Speakers Say Loss of ACA Subsidies Could Lead to Insurance Market ‘Meltdown'

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By Sara Hansard and Mindy Yochelson

Jan. 14 — If the U.S. Supreme Court issues a ruling in June that prohibits subsidies to be issued to lower-income people buying health insurance policies through the federal Affordable Care Act exchange, the individual health insurance market could quickly fall apart, speakers at a Bloomberg BNA conference said Jan. 14.

“If these subsidies go away in these states, then we have significant policy challenges,” said Daniel Durham, executive vice president of strategic initiatives for America's Health Insurance Plans, which represents most health insurers in the U.S. “If subsidies go away, policy changes will be needed rapidly in order to maintain the stability of the market.” In 2015, 37 states are using the federal ACA exchange.

Under the contract health insurance carriers have signed with the federal ACA exchange, they could pull out of the exchange as early as mid-2015 if the premium tax credits and cost-sharing subsidies issued under the law don't continue, Timothy Jost, a Washington and Lee University law professor, said. “You can see a very quick meltdown here,” he told the conference, 2015 Outlook on Health Care.

Jost, who is a supporter of the ACA, said that at the end of 2014, 6.6 million Americans had plans through the federal exchanges, and 87 percent received premium tax credits, which in most instances were substantial. If the challengers of the Internal Revenue Service rule authorizing the subsidies succeed, “health-care coverage would once again become unaffordable for most of them,” he said. The case is King v. Burwell.

“Without premium tax credits and with a weakened individual mandate it is likely that many healthy Americans would forgo coverage, driving up premiums for most of those who remained in the market and leaving higher-risk individuals behind,” Jost said.

CMS Could Issue Emergency Regs

Although the CMS could issue “emergency regulations” to help states expedite the process of setting up state-based exchanges, that would likely take time and would risk another lawsuit, Jost said. Further, many states using the federal marketplace are led by Republican governors and legislators who strongly oppose the ACA, he added.

Gorman Health Group Executive Chairman John Gorman said the Republican Congress is unlikely to act quickly to amend the ACA. “You'll see a death spiral in a lot of the red states in particular that did not do their own exchange and didn't do the Medicaid expansion. And they don't have an alternative,” said Gorman, who was assistant to the director of the predecessor agency to the Centers for Medicare & Medicaid Services during the Clinton administration.

Effect of 40-Hour Work Week

Joel Ario, a managing director at Manatt Health Solutions, said that if legislation were to be enacted redefining full-time work from 30 hours to 40 hours per week for the law's requirement that employers provide coverage, it could result in more disruption in the marketplace.

The House passed legislation (H.R. 30) Jan. 8 that would redefine the threshold for full-time employment. The Senate Committee on Health, Education, Labor and Pensions will likely take the bill up, Ario said. The White House has said President Barack Obama would veto the legislation if it is sent to him by Congress.

One reason the 30-hour work week threshold was chosen is because there are about 7 million workers who could be reassigned to fewer hours by employers trying to escape the ACA employer mandate, Ario said. But at 40 hours per week, “you've got four or five times as many workers that are in that category,” and more people would likely have their hours reduced in response to the law, he said.

Raising the weekly-hour threshold “really creates the problem of disruption or makes it worse rather than better,” said Ario, who was the first director of the Office of Health Insurance Exchanges at the Department of Health and Human Services where he worked on implementing the ACA. He also was the insurance regulator in Pennsylvania and Oregon.

Congress could work on broader ways to eliminate or further delay the employer mandate, Ario said. Some progressives have suggested that the employer mandate isn't essential to the purposes of the ACA. However, it would cost about $100 billion to cover lost revenue from repealing the mandate, he said.

More Use of Narrow Networks

Ario said that the ACA exchanges, as well as private health insurance exchanges increasingly being used by employers, are likely to lead to greater use of narrow networks in health plans and higher cost sharing for enrollees. Some consumers have complained about the use of narrow networks in exchange plans, which have led to higher bills for coverage by providers who aren't in plan networks.

