Reports of Exchange Death Spirals Greatly Exaggerated

We’re still waiting to see what happens to the proposed American Health Care Act, the most unpopular piece of federal health legislation in some time, but attempts to repeal the Affordable Care Act (ACA) in Congress or through executive actions are not dead yet. We’re hearing a lot about “uncertainty” related to the health care markets. No one likes uncertainty, but it’s an especially unpopular word for those doing business on the health insurance exchanges, also called marketplaces.

Related: Testimony: Support Health Care Cost Relief in Colorado

If Mark Twain were alive to comment on the debate, he might say reports of exchange “death spirals” have been greatly exaggerated. They have not always functioned smoothly, but there are signs they are currently stable. They have also been instrumental in helping many people get affordable health insurance. That’s why we support Colorado measures being considered this session that aim to shore up our exchange, and why we are monitoring federal action that causes greater uncertainty.

Evidence Doesn’t Show Exchange Death Spirals

The exchanges are where people who don’t receive health insurance from an employer or from a public program, such as Medicaid or Medicare, can shop for plans and receive federal financial assistance to buy insurance. The ACA created a national exchange and enabled states, Colorado among them, to create their own. They are an idea that predated the ACA, and one that was advanced by conservative policy makers. In 2008, the Colorado Blue Ribbon Commission for Health Care Reform in Colorado recommended that Colorado create one. The exchange helps insure about one in ten Coloradans — a relatively small, but important part of the overall health insurance picture.

Scary phrases like “the market is in a death spiral” and “our health care system is imploding” often refer to what’s happening on the exchanges. It’s true that they’ve had challenges. The most pressing challenges in Colorado relate to premium increases and less choice in coverage. A 2016 analysis from the Colorado Health Institute (CHI) shows in 2017, some Coloradans would face premium increases of over 20 percent, the biggest jump in price since 2014. Fewer carriers offered plans on the exchange this year. Because of this, people had to deal with the tumult of choosing a new insurance plan. Less plan choice can also mean less choice among health care providers. And, it can make purchasing health insurance more expensive for people because they have fewer choices about where to buy.

However, evidence suggests the markets are not “imploding.” A new article in the Journal of the American Medical Association points to several positive trends, including relatively strong enrollment in the federal marketplace (12.2 million people). Analyses by the Congressional Budget Office and Standard and Poors find the individual insurance market is stable, with the potential of continued improvement in the future. Colorado’s exchange, Connect for Health Colorado, recently released its 2016 annual report, which showed a record number of people bought plans on the exchange and the exchange saw strong growth in rural and suburban counties with consumers, on average, receiving subsidies of $369 a month to help pay for premiums.

Those subsidies have been, and will continue to be, crucial for the health of families and the health of the marketplaces. The CHI report noted the “tax credits should ease the sticker shock for some consumers” and other CHI research found the tax credits “largely shielded” consumers from premium increases in past years.

State Action

In this legislative session, we are seeing different ideas about how to stabilize our exchange. The Bell supported two bills championed by Lt. Gov. Donna Lynne. HB 17-1235 tried to alleviate the financial squeeze facing families in high-cost insurance areas of the state (mainly rural Colorado and some mountain resort communities). Unfortunately, her bill died this week. It would have created a time-limited program to give financial assistance to Coloradans who make between 400 and 500 percent of the federal poverty level and who spend more than 15 percent of their income on health insurance premiums.

Related: Testimony: Study Colorado Health Care Coverage Options

HB 17-1286 would leverage the large pool of state employees (and large line of business for insurance carriers) in a way that would spur insurance companies to offer more choice on our marketplace and within our Medicaid program. It would require insurance companies to offer plans on the exchange in our state’s highest cost areas if they want to bid on providing the state health insurance plans. These companies would also have to participate in certain aspects of the Medicaid program.

The Bell opposes SB 17-003, a bill that would repeal Connect for Health Colorado and requires. Coloradans to buy insurance on the federal exchange instead. Our exchange is a Colorado-designed, financially self-sustaining resource for consumers. It has bipartisan oversight and is offering consumers more choices than in states that use the federal marketplace. As the federal government continues to talk of increasing state autonomy, it only makes sense to keep our exchange.

Federal Action

Unfortunately, federal action and rhetoric about exchange death spirals is undercutting market certainty. In mid April, the U.S. Department of Health and Human Services regulated changes in the form of the “market stabilization rule.” The Bell, along with 4,000 other stakeholders, provided comments on problems with the proposal in March.

Consumer groups were rightfully concerned. The rule creates barriers for consumers who purchase plans on the exchanges. It shortens the open enrollment period by several weeks, makes it harder to enroll in “special enrollment periods,” allows insurers to pay a lower percentage of insurance costs and penalizes people who fall behind on paying their premiums. The Colorado Center for Law and Policy points to several ways it will “dampen” insurance enrollment, especially for younger, healthier consumers, whose participation is crucial to keeping the exchanges workable.

Insurers aren’t happy either, saying it will reduce enrollment and thus revenue, and could create a higher uncompensated care burden on hospitals. Notably, it does not address the individual mandate, which is a key mechanism for ensuring stability, nor does it directly mention that important financial help that people on the exchanges can receive.

More importantly than the rule, a pending lawsuit, filed by the U.S. House of Representatives against the Obama administration, could wreak havoc on insurance market stability. At risk are cost-sharing reductions (CSRs) that help lower-income consumers pay for out-of-pocket insurance costs. The CSRs reimburse insurance companies, which are required to offer the assistance. Insurance companies receive on average $1,136 per person — a total cost of about $7 billion to the federal government.

Related: Colorado Stays Focused on Rising Costs

The Trump administration has kept people guessing as to whether or not it will continue the prior administration’s fight to keep this critical assistance. A recent Kaiser Family Foundation webinar pointed to the perils of dropping the federally-funded CSR payments. Insurers will still be on the hook per the ACA for reducing costs for low-income consumers, so they will take the financial hit — at first. KFF analysts predict the insurers could raise premiums to off-set the costs of helping with out-of-pocket costs, maybe as much as 15 percent in Colorado. When premiums go up, so too do the premium subsidies, which means the federal government will spend more on these tax credits. KFF also projects eliminating federal CSR payments will cause more insurers to leave the marketplaces.

Colorado’s Insurance Commissioner Marguerite Salazar warned our Congressional delegation of the dangers caused by so much federal uncertainty, and asked that our delegation avoid actions that will destabilize the market in 2018. According to Commissioner Salazar, undermining our individual market will “lead to an increase in uninsured Coloradans, impacting all of us through higher medical charges and higher premiums in both group and individual plans.”

Stay tuned for more marketplace updates in May — a key deadline related to the CSR lawsuit hits mid-month, insurers will be preparing to file their initial plan offerings, and our General Assembly adjourns on May 10.

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