What Will Happen If ACA Health Insurance Marketplaces Crash

President Donald Trump’s high-stakes strategy to overhaul the federal health law threatens to upend the individual health insurance market with several key policies. But, if the ACA marketplace actually fails, will anyone be able to put it back together again?

The question is not merely theoretical. Already, the Trump administration has taken steps to reduce enrollment in Affordable Care Act plans, has directed the IRS to ease enforcement of the requirement that most people have health insurance or face a penalty, and has threatened to withhold billions of dollars owed to insurance companies. All of these actions make it more difficult for insurers to enroll the healthy people who are needed to offset the costs of the sick who make coverage a priority.

In interviews and tweets, the president has made his strategy clear. “The Democrats will make a deal with me on healthcare as soon as ObamaCare folds — not long,” Trump tweeted March 28. “Do not worry, we are in very good shape!”

However, the individual insurance market is in disarray. A growing number of insurers are requesting double-digit premium increases or exiting the market entirely. Anthem announced on Tuesday that it would exit the Ohio market the following year. While most analysts believe the market will eventually recover, the short term could be chaotic.

“Is the administration doing what it needs to do to stabilize the market? No, they’re doing the opposite,” said Kevin Counihan, CEO of the Obama administration’s insurance exchange program.

By far Trump’s most powerful weapon is his refusal to reimburse insurance companies for billions of dollars in payments required by law to help policyholders with incomes up to 250 percent of the federal poverty level (about $30,015 for an individual and $61,500 for a family of four) afford deductibles and other out-of-pocket payments. These “cost-sharing subsidies” are being challenged in court, and Trump can effectively end them at any time by dropping the suit.

Meanwhile, major insurance companies such as Aetna and Humana have already stated that they will not participate in the 2018 health exchange market.

Other plans have expressed interest in remaining, but only if they are granted massive rate increases, citing uncertainty about whether the Trump administration will repay them for cost-sharing reductions and whether it will enforce the health-care law’s “individual mandate,” which requires most people to have coverage or pay a fine. In Pennsylvania, for example, insurers are aiming for premium increases of less than 10% for 2018, but they warn that if the mandate to purchase insurance is not enforced or cost-sharing reductions are not paid, those increases could reach 36% or higher.

Those who closely monitor the market say the exits and requests for large premium increases come as no surprise.

“It’s just been one thing after another in this market,” said Kurt Giesa, an actuarial expert at the consulting firm Oliver Wyman. If the administration follows through on its threat to stop funding cost-sharing subsidies for the rest of the year, he believes “that could be the straw that breaks the camel’s back.”

Giesa also pointed out that if the individual insurance market is crippled, it will affect more than just insurance companies. “That market-crashing strategy has real human consequences,” he said. “More than 15 million people rely on it.”

This group includes not only people who buy insurance through state “health exchange” marketplaces, but also those who buy insurance on their own, usually because their income is too high to qualify for federal assistance in paying their premiums. Premium subsidies are available to those earning less than 400% of the poverty line (approximately $48,240 for an individual and $98,400 for a family of four).

People who pay their own way are hit the hardest, according to insurance industry consultant Robert Laszewski. “There is a horrific death spiral going on right now with the [non-subsidized] part of the market,” he said, because rate hikes are limited for those receiving government assistance but not for those paying full premiums.

A major question is how difficult it will be for the government to regain insurers’ trust as a reliable business partner, regardless of what changes are eventually implemented.

Counihan acknowledged that insurers felt treated unfairly even before the Trump administration took office, when Republicans in Congress prevented full payment of “risk corridor” funds promised by the law to insurers who enrolled more sick people than expected. Millions of dollars are still owed to insurers, and many have sued the federal government to recover the funds.

Giesa claims the government’s wrongdoing dates back to the fall of 2013, when the Obama administration allowed some customers to keep their old plans. Giesa claims that this effectively kept healthy people out of the new markets “after companies had set their prices,” resulting in significant losses for insurance companies.

Despite the problems, insurance analysts believe the individual market will recover soon.

According to Laszewski, one reason is that, unlike large commercial insurers, many nonprofit insurers see serving the individual market as the insurer of last resort as part of their mission. He claims that boards of directors of Blue Cross Blue Shield plans and other nonprofits are typically made up of representatives from “labor, local hospitals, and large employers.” They are well-connected in the community. So it’ll take a lot to drive them away.”

Another reason insurers will likely return or work to remain in the individual market, according to Counihan, is that it is part of the future of health care. With so many people now working for themselves in the “gig economy,” he said, selling insurance “is going to be more business-to-consumer than business-to-business.”

“This market could grow,” agreed Giesa. “And I don’t think [insurance companies] want to be left out completely from this market if there’s an opportunity to break even, or make a little money.”

In the end, despite what he sees as the Trump administration’s “disorganized neglect,” Counihan believes the market is here to stay.


Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Photo courtesy of Gage Skidmore – President Donald Trump speaking with supporters at a campaign rally at the South Point Arena in Las Vegas, Nevada.

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