Exchange Rate

An early analysis of the federal health exchange

After a very rough start, the federal health exchange managed a healthy rebound before the March 31 general signup deadline. Similarly, state exchanges have hit some glitches but are also now up and running.

Finishing the first half of the year, are the exchanges panning out to be as good as promised … as awful as predicted … or somewhere in the middle? Although much too early to make a definitive pronouncement, two of the nonpartisan experts on staff at The Advisory Board Company shared insights into what the first few months have revealed about the exchanges in terms of access, affordability, and expectations.

Rob Lazerow serves as practice manager and David Lumbert as a senior analyst in the Research & Insights division of the global healthcare technology, research and consulting firm headquartered in Washington, D.C. Despite the physical location of The Advisory Board Company, Lazerow noted, “Our work is completely non-political. I stress this because everything with Obamacare is so politically charged.”

With that in mind, he and Lumbert broke down what they’ve seen so far.

Big Picture

“We wound up with just over 8 million, and that includes the special enrollment period which extended to April 19,” Lumbert said of the numbers for the public exchanges. He added the extra two-week period was only for those who had started the enrollment process before the March 31 deadline. “Originally, the Congressional Budget Office had projected 7 million so it did exceed that by just over 1 million,” he continued. Lumbert added nearly half of the enrollees selected a plan in March. “There was definitely a surge at the end due to technical problems being fixed and more education about the process and deadlines.”

Lazerow said the CBO provided aggregate coverage expansion figures that included exchange uptake, Medicaid expansion and potential changes in the employer market for a net/net effect on coverage in the wake of the Affordable Care Act. “From estimates in February 2013 from the Congressional Budget Office, they expected ultimately around 27 million individuals to gain coverage by 2017,” he said. Lazerow added those projections were adjusted downward in February 2014 to project an increase in coverage for nonelderly individuals by about 13 million in 2014, 20 million in 2015, and 25 million in each of the subsequent years through 2024. The latest report from Health & Human Services shows coverage hitting the CBO projection with 8.019 million enrolled through marketplace plans and an uptick in Medicaid/CHIP enrollment of 4.824 million.

Even with expanded coverage, that still leaves about 31 million nonelderly U.S. residents uninsured. However, about 30 percent of that group, according to the CBO and Joint Committee on Taxation (JCT), are unauthorized immigrants who would not qualify for most Medicaid benefits and exchange subsidies. As for the others, the CBO and JCT estimate 20 percent would qualify for Medicaid but choose not to enroll, 5 percent would not be able to get Medicaid coverage because they live in states that didn’t expand the program, and 45 percent would simply opt not to purchase coverage even though they have access to insurance through the exchanges, an employer or directly from an insurer. Still, by 2016, more than 90 percent of legal nonelderly residents are anticipated to have health coverage in the United States.

In assessing the pros and cons of ACA, both analysts noted items in the ‘good’ column might go south down the road just as those tallied as potential negatives might not turn out to be a problem over the long term.

So Far, So Good

“One of the more baseline elements is that we now have a reliable, working marketplace where people can go to see a range of plans and the prices for them,” said Lazerow. He added one of the policy objectives was to offer individuals more choice when it came to coverage options. Prior to ACA, most employers and individual carriers offered limited plan options. Lazerow noted that expansion is happening not only in the public marketplaces but also in private exchanges now, as well. “Consumers shopping on exchanges often have a lot more choice in the types of health insurance plans available to them,” he said of the current climate.

Another goal was to create affordable options. “When you factor in all the subsidies — and there are subsidies for premium support and cost-sharing subsidies — it appears affordable coverage is now within reach for many,” Lazerow continued.

While most people know front-end subsidies are available to individuals between 100 percent and 400 percent of the federal poverty level (FPL), Lazerow said not as many individuals are aware of the cost-sharing subsidies that also exist. “This is for individuals below 250 percent of the federal poverty level,” he explained, adding it helps reduce costs associated with co-payments, deductibles and co-insurance. “That’s really important because individuals may not fully understand they’re exposed to those deductibles when they access certain services,” he continued.

“The insurance companies have reported between 80 and 90 percent of enrollees did pay their first month premium,” Lumbert said. Lazerow added this is on par with what has historically been seen with other individual commercial plans. “The question now,” Lumbert continued, “is whether people will continue to pay the second, third months … especially those who were uninsured before and are unaccustomed to paying a premium every month.”

Another positive for consumers and providers is the new plans include a more generous benefits package. Lumbert noted a 2012 analysis published in Health Affairs found 51 percent of pre-ACA policies didn’t offer the minimum standard for ‘essential benefits’ the law requires.

However, when policy termination notices were sent out last year for plans that didn’t meet the litmus test, some families found the new standards to be a negative, rather than a positive. In the wake of the outcry … and President Obama’s assertion people could keep plans they liked … carriers have been allowed to extend coverage deemed out of compliance until 2015.

Red Flags & Open Questions

The nightmare rollout got the federal exchange off to a bumpy beginning. “The turnaround seems to have done the job, but I don’t think it was the starting place the administration was hoping for,” Lazerow said tongue-in-cheek. Although enrollment rebounded, the question remains whether or not the rough start will have a lasting impact on public perception.

Long before the rollout however, the die was cast in what has become a serious issue for long-term hospital survival … particularly in rural areas. In negotiating the terms of ACA, hospitals made concessions based on certain coverage assumptions. Lazerow noted the ‘gets’ outweighed the ‘gives’ in the original scope of the legislation. However, he continued, “The Medicaid expansion is a state-by-state issue now. One thing we see for hospitals and health systems is they face all of the downsides of the Affordable Care Act, but they don’t necessarily get all the upside.” Several states without Medicaid expansion have already witnessed the demise of some rural inpatient facilities, which could create access issues down the road.

Another issue now that the exchanges are active is how patients will operate under the new plans. Lazerow questioned how newly insured individuals would react to costs. “Is there going to be sticker shock … not at the point of coverage … but at the point of service, and how does that impact their utilization?”

Lazerow and Lumbert are also taking a wait-and-see stance when it comes to narrowing networks. Lazerow noted a number of health systems and hospitals are increasingly willing to explore the tradeoff between price and volume … accepting lower reimbursement rates in exchange for creating a deeper relationship with a payer. The same is being seen with private practices.

“It is not just an exchange issue by any means,” Lazerow noted. However, he continued, “It might be more visible on the exchange side.”

Lumbert said it would be interesting to see how patients respond to not having every hospital, every physician included in their plan. Another concern is whether or not there is enough transparency for consumers to figure out on the front end exactly who is included in a plan. “For some state-based plans, California comes to mind, there was a feature where you could search for plans based on providers, and there was a glitch where some providers were coming up that weren’t actually in plan,” Lumbert said.

The Bottom Line

“We’re fundamentally talking about the restructuring and changing of the health insurance marketplace,” Lazerow stated.

He said while it is too early to determine whether ACA is the major catalyst for the fundamental changes that are beginning to be seen in the employer-sponsored market … changes that were already underway before the health reform legislation … the law clearly impacted the individual side of the equation. “Certainly it was transformative for those who didn’t have coverage options before and the individual market as a whole,” Lazerow noted.

With the rise of private exchanges, employers are looking to employees to take more responsibility for their own health and make more decisions about their plans and coverage options … much like in the public exchanges.

“One of the questions we’re asking is if we are on the brink of a new retail healthcare experience,” Lazerow said. “Are we headed into a retail insurance marketplace when the individual patient … the end consumer … is making a lot more decisions especially in three areas — point of coverage, point of service and again at the point of renewal?”

Only time will tell how it all plays out and what it will ultimately mean for provider market share.