Durham said that consumers are choosing “high-value” network plans for lower premiums in the ACA exchanges but that they have a choice of narrow-network plans or broad-network plans, and attempts to thwart that through regulation, such as a South Dakota ballot initiative approved in November requiring insurers to cover all willing providers, “guts that consumer choice”.

Ario and Jost suggested consideration of a law enacted by New York state requiring that patients be covered if they receive services from in-network hospitals and they aren't informed that some doctors in the hospitals aren't in the plan networks. Providers and insurers would have to resolve billing disputes through arbitration under the law, Ario said.

But it should be the responsibility of hospitals to inform patients if anesthesiologists, emergency room doctors, pathologists or other providers aren't part of networks, Durham said. “It is not a plan responsibility because we don't have that information,” he said.

In addition, plan contracts require providers to notify plans if they are no longer taking new patients or if they have dropped out of a network, but providers don't always communicate that information to plans, Durham said. “Plans are doing their best to keep their provider directories up to date because that's important for consumers, but where is the requirement for the providers to cooperate?” he said. “That's where it's falling apart.”

MA: Blueprint for Exchanges, Medicaid

Gorman said that governance of the Medicare Advantage program is, in some ways, a “blueprint” for exchanges and state Medicaid programs.

Program regulation in areas such as risk adjustment and quality star ratings are out of the “Medicare Advantage playbook,” he said.

The MA and Part D drug benefit one-to-five-star rating system once was a “laughable consumer information tool barely used” by beneficiaries to make a choice among plans.

“Today it has become, hands down, the most sophisticated performance-based payment mechanism on the planet,” Gorman told attendees.

Tracking Medicare, “the plans in the marketplace are now required to start collecting star ratings data,” he said. Even some state Medicaid programs, such as Pennsylvania's, are adopting similar ratings programs, he said. Further, the newly insured who are joining the ACA exchanges are similar to beneficiaries in government programs.

Some insurers' initial reaction to the newcomers in the exchanges had been to have “the commercial side of the house run this business,” he said. But because these are some of the “sickest people” who are also new to health insurance, they are more similar to government beneficiaries, Gorman said.

Dual Eligibles

Gorman said he has recommended to his clients that, if they must choose between an enrollment strategy centered on individuals in the marketplace or on those who are a part of the CMS's financial alignment demonstration for dual eligibles, they should choose the duals demo.

He called managing the duals population through the demonstration a more “viable and long-term opportunity.”

There are 11 million duals on which $400 billion is spent annually, he said. Yet, just 17 percent of that money is spent on beneficiaries in health plans.

Five of the states that are involved with the demo—Virginia, Massachusetts, Illinois, Ohio and California—have capitated arrangements with health insurers and in 2015, five more capitated models are expected to become active.

The program should be popular even among Republican governors who can, through these arrangements with health insurers, shift the risk to the private sector and away from the state budget, Gorman said.

Billions More in Premiums

Despite the problem of eligible beneficiaries opting out of the demonstration— as encouraged by some providers and advocates for the disabled—the demo could lead to an additional $20 billion in premium growth by the end of 2015 and $50 billion by the end of the decade, he said.

Overall for MA, Gorman predicted a 6 percent to 10 percent annual growth in the near future, ending the decade with 20 million enrollees.

With “40 percent or more” of managed care-friendly baby boomers choosing MA within a few years of becoming Medicare eligible, predictions of a shrinking program following passage of the ACA were “wildly premature,” he told the gathering.

Health insurers are continuing to invest heavily in the program with so much of their income derived from Medicare, he said.

“In the late [19]90s, the average publicly traded company derived about 13 percent of its income from the Medicare program,” he said. “Today, it's about 32 percent.”

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com and Mindy Yochelson in Washington at myochelson@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com