 2015 — the market’s most difficult year to date.
- Method: Analysis of financial data for 2015 reported by insurers from 48 states and D.C. to the Centers for Medicare and Medicaid Services.
- Findings and Conclusions: Although health insurers were profitable across all lines of business, they suffered a 10 percent loss in 2015 on their health plans sold through the ACA’s exchanges. The top quarter of the ACA exchange market was comfortably profitable, while the bottom quarter did much worse than the ACA market average. This indicates that some insurers were able to adapt to the ACA’s new market rules much better than others, suggesting the ACA’s new market structure is sustainable, if supported properly by administrative policy.
Background
The Affordable Care Act (ACA) created an entirely new marketplace for individual health insurance through three key reforms: a prohibition against charging more for premiums based on subscribers’ health status or risk, providing substantial subsidies for millions of people to purchase individual coverage, and an “exchange” structure that facilitates comparison shopping among insurance plans. In addition, the ACA limits the percentage of premiums insurers can devote to profit and administrative expenses and requires state or federal regulators to evaluate any rate increases requested by insurers.
Because the ACA transformed the market so fundamentally, it is no surprise that the transition was not entirely smooth.1 Because insurers lacked experience with these market conditions, they were uncertain about how to price their products2 and some had significant losses.3 A number of newly established insurers that focused on the individual market went out of business entirely4 and a substantial number of others decided to leave the individual market.5Others, however, appear to be thriving.6
Overall, insurers lost money in the ACA’s individual market in each of the first three years. To date, 2015 has been the worst year, but some insurers did better than others.7 To better understand this varied financial performance, this issue brief analyzes financial data for 2015 reported by insurers from 48 states and D.C. to the Centers for Medicare and Medicaid Services (CMS).8 It is important to analyze marketwide financial performance because the experience in particular states or among specific insurers may not represent conditions generally. Lessons from better-performing parts of the market in the ACA’s most difficult year could help improve areas with worse performance and encourage the adoption of policies that avoid future market turmoil.
We focus on data for “qualified health plans” (QHPs) — that is, products that insurers are certified to sell through the ACA’s “marketplace” exchange. Although insurers also sell QHPs outside the exchanges, premium subsidies are available only for plans sold on the exchanges. Thus, the exchanges account for over three-fourths of QHP sales.9 For insurers to be willing to participate in the exchanges, they must be able to achieve adequate financial results. In turn, their participation is critical to providing coverage and choice to the millions of Americans who are eligible for subsidized insurance.
Based on our analysis of “credible” insurers (i.e., those with more than 1,000 members), we find that QHPs suffered losses of 10 percent overall in 2015. The top quarter of insurers had profits of 7 percent while the bottom quarter had losses of 37 percent. This indicates that some insurers were able to adjust to the ACA’s new market rules much better than others. Because financial performance has improved substantially since then,10 the ability of some insurers to achieve acceptable results even in the ACA’s worst year confirms analyses by the Congressional Budget Office and the former White House Council of Economic Advisors that the ACA’s market structure is sustainable, if properly supported by administrative policy.11
Study Findings
Variation in Profitability
We identified 214 insurers across different states in 2015 with more than 1,000 members in QHPs. Overall, these insurers’ marketplace plans did not fare well in 2015. As shown in Exhibit 1, across the ACA market as a whole, insurers lost almost 10 percent of premiums from their QHP products, amounting to a loss of $33 per member per month (pmpm). This compares with a 6 percent loss overall in 2014 (or $19 pmpm; data not shown). Losses were large in 2015, even after accounting for substantial reinsurance payments of $45 pmpm (or 13% of premium) that insurers received to help offset higher-cost patients. Without these reinsurance payments, losses would have totaled $78 pmpm.
Although insurers’ losses were substantial, they were not as dismal as some pessimistic analysts had projected.12Moreover, some insurers did substantially better than the market overall. Dividing insurers into quartiles based on profitability,13 the top quarter generated rather handsome profits overall of 7 percent, amounting to $25 pmpm — $58 pmpm better than the market average. These profits resulted from two key factors: somewhat higher QHP premiums of $20 pmpm over the market average, coupled with somewhat lower net medical costs of $39 pmpm less than the market average. Better-performing insurers received the same amount of help from reinsurance and risk adjustment as the average insurers. This illustrates that although their medical claims were somewhat lower than the market average, the better-performing insurers did not have substantially healthier enrollees.14 Instead, they appear to have done a better job of either anticipating QHP subscribers’ true medical costs or of controlling those costs (or both).
In contrast, QHP insurers in the bottom quartile did substantially worse on both premiums charged and medical costs incurred. Their net medical costs were $66 pmpm greater than the market average (or $105 more than the best-performing quartile) and their premiums were $14 pmpm lower than the market average. It appears that the premiums of worse-performing insurers failed to anticipate the extent of medical claims their QHP subscribers would generate. These higher claims were partially offset by reinsurance and risk-adjustment payments totaling $68 pmpm — an amount that is 51 percent higher than the market average — but this was not sufficient to offset premiums that were substantially underpriced. Thus, the bottom quartile had an overall loss of 37 percent of premiums — or $120 pmpm, which was three-and-a-half times more than the average loss.
