There are three primary causes for high premiums in the Affordable Care Act marketplaces, according to a new report, which outlines a series of policy fixes that could help eliminate those problems.
The report from the Urban Institute comes as prominent Republicans and Democrats are engaged in a messaging tug of war over the future of the healthcare reform law. Meanwhile, the GOP has already taken steps to dismantle the ACA through the budget reconciliation process.
Yet even if Republicans make good on their promise to repeal and replace the law, concerns about the marketplaces would likely persist for insurers, the report says. Thus, it is key to understand the marketplaces’ experience with premium growth and find ways to mitigate it going forward.
The report identifies the following as the top causes of rising premiums in some ACA marketplaces, along with suggested remedies:
- Adverse selection. In certain areas, nongroup insurance enrollees have higher healthcare costs than the general population—possibly due to a low rate of enrollment, the report says. To solve this problem, it recommends investing in outreach and enrollment assistance; providing additional financial assistance for individuals buying marketplace coverage; increasing the penalties for remaining uninsured; eliminating the “family glitch”; extending the reinsurance program beyond its three-year lifespan; regulating sales of non-ACA-compliant nongroup insurance products; and lowering the Medicaid income threshold to 100% of the federal poverty level instead of the 138% required by the ACA.
- Insurer and provider concentration. Greater market power in the hands of either payers or providers can push premiums upward. Indeed, while insurer exchange exits do not appear to have substantially affected premiums in 2017, according to a Kaiser Health News article, they could lead to big price hikes next year. Introducing a public insurance option would help, the Urban Institute report says, but it notes this approach is “highly controversial.” An alternative solution, it says, would be to follow Medicare Advantage’s example and establish a ceiling on payment rates that providers can charge to any ACA-compliant nongroup insurers and their enrollees.
- Inadequate risk adjustment. Finding a way to keep insurers with higher-cost enrollees from being put at a competitive disadvantage is a “substantial challenge and continues to be a work in progress,” the report acknowledges. Facing rising criticism from insurers about risk adjustment, the Centers for Medicare & Medicaid Services has already made changes to the formulary for 2017 and has proposed addition tweaks for 2018. The Urban Institute suggests policymakers could also add more variables to the payment calculation; base payments on a blend of prospective and retrospective information; and find ways of keeping insurers from gaming the calculations.
The average premiums for benchmark silver plans in the ACA marketplaces this year are up 22%, though rates varied considerably by region. Comparatively, benchmark plan premiums rose 7.5% on average in 2016.