As America prepares for the fourth open enrollment period under the Affordable Care Act this November, changes to the availability of health insurance on the Obamacare marketplaces may impact coverage nationwide. Earlier this year, United Healthcare, the nation’s largest health insurance provider, announced that it would be cutting ties with the ACA exchanges. Since that announcement, other insurers have followed suit. The 2017 open enrollment period may turn out to be a more challenging experience for people with UHC plans, especially in areas with limited options to begin with.
Specific estimates on the number of people who could be affected by the sudden decrease in major insurer participation have not yet been released, but health insurance experts have offered their predictions on likely scenarios. United Healthcare’s withdrawal from the marketplaces may not be as momentous as early media reports suggested. However, the trend in insurer dropouts could pose a bigger threat to overall marketplace stability. It’s also an election year, making decreased insurer participation in the Obamacare exchanges a particularly challenging issue for Democrats and those who support the ACA.
Why Insurers are Pulling Out
Before the Obamacare marketplaces opened for business in 2013, insurers were worried about the financial impact of an untested risk pool. In insurance, a risk pool comprises everyone who participates in an insurance plan. Under the Affordable Care Act, insurers who offer major medical plans can’t discriminate based on health status, which means that people who are sicker or who use more medical services have to be covered.
To balance this out, insurers have been banking on younger, healthier enrollees to sign up for Obamacare coverage. This demographic tends to use fewer health care services, so the cost of their plans would balance out the money that insurers have to spend on people who need greater care.
Despite an upswing in the number of young enrollees over the past year, there have not been enough healthy people signing up for insurance to counteract the cost of providing care for older, less healthy enrollees. As a result, insurers have been losing money because they set their initial premium rates too low. Health care experts expected the markets to stabilize by 2016, but new estimates suggest that it will take another two years for costs to stabilize. By 2018, insurers should be able to calculate premiums more accurately based on actual risk pools instead of estimated enrollment.
In the meantime, some major insurers have opted to pull out of the Obamacare marketplaces altogether to recoup their losses. Among these is United Healthcare, the country’s biggest major medical insurer. UHC announced the withdrawal back in April. Money is the primary motivator. United anticipates that it will lose about $650 million thanks to its participation on the exchanges this year, and while marketplace plans account for very little of the insurer’s overall costs, UHC is not willing to assume another loss for 2017.
By contrast, some insurers have actually made money by offering marketplace plans. Among these is Anthem, which administers plans for Blue Cross and Blue Shield in 14 states. Blue Cross Blue Shield is a major player in the Obamacare exchanges. Anthem is considering expanding its plan choices in 2017, which could offset the drop in coverage from companies like UHC, Humana and Aetna. Still, cost may play a factor here as well. Between 2013 and 2015, Blue Cross Blue Shield reported a significant drop in profits as a result of marketplace participation – 75 percent according to A.M. Best Co. To counteract these profit losses, insurers are filing for premium hikes in most states.
In some cases, premium rates may jump double or even more to make up for financial deficits. In North Carolina, for instance, Blue Cross Blue Shield lost about $400 million during the first two years of the Obamacare marketplaces. The company raised its premiums by an average of 30 percent in 2016 to make up for the loss.
Impact on a State Level
It’s unclear at this point how many people will lose coverage due to the drop in insurer participation, but there are some estimates available. The biggest impact will be in states with fewer choices already. In some areas of the country, consumers only had access to one or two insurers on the Obamacare exchanges even before insurers started pulling out. United Healthcare, despite being the nation’s largest health insurer, actually had a relatively small presence on state and federal exchanges.
The Obama administration said in April that UHC only covers about 6 percent of enrollees on the marketplaces. In 2016, UHC offered plans in 34 states. ACASignups.net has been keeping a running list of the states affected by United’s withdrawal. As of the time of this writing, just two states – Nevada and New York – are confirmed for 2017. Virginia likely will still have UHC plans, but Illinois, Ohio and Wisconsin are still up in the air. The remaining 28 states that currently offer UHC plans will no longer do so.
Humana is also pulling out of several states where it currently offers individual, non-group health insurance. People living in Alabama, Kansas, Wisconsin and Virginia will not see individual health insurance offered on or off the exchanges in these states. Likewise, Humana is pulling its off-exchange individual plans from Nevada, but ACASignups.net points out that the insurer didn’t have a large presence in the state to begin with. By the numbers, it appears that just over 25,000 consumers could lose their health insurance due to Humana’s withdrawal:
- In Alabama: 15,222 enrollees
- In Kansas: 1,822 enrollees
- In Wisconsin: 6,639 enrollees
- In Virginia: 1,825 enrollees
Keep in mind that these figures don’t necessarily correspond to exchange-based enrollment alone. Several insurance companies, among them Humana and UHC, offer individual major medical plans off of the ACA marketplaces. The figures above represent on- and off-exchange enrollment where applicable. ACASignups.net also notes that these numbers are relatively small when you consider the total population of the four states, which is nearly 22 million people.