Change in Profitability
To further understand how insurers’ experiences differed in 2015, we analyzed how QHP financial performance changed from 2014 to 2015 (Exhibit 2). Focusing on the 175 insurers who had at least 1,000 members in each year, we divided insurers according to whether they were profitable or unprofitable in 2015.
Among the more than two-thirds of insurers that were unprofitable in 2015, losses increased substantially from 2014: from 10 percent to 17 percent of premium. More than two-thirds of these insurers were also unprofitable in 2014 and their loss levels were similar each year (20% of premium, data not shown). Thus, the increased losses overall were driven by the 38 insurers that went from an 11 percent profit in 2014 to a 9 percent loss in 2015 (data not shown).
Profitable insurers in 2015 were also profitable in 2014, on the whole, but their operating margins dropped, from 8 percent to 5 percent. Three-quarters of these insurers were also profitable in 2014. The group that became profitable in 2015 did so mainly because — in contrast with other insurers — their medical claims declined slightly (data not shown).
Overall, insurers with financial losses did worse in 2015 because net medical costs increased (by 13%, or $40 pmpm) and because their premium increase was only modest (4%, or $13 pmpm). Insurers that had a loss in 2014 increased their premiums 6 percent while those that went from being profitable in 2014 to having a loss in 2015 kept their premiums the same, despite increasing medical costs (data not shown).
Net medical costs for insurers with losses increased primarily because of a 32 percent reduction (or $23 pmpm) in offsetting reinsurance and risk-adjustment payments, and, to some degree, because of a 5 percent increase ($17 pmpm) in gross medical costs. The same pattern was also true for profitable insurers in 2015: their 10 percent increase ($27 pmpm) in net medical costs was due more to the 23 percent decrease ($15 pmpm) in offsetting reinsurance and risk-adjustment payments than to the 4 percent ($12 pmpm) increase in gross medical costs.
In sum, it does not appear that losing insurers suffered substantially from a simple increase in medical claims. Instead, their modest premium increases failed to correct for the previous year’s losses or to anticipate reductions in cost-reducing reinsurance and risk-adjustment payments. Competitive pressures on the exchanges may have caused these insurers to keep their premium increases in check. As for anticipating net medical costs, when insurers set their premiums for 2015, actuaries had only a few months of experience from 2014 on which to base their projections and they did not have the results from the ACA’s reinsurance and risk-adjustment programs. Thus, actuaries lacked the information they needed to make more precise estimates.
It also appears that unprofitable insurers simply were not able to offer prices that could compete well with profitable insurers. On average, the premiums for unprofitable insurers were $20 pmpm less than profitable ones — both in 2014 and 2015 — despite having net medical expenses that were from $41 to $55 greater on a pmpm basis. From these data, we cannot determine to what extent these greater medical expenses are the result of differences in subscribers’ underlying health risks or to differences in insurers’ ability to manage and control health care spending.
Discussion
The fundamental reforms of the Affordable Care Act — subsidizing coverage, establishing insurance exchanges, and making insurance available to people with preexisting conditions — changed market conditions in ways that insurers initially had difficulty predicting.15 Our analysis shows that these difficulties worsened in the second year of full ACA market reforms: insurers suffered a 10 percent loss overall in 2015 compared to a 6 percent loss in 2014 for their qualified health plans.
Our findings, along with other analyses,16 show that this decline was not because of substantially greater medical costs per person. Instead, because insurers had not yet had enough experience under the new market conditions when they filed their rates for 2015, many underpriced their products relative to their members’ health risks. It appears now that this underpricing was a short-term issue. As insurers gained more experience in the reformed market, their financial performance in the ACA’s individual market improved substantially in 2016 and many or most appear to be on their way to profitability in 2017.17
Moreover, insurers in the top quarter of the market in 2015 fared much better than the market average and those in the bottom quarter did much worse. This is a sign of inevitable market “shake out,” as some insurers learn that they are not as well positioned to compete in the new market as are others.18 As worse-performing insurers either leave the market or change their strategies, overall financial performance is improving substantially. Even if some insurers continue to struggle financially, the ability of many to achieve acceptable results in the ACA’s worst year to date suggests — along with other recent evidence19 — that the ACA’s market structure is inherently sustainable in the long run.
Long-run sustainability depends, however, on insurers being able to maintain profitability. As the new administration shifts its regulatory policies and Congress contemplates ACA replacements, new threats to market stability have emerged.20 It was difficult for insurers to achieve profitability when they were unable to predict and accurately price for the impact of changing market rules and implementation policies. As insurers regain their footing after a rocky transition, it would be unfortunate to reintroduce or aggravate elements of uncertainty and instability that they have only recently overcome.
Cartoon – Fundamental Change
Cartoon – They laid off half the staff
HENRY KOTULA 