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Affordable Care Act, Exchanges Challenge Health Payers

Health Payer Intelligence

By Vera Gruessner

Ever since the passage of the Patient Protection and Affordable Care Act (ACA), a number of opponents have found factors to criticize within the landmark healthcare law. But has it truly brought more problems for the healthcare industry? From the payers’ perspective, these reforms have positioned more challenges for insurers to overcome.

Merrill Matthews, Resident Scholar with the Institute for Policy Innovation, wrote in a contribution for Forbes about a number of prominent health payers and their struggles with operating within the constraints of the Affordable Care Act and the health insurance exchanges.

Humana, for example, has lost as much as $1 billion after operating on the exchanges for one year and has decided to move out of selling health plans through the ACA exchanges in most states.

“There’s been a long-running concern that what the exchanges will ultimately be is the place where the people who are the sickest and need subsidies from the federal government will reside,” Matthews

Another major payer - Aetna - has stated that it lost $140 million in 2015 by selling plans through the health insurance exchanges. Another example comes from UnitedHealthcare, which lost $720 million in 2015 when operating via the ACA exchanges and has since decided to depart from serving customers through this marketplace.

“It was for us a bad decision,” UnitedHealth CEO Stephen Hemsley stated at an investor meeting. “I take accountability for sitting out the exchange market in year one so we could in theory observe, learn and see how the market experience would develop. This was a prudent going-in position. In retrospect, we should have stayed out longer.”

One startup payer called Oscar sold plans in New York and New Jersey using the Affordable Care Act’s exchanges. Oscar ended up losing $720 million in 2015 due to these actions.

“Aetna claimed for months it would remain in the Obamacare exchanges, but now is saying it may scale back. And Anthem announced recently that it will only expand into other exchanges if it’s Cigna merger goes through,” Matthews wrote in his contribution.

“Expect to see even fewer insurers participating and higher premiums as financial losses increase, especially if the Obama administration continues its efforts to stop money-losing insurers from merging. Policyholders will likely be receiving the notice that their premiums are rising or policy is being canceled in September or October—just before the election,” claimed Matthews.

Additionally, a large percentage of the Consumer Operated and Oriented Plans (co-ops) under the Affordable Care Act have also been unable to remain in operation, Matthews discussed. Co-ops are essentially nonprofit health insurance issuers meant to compete in the ACA exchanges against private payers.

The Inquirer reported that three co-ops left the market last month alone. These co-ops include HealthyCT in Connecticut, Community Care of Oregon, and Land of Lincoln in Illinois. Along with these three co-ops that are dropping out of the program, an additional 13 have also stopped operating due to financial losses.

The Affordable Care Act created these co-ops in order to ensure a system in which individuals and small business employers could have a less expensive option for their medical coverage.

The theory is that, since the co-ops did not need to have a significant profit to keep operating, it would allow these public payers to have lower premiums and offer more benefits that would satisfy consumer needs. These public services were meant to stimulate competition among payers while decreasing premium costs. However, by charging less, these co-ops were unable to sustain themselves long-term and the majority have had to drop out of the program.

The federal government invested $2.4 billion in 23 of these co-ops in 2013 but as many as 12 had failed before January 2016. When these public payers dropped out of the health insurance space, as many as 700,000 people were left with no coverage and had to look through other options for healthcare access. More than $1 billion in loans were also left without payment.

The way these co-ops were set up is by mandating that anyone affiliated with a private payer did not work with these organizations, which means that the professionals operating these nonprofits did not have any experience running an insurance company. Essentially, the benefits were too extensive and the premiums were too low to cover the costs of running many of the co-ops, which is why many failed.

Essentially, the results show that the Affordable Care Act may not have been as successful in terms of keeping health insurance companies running smoothly. There have been various bumps in the road for payers. As insurers continue to learn how to operate in the new healthcare landscape and certain missteps of the ACA are removed, the future for the Affordable Care Act may run more smoothly.