(A version of this Health Alert was published by Forbes.)
The healthcare sector is digesting an important speech by the man tasked with rescuing Obamacare’s exchanges. Andy Slavitt, formerly of UnitedHealth Group, joined the Administration in June 2014. Last February, he took over the Centers for Medicare & Medicaid Services (CMS).
Yesterday, Mr. Slavitt spoke at the J.P. Morgan health conference in San Francisco, using the opportunity to announce some important new initiatives, including responding to the failure of Obamacare’s exchanges. Although sugar-coating his diagnosis, Mr. Slavitt clearly knows exchanges are in trouble. Too many old and sick people are signing up; and healthier and higher-earning and people (who do not benefit from tax credits which discount premiums) are staying away or dropping out, despite penalties for doing so.
The plans are not worth the premiums these resisters would have to pay. Plus, if they get sick they can enroll without penalty at the next annual open enrollment (something they could not do if they remained in the pre-Obamacare individual insurance market. In most states, if they became sick, they would be charged a much higher than standard premium).
This means Obamacare will leave behind far more uninsured people than originally estimated. The Congressional Budget Office’s March 2010 estimate figured 26 million uninsured in 2015, while the March 2015 estimate figured 35 million uninsured in 2015.
Mr. Slavitt proposes two solutions to force more people into the exchanges. First, he will tighten up the open season for enrollment. Because of the Administration’s eagerness to enroll as many people as possible, deadlines for the first three open seasons have been moving targets. No more, according to Mr. Slavitt, also suggesting corruption among brokers:
Last month, we announced the elimination of the tax season special enrollment period; and this week, we will be announcing that we will be eliminating certain other select SEPs and making the language on others clearer to prevent bad actors from signing people up for insurance inappropriately.
The tax season special enrollment period was conjured up because people would do their tax returns in the spring and only they learn they were subject to Obamacare’s penalty for the previous year. So, the Administration gave them a break to sign up late for the current year. “Bad actors” likely refers to applicants misrepresenting an event such as divorce or job loss to sign up for Obamacare outside open season, if they are diagnosed with expensive illnesses.
A strictly defined and enforced open season is required in Obamacare for the same reason it is required in employer-based group plans: When health insurance is guaranteed issue without underwriting for health status it is an important way to limit people’s ability to wait until they get sick to buy coverage.
Nevertheless, the notion that tighter open season will get more people to sign up is questionable. The individual penalty is the most unpopular part of the law. Further, the next president will be less invested in (or entirely opposed to) the law, and therefore less willing to strong-arm people into it.
More promising, and necessary, is a new look at risk adjustment. Mr. Slavitt promises more announcements on managing Obamacare’s risk pool over the next few weeks, and a public conference on March 25 to review risk adjustment. Even with limited open enrollment, a system where insurers must charge all applicants (of the same age) the same premium will fail unless insurers which enroll healthier people transfer excess profits to insurers which enroll sicker people. This risk adjustment succeeds (imperfectly) in Medicare Advantage but is failing in Obamacare’s exchanges.
Insurers were given extra taxpayer funding for Obamacare’s first three years to give them time to master the risks in the exchanges. Under Republican control, Congress later dialed back these payments, which sunset in 2016. So, when insurers like UnitedHealth Group (Mr. Slavitt’s alma mater) tell us they plan to exit exchanges in 2017, they are telling us the risks are unmanageable in the long term.
So, better risk adjustment is necessary if the exchanges are to keep insurers. However, it is likely not sufficient to attract applicants. Almost nobody resists going into Medicare when they turn 65 because their premiums drop to zero for hospital insurance, only one eighth of the true premium for drug coverage, and only one quarter of the true premium for physician coverage. Taxpayers pay the rest, irrespective of beneficiaries’ income.
In order for this to happen in Obamacare exchanges, tax credits would have to expand significantly to attract the higher-earning, healthy people who resist enrollment. Such increased spending cannot happen under the law as currently written, which means re-opening Obamacare to Republican input – something the President is unwilling to do.
Better risk adjustment is critical, but administrative adjustments alone will not fix the exchanges.