What it would take to fix Obamacare exchanges

Letting states take the lead is one way to improve the exchanges, which were dealt a blow this week when Aetna pulled out in all but four states.

Aetna’s announcement this week that it is pulling out of “Obamacare” market exchanges in 11 states adds to the impression that the Affordable Care Act (ACA) is imploding.

That is a misimpression, say health policy experts.

“When people talk about the ACA, they focus on the exchanges, but a lot of other pieces are working,” says Chris Sloan, senior manager at Avalere Health, a healthcare consulting company in Washington.

True, premiums are set to rise more quickly next year than in the past – by 9 percent instead of 2 percent. But they are still, on average, less expensive than what the government had originally forecast. About 20 million Americans now have health insurance who did not have it before. And projections for the total cost of healthcare in America have fallen – by $2.6 trillion – compared to the government forecast in 2010, when the law was signed. 

At the same time, Aetna’s move highlights an aspect of the new system that’s problematic in some parts of the country, particularly rural areas: the “exchange” markets where people choose their insurer under Obamacare. The problem is that key insurers are losing hundreds of millions of dollars in these exchanges and pulling out of some of them, leaving consumers with only one insurer – i.e., no choice.

Mr. Sloan’s firm, Avalere Health, on Friday released a troubling forecast: A third of the country’s exchange regions may offer only one insurer in 2017. That analysis reflects publicly announced pullbacks from exchanges by insurer giants Aetna, Humana, and UnitedHealthcare and by some co-ops for 2017. The marketplace exchanges, which cover about 11 million people in total, enable people to get subsidized healthcare. 

The consulting firm lists seven states – Alaska, Alabama, Kansas, North Carolina, Oklahoma, South Carolina, and Wyoming – where Obamacare consumers can expect to be offered only one insurer in each market-exchange region in the state. The analysis does not account for insurers that may still be planning to enter these markets, which is a distinct possibility.

Others argue that pullouts by insurer heavyweights from some of the exchange markets do not necessarily spell doomsday. Some of these markets are serviced by smaller insurers – and the big companies simply couldn’t compete.

“When some insurers are coming in with narrower networks, at a lower price, that’s what you want,” says Linda Blumberg, an expert on the exchanges at the Urban Institute. That’s healthy competition, she says, “not necessarily a cause for panic.”

Still, policy experts such as Ms. Blumberg and Mr. Sloan offer several suggestions on how to address the lack of competition in some parts of the country – with some fixes requiring action by Congress. That’s not even a remote possibility before the election, though it may be possible afterward, depending on the outcome, analysts say.

Here are some of the commonly suggested “fixes” to the exchanges:

Expand the pool of healthy enrollees. A big problem is that there aren’t enough young, healthy enrollees in some of the exchange markets to balance out the costs of older participants whose care is more expensive.

More of an outreach effort could be made to attract these healthier people, Blumberg notes, but others say that's not enough.

The penalty for not having insurance – determined at annual tax filing time – is neither immediate enough nor severe enough to get enough younger folks to enroll. Rather than pour on more vinegar, try a sweetener: Offer plans that young people perceive as desirable and affordable, says Joseph Antos, at the American Enterprise Institute.

That would mean changing the government requirements for the plans, he says.

“The solution is to change the rules so insurers can change products that people might be willing to buy at a price people might be willing to pay,” he says.

Increase federal financial support in troubled markets. It’s not just that rural areas, where the problem is most prevalent, have an imbalance between older, sicker people and younger, healthier ones. It can be more expensive to offer healthcare in remote regions – and sometimes there’s just one provider, one hospital, that doesn’t want price competition from multiple insurers.

That argues for the government stepping in with its own subsidized plan – the so-called “public option” – say Democrats, from President Obama to presidential candidate Hillary Clinton. She also wants to allow people 55 and older to buy Medicare coverage, reducing the pool of older people relying on Obamacare.

Republicans – many of whom want to repeal Obamacare altogether – are likely to stiffly challenge such ideas, arguing they shift costs to taxpayers without solving the underlying problem. Another idea is to renew federal support that helps insurers absorb costs related to imbalanced exchange markets. Such temporary programs expire this year and are one reason behind expected increases in premiums. 

Let states take the lead. That’s the conclusion of a December report by the Bipartisan Policy Center.

“If Washington can’t figure it out, and Aetna can’t figure it out, let the states and smaller carriers in that local market design the plan to serve that population,” says G. William Hoagland, senior vice president for the Bipartisan Policy Center.

One possibility is to encourage states to expand their markets by allowing competition between exchange-market regions within and between states. Inter-state exchanges would require a compact between states, Mr. Hoagland says.

Whether Congress and the next administration will work toward some of these fixes depends entirely on the makeup of the next Congress and who wins the White House, say Hoagland and others.

Experts of all stripes interviewed for this story said that that Clinton would be more likely to reach a deal with Congress than would Donald Trump – who has repeated the GOP mantra to repeal Obamacare – though they didn't rule out an effort by the billionaire dealmaker.

However, outright repeal is unlikely, they said, given the blocking power of Democrats in the Senate and the loud cry that would arise from taking away a benefit, even one with problems.