Earlier this summer, Aetna, the third largest health insurer in the country, said that it would not only keep its existing plans in the Obamacare marketplaces but expand into new areas as well. That stance has apparently changed as of August. On Aug. 2, Aetna announced that it planned to drop its expansion efforts – and the company is reconsidering its participation in the exchanges altogether. Aetna currently offers exchange coverage in 15 states. Despite solid second-quarter earnings, the company is reassessing the financial impact of offering marketplace plans.
Other major insurers, such as Cigna and Anthem – which are attempting to merge – have yet to pull out of the Obamacare marketplace. It remains to be seen how the major withdrawals so far will affect other companies’ decision to stay.
In addition to withdrawals by major insurers, other smaller companies could continue the trend. One example comes from New Mexico. In July, Presbyterian Health Plan announced that it would be dropping out of the state’s marketplace in favor of group plans and individual, off-marketplace coverage. Presbyterian Health Plan is a major insurer in New Mexico. Its withdrawal from the Obamacare marketplace will affect about 10,000 enrollees or approximately 18 percent of the ACA market in the state.
An Unexpected Side Effect
In addition to the impact that nationwide exits would have on enrollees, there’s an unexpected side effect. Some insurers are cutting commissions to brokers in an effort to save money, which may impact enrollment even further in the long run. In Illinois, at least three insurers have already cut back on or eliminated commissions altogether for agents. One of those insurers is Blue Cross, the state’s largest insurance provider.
This problem isn’t unique to Illinois. United Healthcare stopped paying agent commissions earlier this year on a national level. In Connecticut, the state’s insurance department prevented United Healthcare from dropping commissions. California regulators are also thinking about ways to encourage or require insurers to offer commissions. Insurers cite the special enrollment periods as a big factor in lost revenue, as some consumers game the system by waiting to sign up and then dropping coverage when they no longer need it. The Centers for Medicare & Medicaid Services, which oversees the ACA marketplaces, is working on solutions to this problem.
Brokers help people sign up for coverage. For some enrollees, signing up for health care – especially on a state or federal ACA marketplace – can be daunting. Brokers facilitate this process, answering questions and helping consumers to understand their options. They get paid by insurers, who roll the cost of agent fees into premiums. Insurance companies who hope to save money by cutting commissions may find that doing so also cuts down on enrollment. Agents, in turn, may have to start charging consulting fees to recoup the loss of income.
How Insurer Dropouts Affect Consumers
Despite the fact that United Healthcare has a relatively small presence on the Obamacare marketplaces, the company’s withdrawal could substantially change the landscape of health care access for consumers in certain areas. Kaiser Family Foundation analyzed the impact of a withdrawal by United Healthcare and concluded that:
- Rural and southern states, where competition is limited to begin with, would be the most affected groups;
- Of the 536 counties where United offers coverage, a withdrawal would reduce the number of insurers from two to just one;
- In another 532 counties, United’s exit would leave just two insurers available; and
- In total, the withdrawal of UHC from the marketplaces would result in nearly 3 million exchange enrollees with a choice between just one or two insurers.
These numbers may seem significant – and they are for the people who will lose their coverage – but as a whole, the national impact of UHC’s exit is modest. The plans offered by United are not competitively priced compared with other marketplace plans. KFF also attempted to analyze the impact of competition if UHC were to exit the marketplace from all 34 states. They found that if this were to happen, then about 53 percent of U.S. counties would only have one or two insurers to choose from on the exchange. This is including counties where such was already the case. Right now, just over 1,100 counties in the country already face this option.
If United exits from all of its ACA marketplaces, then the number of people with access to one or two insurers will double, from about 1.9 million people to 3 million. This represents about 30 percent of all marketplace enrollees. Kaiser Family points out that this still leaves 70 percent of the country’s marketplace enrollees with access to three or more insurers even without UHC involved.
Still, the financial impact of insurer withdrawal could be considerable, especially in areas with reduced competition. Greater insurer participation increases competition, which drives down costs. This has been one of the goals of the ACA, to encourage marketplace transparency and competition. United’s exit from the marketplaces could force premium rates to rise even on top of already rising costs for 2017. According to Kaiser Family:
- Arizona, Florida and North Carolina residents in a total of 13 counties would see premium increases of about $100 a month without UHC participation.
- In 304 counties representing 15 states, about 10 percent of enrollees would pay $25 to $100 more per month without competition from United.
- In 327 counties across 22 states, enrollees would see a premium increase of $1 to $25 a month if United Healthcare weren’t available.
To add to the dilemma of limited competition and higher premium rates, several of the nation’s largest insurers are merging with one another. For example, Aetna is acquiring Humana while Anthem is taking over Cigna. These mergers could also further reduce competition, especially in areas that already have limited plan options. Insurance companies have already submitted rate requests to state regulators, but premium rates have not been finalized for next year. By all accounts, premiums will increase in 2017 to offset the losses reported by insurance companies. How much consumers can expect to pay for health insurance – and whether they will have enough options to choose from – remains to be seen as America heads toward its next open enrollment period this November.